ATP is the country’s largest institutional investor and the fifth largest pension fund in Europe, with assets totaling DK476bn at the end of 2010, covering more than 4.6 million members. For the full year 2010, the fund’s five asset classes saw positive returns ranging from 22% for equities to 3.5% in its real estate portfolio.
ATP is well known for innovation in order to boost performance and was one of the first to adapt an alpha-beta separation for its portfolio. Its contribution levels are low, and such innovations have been seen as a way of keeping costs to a minimum. In February, the fund took the unusual step of setting up shop abroad, with an office in London. That new base would, it said, play a vital role in its strategy to exploit its expertise and business model on the international scene.
Denmark has a less centralised structure of voluntary occupational pensions compared with Norway and Sweden because of the weaker position of the largest trade unions. The current occupational pension scheme was established between 1989 and 1991. Most collective labour agreements (CLAs) since the 1990s contain some provisions on occupational pensions. Furthermore, there are private pensions that supplement the state and occupational funds.
Danish pension funds have traditionally had a more fixed income bias than their Nordic neighbours, partly because of local legislation. Due to regulations, local fixed income continues to dominate in Denmark, and this asset class still represents close to 60% of the total portfolio. Equity investments are still in single digits among many large institutions.
Because of its fixed income tradition, Denmark has generally been ahead of its neighbours in terms of diversifying across the credit spectrum. Per Künow, Head of Business Development for the Nordic region at MFS Investment Management, says bonds and high-yield bonds as well as emerging market debt are significant institutional allocations.
Corporate social responsibility (CSR) is also something Danish investors take seriously and were early adopters. A law came into force in 2010 that requires the 1,100 largest Danish companies and state owned companies to include information on corporate social responsibility in their annual financial reports, which is likely to further signify this focus. Alternatives, particularly alternative energy investments such as wind-turbine parks or solar energy, have caught the interest of Danish investors (see Social Standing, PSE Summer, TK).
While the pension law introduced in Germany in 1889 is generally regarded as the world’s first statutory pension system, it was just two years later that Denmark took that notion of financial assistance in old age and expanded it based on needs testing. It remains to be seen if the course set by today’s Danish schemes will serve as a model for others in the future.