Achieving Investment Excellence

Case Study—ATP

CREATING SCOPE FOR INVESTMENT SOPHISTICATION THROUGH CLARITY OF OBJECTIVES AND STRONG AND TRANSPARENT RISK MANAGEMENT

Background

Arbejdsmarkedets Tillaegspension (ATP), also known as the labor market supplementary pension fund, is a supplementary pension plan of the state-funded first pillar old age pension in Denmark, which was established in 1964. The objective of ATP is to deliver a guaranteed nominal pension. On top of this, it aims to raise pensions in line with inflation by utilizing the returns from its relatively small return-oriented portfolio.

ATP is the largest pension fund in Denmark. As of December 2017, net assets under management were approximately DKK 768 billion ($118 billion),¹ with an annualized rate of return of 8.8% since 1997. The number of members exceeds five million. By 2050, it is estimated that over 50% of Danish pension payments will come from ATP and the state pension. The fund focuses on keeping costs as low as possible. In 2016, total costs amounted to 0.18% of assets.

Challenge

In their 2010 paper, Lars Rohde, at that time Chief Executive Officer (CEO) of ATP, and Chresten Dengsøe, Chief Actuary, discussed several challenges and reforms. They pointed out the pressure being put on the pension fund by (i) increasing life expectancy, (ii) overly high risk levels, (iii) diminishing financial performance as a result of poor financial markets, and (iv) declining interest rates. New financial regulations from the Danish Financial Supervisory ...