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The World's Best Funded Pension Industry Is Hoarding Risk

The World's Best Funded Pension Industry Is Hoarding Risk

Wednesday, 08 November 2017 12:50 PM

Denmark’s $530 billion pension industry is accumulating risk at an ever faster pace in an effort to maintain the world’s best-funded life insurance market.

The trend is upending initial public offerings and taking large chunks of listed companies out of circulation. It’s also adding vulnerabilities to Denmark’s economic backbone that the financial regulator says are underestimated.

The Voices

Allan Polack, the chief executive officer of PFA, which manages about $100 billion in assets, says the Danish regulator is “right to be worried.”

“It’s a very complex area,” Polack told Bloomberg radio. “No doubt the industry has taken on much more risk. So far they’ve been right” to do so. “But of course we all need to be prepared if things are changing.”

The Numbers

ATP, which manages about $120 billion in assets, made its biggest returns so far this year on the equity holdings in its investment portfolio. Listed and private equities returned 9.24 billion kroner ($1.44 billion) at the end of September, according to the fund.

“Pension funds are in on everything that happens in Danish equities,” Henrik Drusebjerg, chief strategist at Carnegie Investment Bank AB, said by phone. “In other countries, people invest directly. Danes instead put their savings into pension plans.”

The latest aggregate data show that Denmark’s pension industry saw its reliance on alternative investments grow 17 percent from 2012 through 2016, to 289 billion kroner ($45 billion). Over that period, the industry cut its use of hedge funds by 4 percent, bought up 36 percent more infrastructure, 24 percent more credit and 11 percent more private equity, according to the Financial Supervisory Authority in Copenhagen.

Danish pension savings reached an all-time high of 3.4 trillion kroner, or $530 billion, at the end of June. Like their counterparts elsewhere in the western world, Danish pension funds are moving into riskier markets in an effort to cope with negative interest rates.

At PFA, Polack says “we believe it will be 2019 or 2020 before you see rates really starting to pick up.” He also says the potential for a sudden repricing of markets when that happens is the fund’s “biggest worry.”

Recent Examples


Five pension funds led by PFA offered to pay about $1.8 billion for a 17 percent stake in Nykredit Realkredit A/S. The bid prompted Denmark’s biggest mortgage lender on Nov. 7 to scrap its planned initial public offering.

Nets A/S

ATP, Denmark’s largest pension fund, provided the financing for the 2014 buyout of the Nordic digital payments firm and also took a minority equity stake. Nets was subsequently listed, but is now on its way back into private hands, as U.S. private equity firm Hellman & Friedman LLC takes over.

Orsted A/S

Dong Energy A/S, which has since changed its name to Orsted, went public in June last year. Denmark’s utility will forever be associated with a government split caused by the arrival of Goldman Sachs as an investor in 2014, but ATP and PFA were part of that deal. Goldman exited Orsted last month, but PFA and ATP still hold sizable chunks.

Copenhagen Airports A/S

In September, ATP agreed to buy a stake in the biggest Nordic airport from Australia’s Macquarie. The $1.6 billion transaction was big enough to leave its mark on the exchange rate, despite the krone’s peg to the euro. ATP and co-investor the Ontario Teachers’ Pension Plan (where investments are handled by a Dane) plan ultimately to take Copenhagen Airports private.

Danish Ship Finance A/S

PFA and PKA where among buyers of Denmark’s specialized maritime lender, which was valued at about $710 million in a deal last year. Danish Ship Finance, which was controlled by the country’s biggest banks, had been planning an IPO.

FIH Erhvervsbank A/S

ATP and PFA in 2010 stepped in to acquire the troubled bank for almost $1 billion. Before the financial crisis, FIH had controlled about 17 percent of Denmark’s corporate lending.

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Denmark's $530 billion pension industry is accumulating risk at an ever faster pace in an effort to maintain the world's best-funded life insurance market.
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Wednesday, 08 November 2017 12:50 PM
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