Have you taken any measures in light of the current economic downturn?

Our business model has proven quite robust because all our pension liabilities are hedged by a huge swap overlay. So we are not affected negatively by interest rate changes. Therefore, we have not been hit, as some others have been, by the fall in interest rates over the past year. This has brought a lot of comfort.

In late October 2008, ATP announced that it would be raising the pension rate to 2 per cent. Is that still the plan?

Yes. Formerly our scheme guaranteed nominal pensions, so it was more or less a Dutch-like conditional indexation. We felt in late summer 2008 that our reserves were so high that we could afford an indexation of 2 per cent at the end of the year. This means that we’ve raised all pensions and pension commitments by 2 per cent. This remains unchanged despite the current economic situation.

What has been the impact of the global fall in equity markets for ATP?

We have been hit somewhat by the global fall in the equity markets, but we follow our solvency ratio on a daily basis, and it is down to 113 per cent from just over 120 per cent in the summer. Our reserves perform two functions. One is that they are the source of raising future pensions, so if we lose reserves, we lose possibilities for doing so in the future. Secondly, they also serve as our risk capital. ATP is a stand-alone entity and we have no formal sponsor. This means we must be solvent at all times.

How do you avoid drawing down your reserves at a time like this?

We use a model that in our opinion offers genuine diversification and try to create an overall asset composition that makes us robust to very different states of the economy. We do this by creating five broad asset classes: government risk, equity, credit, inflation and commodities. Within these five classes we’re trying to diversify ourselves. This means, for example, that in the inflation pocket there are index-linked bonds from all over the world, but also real estate, infrastructure and timber. The second part is that we are trying to create what you could call ‘asymmetric outcomes’; using dynamic strategies to reduce risk exposure if there are losses of reserves – you could also call this an option-like delta-hedge. The second way is through employing put options to make insurance strategies. The reason our losses were less than most is that we bought quite a large portfolio of put options during 2007 and at the start of 2008.

Your oil portfolio proved very successful at the start of last year. Are you planning any changes or will you stay the course?

Yes and no. By actively using dynamic strategies and options in some of the hard-hit risk classes, we have reduced our losses. In mid-year, we had a profit of approximately DKr5bn (e671m) on our oil exposure, which we protected by buying put options. So even though we went into 2008 with an oil price of around $100 (e77) a barrel, and ended up with about $50 a barrel, we had a profit on our total exposure in this area.

We still like to have an oil exposure. It is a very good diversifier, but you have to be very careful in executing the strategy. If you don’t, you could be losing money on a daily basis. So we had to restructure the exposure by eliminating the option position and took out a large part of the outright position. We reduced the total position but we still have some exposure and we are now discussing how to go forward.

After the last crisis, Danish funds reassessed their risk control. How has this impacted your asset mix?

We are trying to create a much more equal distribution risk-wise of our portfolio. Our long-term objective is to have 35 per cent equities, 7 per cent credit, 15 per cent commodities, 20 per cent inflation, and 23 per cent interest rates. This was where we were last year. At the end of 2007 and the beginning of 2008, equities accounted for 59 per cent of the total risk, even though the equity allocation itself was only 30 per cent. That has been our mental map and we are very close to achieving our long-term goal.

Last autumn, the Danish government launched a 4.5 per cent 30-year bond partly aimed at helping pension funds improve their risk management. How has this been received?

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