While Denmark's AkademikerPension is shifting some of its equity portfolio to an in-house passive or semi-passive arrangement, “it’s not that we’ve given up on active management,” CIO Anders Schelde told Pensions & Investments.
However, the Gentofte-based, 136 billion Danish kroner ($20 billion) pension fund, well-known for its active ESG engagement, is no exception to the global trend of asset owners turning to a passive approach in recent years, in the pursuit of maximizing value for money and out of a desire to reduce fees. The pension fund also has its own specific reasons.
“We are firm believers in the value of active management. With a portfolio of our size, we are able to negotiate reasonably competitive fees for this. So it's not that we should have given up on active, but the business model we have is one that relies very heavily on outsourcing of our asset management to external managers."
AkademikerPension currently outsources half of its listed assets to external managers, all of which is actively managed.
However, Schelde thinks a shift to a broader passive approach would only reduce costs marginally, as the main driver of costs are unlisted assets and that overhauling the basic operating model of the fund is a more important motivation to make the change.
“We do need to change the balance (toward internally managed passive), so that we create an even stronger organization that can motivate, attract and retain talented people in a labor market with fierce competition for talent. In my view, this is necessary in order to successfully outsource to external active managers in the long run, and bringing assets back home simply becomes a tool to finance that change,” he said.
As to whether any further incorporation of passive would affect AkademikerPension’s ESG approach, Schelde is not worried on this front.
“If we do passive internally, we are able to do it in a way that's fully compliant with the way that we would approach ESG,” he says.
Evolving ESG approach
In September 2023, AkademikerPension completed a multiyear divestment program designed to purge its portfolio of oil and gas stocks. The fund divested fossil fuel stakes worth a combined 3.7 billion kroner ($540 million), with the divestments spread out over half a decade.
For Schelde, there were two distinct factors motivating the decision to divest; both a sense of ethical responsibility, and ensuring long-term investment returns for the plan's participants.
"Regarding responsibility, there is an argument to stay invested and try to engage with the companies. I have doubts that you can succeed with that (in oil and gas) but maybe if you're committed enough and you're big enough, you can make some change."
"The winning argument was more to do with investment returns. Taking a long-term structural investment outlook for the oil and gas sector, if it doesn't have a successful net-zero transition, we don't think that the prospects are very good,” Schelde said.
As for net zero, CEO Jens Munch Holst has previously decried the departures of asset managers from climate initiatives, in March claiming that it “poses a setback to global engagement on climate change” in comments made to Pensions & Investments.
Schelde concedes that a full divestment from the oil and gas sector means AkademikerPension can no longer engage with the sector, yet he also believe this move can present an opportunity.
The fund has used its extra capacity for engagement to enter into dialogue with key players in the automotive sector, such as in June filing a motion for Japanese carmaker Toyota to disclose its climate-related lobbying activities.
“Engaging with the automotive sector is quite important to us and will likely continue into next year," Schelde said.
“When it comes to aerospace and defense there's also debate within our fund, as to whether we have the right approach there. We have excluded more than half of the companies in the aerospace sector so far, and I think this is an issue that will probably continue (to occupy the fund's executives), given how the world is right now."
Currently, around 0.6% of of the AkademikerPension listed equity portfolio and 0.4% of the credit portfolio is made up of holdings in the aerospace and defense sector.
Changes at the top
Schelde has also seen his own role at AkademikerPension undergo a shift. He was appointed as CIO in 2017, then held a dual role acting as chief financial officer since 2022, sharing oversight of the pension fund with CEO Holst.
Recently, the two of them found the level of responsibility was “putting too much on our plates,” according to Schelde, and he has as of October reverted to a sole CIO position.
At the start of October, as Schelde dropped the CFO role (which currently remains vacant), AkademikerPension also changed its leadership team to consist of eight people. As well as Schelde and Holst, this includes six other executives who share responsibilities in areas such as information technology, human resources, and finance.
Linda Ankerstjerne will become chief consultant for the area of politics and partnerships, while Kennett Ambæk Rafn moves from his position as head of member services.
“(The changes) will enable me to spend more time with the investment department, and I'm really looking forward to that,” Schelde said.
2025 outlook
Schelde must reckon with the many conundrums facing institutional investors today. As well as AkademikerPension’s evolving ESG priorities, the fund’s portfolio allocations also may be shifting .
“We have been building out our exposure to unlisted assets in the last couple of years, and are now trying to build up more exposure to the local real estate market, where we currently have a rather limited exposure for a fund of our type.
“We’re also looking to bring up our exposure to climate-related infrastructure. However, this is also sector that is facing some significant headwinds. Of course, that also creates opportunities, but that also makes it a little more difficult to deploy capital than before,” he said.
Within unlisted assets, currently 7.4% of the AkademikerPension portfolio is dedicated towards climate infrastructure, with a 2030 target of 9.5%. Current domestic real estate holdings are 1.8%, with a 2030 target of 5%.
There is also the ever-pressing matter of how best to maintain returns and ensure a healthy retirement for its workers, in AkademikerPension’s case made up of Denmark’s academics, employed across high schools and colleges.
AkademikerPension has also launched a “life cycle product,” signaling a shift from a defined benefit pension for participants over to a defined contribution plan — a phenomenon underway across mainland Europe.
The AkademikerPension DB product has been closed for new members since 2017, and since then all new participants have been entered into the DC product, initially with both products invested through the same low/medium risk portfolio. DC members were first given the option to adopt the higher risk life cycle product in 2023.
In the coming years, the fund will focus on converting further DB members to the new life cycle product where it is deemed that it is to the benefit of the specific participant.
“Currently, only 2% of our participants are in the life cycle product. So we have to run a process with participants, to show the benefits — especially for younger participants — of moving to the new product and gaining a larger exposure to listed equities. Over the coming years, this shift (toward equities) is going to lead to the biggest change in our aggregated portfolio ,” he said.
