Behind ATP’s Blowout 40 Percent Gain

Denmark’s largest pension fund, ATP, has returned 40 percent on its investment assets before expenses and taxes since January.

The pension fund revealed in itsthird-quarter reportthat its investment portfolio returned DKK 36.9 billion (roughly $5.49 billion) during the past three quarters. This pool of capital is separate from the large reserve of capital the pension keeps in what it calls its hedging portfolio, which exists primarily to guarantee that its beneficiaries receive their payouts each year.

ATP attributed its impressive investment return to government bonds, mortgage bonds, and high-yield debt, its spokesperson Stephan Ghisler-Solvang said by phone Thursday. The portion of capital allocated to these assets returned DKK 19.5 million during the last three quarters, according to ATP’s report.

“We have a lot of interest rate risk in the investment portfolio,” Ghisler-Solvang said, noting that the price of the pension fund’s bonds rose as interest rates fell.

The pension fund reported that its one-year return on its investment portfolio before expenses and taxes is 25.2 percent, while its three-year return is 21.2 percent and its five-year return is 17.6 percent.

The pension fund allocates assets using risk, not capital, according to Ghisler-Solvang. The pension fund uses four categories to make those allocations: equity factor, interest rate factor, inflation factor, and other factors, its announcement shows.

During the past three quarters, the pension fund has increased its risk allocation to equity risk while decreasing its allocation to inflation. Its interest rate factor remained stable during that time period.

“We will continue our disciplined approach to portfolio construction and risk management to safeguard the basic financial security for members in the longer term, particularly as we anticipate lower investment returns in future years and greater fluctuations,” said Bo Foged, chief executive officer at ATP, in a statement.

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The hedging portfolio can be invested in Danish and German bonds, as well as short interest rate swaps, Ghisler-Solvang said. This reserve can lend capital to the investment portfolio, according to Ghisler-Solvang.

According toATP’s announcement, because of falling Danish and European interest rates during this year, the value of its hedging portfolio has increased by DKK 121.9 billion. According to the report, ATP has a total of DKK 934 billion in net assets across both portfolios.