ATP, Hilleroed, Denmark, returned 14.6% on its investment portfolio for the six months ended June 30, but saw assets fall 1.4% over the period to 748.5 billion Danish kroner ($114.8 billion).
The investment portfolio's return was equivalent to a 14.7 billion kroner gain, the pension fund said in a financial update.
The pension fund's half-year update compares to a 6.7% return for the six months ended June 30, 2016. Returns for the six months ended Dec. 31 were not available.
The pension fund is split into two portfolios: a return-seeking investment portfolio and a hedging portfolio made up of long-dated fixed-income securities, which aims to protect liabilities against interest rate risk. Overall, these portfolios gained 11.6 billion kroner, compared with 5 billion kroner for the six months ended June 30, 2016.
The investment portfolio takes a risk-parity approach, based on four risk factors. As of June 30, the investment portfolio had a 44% exposure to equity factors, 35% to interest rate factors, 12% to inflation factors and 9% to other factors.
Investment returns were bolstered by Danish equities, which gained 4.1 billion kroner. The private equity allocation added 3 billion kroner in returns, and international equities gained 2.4 billion kroner. The pension fund also achieved positive returns across credit, real estate, government and mortgage bonds, infrastructure and other exposures.
Over the past five years, ATP has generated an average annual return of 15.8%, with positive returns for 18 out of 20 quarters.
The pension fund's hedging portfolio was also successful, the update said. Rising interest rates in Europe caused a fall in liabilities. "ATP's hedging tracked the value of the guaranteed benefits, generating a negative return after tax of 19.6 billion kroner. All in all, ATP's hedging activities resulted in a loss of 500 million kroner on pension guarantees with a total value of 636 billion kroner."
Christian Hyldahl, CEO at ATP, said in a telephone interview that "what is maybe most extraordinary is all the different asset classes risk drivers have been contributing positively." The portfolio is constructed to be robust and uncorrelated in terms of risk drivers. He said the rolling 12-month return has been "extraordinary" at 24.7%. "We have had a tailwind in the markets, but we have also not used a lot of risk — we have created a very high risk-adjusted return."
However, Mr. Hyldahl acknowledged the correlations cannot continue long term, and that executives "do expect more normalized return figures. We are confident that we have this robust portfolio and can also cope with volatility in the market when we eventually get there."
