ATP's total portfolio is divided into two sub-portfolios to match our two-pronged objective of preserving the long-term purchasing power of pensions without exposing members to unnecessary risks:
- The hedging portfolio is to ensure optimal hedging of ATP's pension liabilities.
- The investment portfolio is to generate an absolute return that is sufficient to preserving the long-term purchasing power of pensions.
In Q1 2013, the hedging portfolio produced a negative return of DKK 6.6bn. During the period, the return on the investment portfolio was DKK 3.6bn, resulting in an overall negative return on the hedging and investment portfolios of DKK 3.0bn, equivalent to a rate of return of -0.5 per cent.
Return on hedging and investment portfolios in Q1 1 2013
Read more about the hedging portfolio return
Read more about the investment portfolio return
Market return significantly above the industry average
Every year, the Danish Financial Supervisory Authority (FSA) publishes information on the returns ratios of life-insurance companies and non-occupational pension funds. The return ratios applied by the Danish FSA measure only returns on assets, including the assets of ATP’s hedging portfolio, while no allowance is made for changes, if any, in the market value of ATP’s pension liabilities.
ATP’s returns relative to the returns of life-insurance companies and non-occupational pension funds 2002-2011
Over a 10-year horizon, i.e. during the period from 2002 to 2011, ATP significantly outperformed the industry average, achieving an average additional market return of 4.2 percentage points p.a. After tax and expenses, ATP’s average additional return, over the 10-year horizon, was 3.9 percentage points p.a. relative to the industry.
ATP’s additional return is driven primarily by our use of bonds and interest-rate swaps to achieve full hedging of the interest-rate risk of the pension liabilities, generating quite a substantial positive return due to the drop in interest rates over the period. Additionally, these are positive contributions from significant risk diversification and from the fact that the equity portfolio consisted extensively of domestic equities, which outperformed equities from the benchmark markets during the 10-year period.
