ATP Group, Denmark’s largest pension fund, reported that its investment portfolio grew DKK14.7 billion ($2.35 billion) before tax and expenses in the first half of 2017, equal to a rate of return of 14.6%, which is its best half-year performance since 2012.
The largest positive return, DKK 4.1 billion, came from the portfolio of listed Danish equities; however, private equity, listed international equities, and credit investments also buoyed the fund’s returns. The company reported that over the past five years, it has generated an average annual return of 15.8%, and that returns have been positive in 18 out of 20 quarters.
“This is the strongest six-month return in five years—something for our members to celebrate,” said ATP CEO Christian Hyldahl in a statement. “But we should not be measured on our short-term returns. We are here to create long-term value for our members, and historically we have been very good at doing just that.”
The company also said that in light of life expectancies rising faster than expected, it transferred DKK 1 billion to the guaranteed benefits to ensure its members their pension. According to ATP, 65-year-old pension plan members are currently expected to live to an average age of 86.
The overall equity portfolio, consisting of listed Danish and international equities and private equity, generated a return of DKK 9.5 billion. Danish equities produced a return of DKK 4.1 billion, while international equities, consisting primarily of US, European, and Japanese equities, returned DKK 2.4 billion. US equities were the top performers, but European and Japanese equities also made positive contributions, said ATP in its report.
The company also said that its use of financial derivatives for investment in international equities was gradually reduced “in order to strengthen active ownership in the companies in which ATP invests.”
ATP’s portfolio of direct investments in listed international equities increased by just over DKK 15 billion. Meanwhile, the overall portfolio of private equity generated a return of DKK 3 billion. Credit, consisting primarily of high-yield bonds and loans to credit institutions and funds, returned of DKK 2.1 billion, with high-yield bonds, consisting primarily of bonds issued by companies with low credit ratings or by emerging markets, generated DKK 1.5 billion.
Despite the strong results, Hyldahl indicated that such high returns would be difficult to maintain over the long term.
“Geopolitical uncertainty has risen, while economic uncertainty has decreased. The US and European economies are showing positive momentum, but interest rates remain extremely low,” said Hyldahl. “While this is positive from a growth perspective, investors will be faced with the challenge of continuing to generate the same high returns in the quarters and years ahead.”