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“Our main objective is to make good returns for our members. If at the same time we can facilitate activities to benefit them right now—and society as a whole—then it’s an advantage, but we will only do it if we can get a justifiable return.
Industriens is a pension fund for industrial, metal, and blue-collar workers in Denmark. Our average member is 42 years old. The fund was established in 1993, so for the last two decades, payouts have been fairly limited. We have €15 billion; when I joined 12 years ago we had €2 billion. It’s not all return: We have significant inflow—currently around €750 million a year—as well. Our payouts will grow significantly, but we’ll still have net inflows for more than the next decade. This is one of the reasons we like alternatives and illiquid assets: We don’t need excess liquidity, and we think there is a premium to be gained by holding them.
A year ago, we announced our involvement in the development of an offshore wind farm in Germany alongside three other investors. The project is worth around €1.3 billion, and we can get a very good, stable return. The German government will purchase electricity at a fixed price for the first 10 years. We are pretty certain that the wind will keep blowing on the North Sea, and we have some of the best partners to construct it. Only one Danish public-private partnership (PPP) has been completed—to construct and maintain a cancer hospital—and we won it. There are several PPP tenders going on: two hospitals, a police station, and a couple of kindergartens. We are actively bidding for the hospitals and police station. The local government will decide who wins—we’ll find out in the spring.
The PPP hospital should not be affected whatsoever by a financial crisis: The contract runs for 10 years, with two possible two-year extensions. We have already agreed on a sell-back price with the local government, so we know the terminal value of the asset. If we deliver on our obligations—repairing the windows and clearing the snow in the winter—we know they will pay the monthly rent, which produces 5% annually. A Danish government bond gives half of that. We have a Danish institution as guarantor. It’s a bit more hassle and more illiquid, but we get a premium for it.
We started looking at infrastructure in 2006 when funds in this asset class as we know them now started. We committed to one and now allocate €200 million to infrastructure funds yearly. We stopped using funds-of-funds and built up an internal selection team. The funds are opportunistic. They buy, change, and sell the project—a little bit like private equity. After some successful years, we widened the scope, adding more core-type funds and, in selective places, directly investing ourselves. The objectives and the risk/return levels of these new investments are very different. The opportunistic funds have equity-like returns and a similar risk level. The others are more like bonds—or where bonds used to be—giving stable, long-term returns. We have long-term obligations, and historically it was easy to get a healthy return from bonds. Now in Denmark we have negative interest rates on short-term bonds. On longer duration, we can produce 2% to 3%, so we’ve looked for alternative investments to substitute part of our bond portfolio. We started building a real estate program, too.
We have just above 14% invested across private equity, venture capital, infrastructure, and real estate (the smallest). We expect that to reach 20% in the next two to four years, but we don’t want to do 20 hospitals or 10 wind parks to get there. We can do two or three, but we want diversification. Direct investments will not be too exotic: stable, low-risk projects in Northern Europe would be our main interest. Danish PPP projects have been relatively small so far, so it hasn’t made sense to share them. Going forward, there will potentially be larger PPPs, and we will happily team up with someone.”