Danish Pension Fund ATP Returns 29.5% in 2017

Danish pension fund Arbejdsmarkedets Tillægspension (ATP) returned 29.5% for 2017, adding DKK29.7 billion ($4.9 billion) to its investment portfolio for total assets of DKK769 billion before expenses and tax. The growth was attributed to strong returns from global equities, and moderate interest rate increases in Europe.

“We achieved an exceptionally solid return in 2017 and generated the best investment return in many years,” said ATP CEO Christian Hyldahl. “The strong performance is due to positive contributions from virtually all asset classes, which has made it possible to increase pensions for all members, while also being able to build up our bonus potential by DKK17.3 billion.”

ATP’s profit for the year was DKK24.7 billion before life expectancy update and increase in pensions. DKK1 billion was transferred to guarantees as a result of increased life expectancies. The fund has earned an 8.1% average annual return for the past 20 years.

Private equity provided a return of DKK5.3 billion, listed international equities generated DKK4.9 billion, while listed Danish equities brought in DKK4.2 billion. The fund’s bonus potential, which is managed in the investment portfolio, was DKK117.7 billion as of year-end 2017.

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ATP’s hedging strategy results before the effect of the yield curve break were DKK1.5 billion, or less than 0.25% of the guaranteed pensions. Overall, hedging activity results were negative by DKK1.5 billion due to ATP fixing the interest rate at 3% after the 40-year mark on the discounting curve.

The fund’s supervisory board raised its long-term performance target to 11% from 7%, which it said was to underpin the objective of preserving the real value of pensions. In 2018, the performance target is equivalent to DKK12.9 billion, which the fund said is a long-term objective, and not one that necessarily will be reached each year.

Tags: ATP, Denmark, Pension, Returns

The California Public Employees’ Retirement System (CalPERS), the largest US pension plan, lost more than $15 billion in assets under management from the day the stock market began to collapse on January 26, through February 9, 2018, Ted Eliopoulos, the system’s chief investment officer, disclosed Monday.

Eliopoulos, speaking at the system’s Investment Committee meeting in Sacramento, said the retirement plan had lost 4.6% of its AUM during the 11-day period. He said CalPERS’ AUM stood at $345.39 billion as of February 9.

But Eliopoulos said the pension plan’s diversified portfolio saved it from more severe losses. He noted that the S&P 500 Index lost 8.7% during the same t period. CalPERS has approximately 50% of its overall portfolio in equities.

Eliopoulos said the low stock market volatility of the last two years may be over.

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“Now looking forward to 2018…we’re seeing the beginning of the market environment that may be shifting,” he said.

While it is unclear just how volatile markets will be in the rest of 2018, Eliopoulos said that stock market volatility is more a norm than the exception. He said that stock market declines of 10% are “not unusual” when taking into account stock market historical perspective.

Ironically, Eliopoulos gave his market discourse on the same day he disclosed that CalPERS had strong investment performance in the calendar year 2017.

CalPERS, he said, saw a 15.7% overall return in the year, beating its 15.5% custom benchmark.

Eliopoulos said strong stock market performance in 2017 made equities CalPERS’ biggest performing asset class with a 24% return. It was slightly under, however, CalPERS’ custom equity benchmark of 24.4%.

Private equity was the second-best producing asset class in 2017, with an 18% return, but that was also below the custom benchmark of 22.9%. Fixed income posted a 7.2% return in 2017, beating its custom benchmark, which produced a 6.2% return. Real assets, which includes real estate and infrastructure, posted an 8.5% return in 2017, beating the custom benchmark of 6.4%. Meanwhile, CalPERS’ inflation-sensitive asset class had a 6.3% return compared to its custom benchmark’s 6.2% return.

The inflation-linked asset class is made up of two main asset types: inflation-linked bonds and commodities, which include commodity futures, forwards, swaps, structured notes, and options.

Going forward, Eliopoulos noted Monday that CalPERS faces more muted returns.

CalPERS officials previously have said t they expect annualized investment returns in the low 6% range over the next decade.

But Eliopoulos noted that on a more positive note, CalPERS is in the process of lowering its yearly rate of return from 7.5% to 7%.

He said that is bringing in more contributions from employers and ending the practice of CalPERS having to sell off assets to pay pension beneficiaries.

In 2016, CalPERS was forced to sell around $4 billion in assets because it paid out $20.5 billion in benefits, $4 billion more than it had in its accounts.

Tags: CalPERS, Pension, Stock Market, Ted Eliopoulos