ATP is ready to take on more risk and this will be achieved with investments in illiquid assets in particular, such as real estate and infrastructure, says Christian Hyldahl, CEO of ATP.
He made this statement while presenting the pension fund's annual report – his first since taking on the new position from the turn of the year.
"We want more real estate and infrastructure. Of course, this will also contribute to the share factor, so it's not enough on its own. We will also need to add more regular bonds to the portfolio," Hyldahl said at the press conference in relation to the report.
However, he declines to elaborate on which types of bonds ATP is interested in.
Real estate prices have been aggressive
How much do you want to invest in real estate and infrastructure?
"We haven't made a budget for how much we'll invest. We have to evaluate each individual investment and it has to meet our requirements for returns. But seeing as these are illiquid investments, it takes time."
Why haven't you invested more in real estate before?
"We have been hesitant with real estate investments because we thought that the pricing of property in Denmark has been a little aggressive. We constantly have to consider our requirements for returns, but we would like to invest more and many billions in both infrastructure and real estate. We have room in our risk budget to take on more risk and we have a sufficient buffer to take on more illiquid investments," says Hyldahl.
"We constantly have to remember that if we can make the same returns in a listed share, then we should choose the liquid option. We need a premium for taking on this illiquidity," he adds.
Investments in real estate and infrastructure are part of the plan to increase risk in ATP's investments.
"We are going to take on more risk because we need to generate better returns. We have the opportunity to do so, since we have a risk budget from the board which has not been used," Hyldahl says.
Balanced portfolio for resilience
The plan will lead to a more resilient risk composition which can withstand major turbulence on the financial markets. The risk in the portfolio will be distributed across four different factors: Share factor, interest rate factor, inflation factor, and other factors.
The long-term goal is for ATP to have both a share factor and an interest rate factor in its portfolio of 35 percent, while the rest will be in inflation and other factors. In 2016, ATP had an average share factor of 49 percent and an interest rate factor of 22 percent. In order to increase exposure to interest rate risk, ATP will now invest in real estate and infrastructure.
Why more risk in interest rates now?
"This is because we believe in having a balanced portfolio. Having this approach to risk with the balanced portfolio has proven to perform well through various types of turbulence. So it's our investment belief that we need a balanced portfolio as this is a resilient way to invest," Hyldahl says.