(April 24, 2013) – Denmark’s largest pension fund has done it again – ATP has reported its 17th consecutive quarter of investment growth. So how have the Great Danes done it?
By adopting a balanced investment approach, the CIO claimed. But it can’t be that simple, can it?
CIO Henrik Gade Jepsen commented on the “satisfactory” results today, saying its balanced approach allowed it to turn a profit independently of cyclical conditions.
“Results are satisfactory in light of the market uncertainty and low interest rates. The global economy remains fragile, growth is low and the underlying structural economic problems have yet to be resolved,” he added.
A close look at the figures reveals more of the wizardry at work – ATP’s overall investment return was DKK 3.6 billion, with all five risk classes generating positive returns and DKK 2 billion coming from listed domestic equities alone.
Hedging activities recorded a loss of DKK 200 million, however. In Q1, the hedging portfolio comprised a smaller allocation of 30-year German government bonds and a larger allocation of both 30-year European interest-rate swaps and 30-year Danish government bonds.
But yields on 30-year German gilts underperformed both the 30-year European swap rate and yields on 30-year domestic government bonds, this made a negative contribution to results in Q1 2013.
Over time, hedging-activity results are expected to be zero, albeit with minor fluctuations over the years, ATP has planned.
Despite the stellar start to the year, ATP offered a note of caution in its results, saying it would maintain a conservative investment strategy in the following months despite the recent equity rally in the financial markets.
“Underlying structural economic problems have not been sufficiently addressed and optimism is based mainly on the very accommodative monetary policy,” the report said.
“The fragility of the economies, exacerbated by the fact that prices of many risky assets are already running high, means that investors risk suffering heavy losses.”
Co-CIO Anders Hjælmsø Svennesen made aiCIO‘s Forty Under Forty for 2013 – you can check out his profile here.
He told aiCIO how his role allowed him to “look outside the box” for alpha generators, and abandon the traditional route of holding as many illiquid assets, government bonds, and interest rate swaps, against which he would have to post collateral.
“What we call ‘alpha’ is idiosyncratic risk that is not caught by an active benchmark strategy, so to speak,” he said. “We can be more efficient-and cost-effective- capturing it ourselves than by using managers. We have looked into how ATP can be more robust against systemic and market risk.”
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