Higher Beneficiary Life Expectancy Pushes Denmark Fund Into Hedging Portfolio

ATP needs higher returns to meet future needs of population, with newborns adding 2-4 years to projected lifespans.

Danish pension fund ATP has shifted DKK20 billion ($3.1 billion, or 2.5%) from its $119.3 billion investment portfolio to its hedging portfolio amid new data showing its beneficiaries should live longer than pensions officials had thought.

The fund is extending the beneficiaries’ mortality expectancy by nearly four years for newborn Danish boys and two for girls, leading the fund to reposition its investments. ATP said it has been “carrying out a thorough review” of its life expectancy model for the past six months. Its CEO, Christian Hyldahl, noted the fund expects 40% of all newborn girls in 2018 to see their 100th birthday.

By moving a chunk of its assets to its hedging operation, the fund hopes to score better returns that it will need to meet the longer lives of its beneficiaries.

The organization uses demographics information from around the world. But it moved to remove Americans because their causes of death are less common in Denmark, such as drug- and traffic-related instances. The US’s data had accounted for 40% of the data in the life expectancy model. 

In addition, Scotland and Luxembourg are now included in the data. Both countries are similar to Denmark in terms of fatalities.

ATP said although total assets will remain the same, the transfer will hinder half-year results. After the switch, its hedging portfolio will be at DKK677.3 billion, leaving DKK99.1 billion in bonus potential, a separate reserve designed to keep its risk consumption in check.

The mandatory plan covers the retirements, social security, and welfare of more than 5 million members. It is 114% funded.

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