Interview – ATP
Inflation effectively comes from all our investments. All our investments are measured on their inflation exposures – particularly intuitive is real estate and infrastructure with contracted cashflows.
Are inflation-linked investments proving effective in the current environment? Two years ago, rates were the best we had for a long time and inflation had been flatlining for quite a while. Over the past three to five years, inflation has been the best performing factor we have. The inflation risk has not been enough to balance out what we have lost in the past couple of years in rates. We have roughly 35% in rates, but it has taken a lot off the top of the losses in the rates portfolio. So, in that sense, the strategy has been work- ing as expected.
Given the outlook for inflation, will this segment increase? No. ATP’s long-term strategy is to target a factor balance. Given what has happened to rates this year, they are starting to look more appealing than they did a few months ago.
So, the focus will be on the long term? Yes, we try to create a balance. We are not
ATP IN NUMBERS
active investors in that sense. We try to use our risk capacity as well as we can within a relatively stable underlying port- folio. So, we scale our risk more than we try to beat the market or a benchmark. Given the size of ATP, it is hard to be a nimble hedge fund operation. It is very much about efficient beta and being a long-term investor. Making sure we have the right amount of risk on.
What about private equity? You have been exposed for 20 years, so where is your focus? We have been in private equity successfully for a long time. We invest across various approaches. For example, we have a sub- sidiary, ATP Private Equity Partners, which has been a highly-rated fund for many years. We also have co-investments and invest directly from our global direct investments team. We believe private equity will create value. Some of the concerns we have though are around fees and alignment of interest.
Investment returns in 2021: Kr.49.6bn (£5.7bn) This consisted of:
You have a large allocation to infrastruc- ture. What are your big projects? We are invested in infrastructure via funds, but also directly. The overall themes have been regulated contracts, inflation protection, stable cashflows: it is the traditional airports and roads.
Listed Danish equities: Kr.7.6bn (£870m) Listed international equities: Kr.14.6bn (£1.68bn) Inflation-related instruments: Kr.24.6bn (£2.83bn) Real estate: Kr.3.5bn (£400m) Private equities: Kr.13.5bn (£1.55bn) Other items: Kr.900m (£100m) Infrastructure: Kr.2.4bn (£280m) Credit: Kr.2.6bn (£300m) And one negative performance:
Government and mortgage bonds: (Kr.20.1bn) (£2.31bn)
That said, one particular big project is the Energy Island that the Danish govern- ment intend to build in the North Sea, where ATP in a consortium with Ørsted intend to bid. For more private equity like investments into the green transition, we are obviously targeting smaller tickets, with a higher element of risk or a different risk pro- file from the traditional contract infrastructure.
14 | portfolio institutional | June 2022 | issue 114
Over the past three to five years, inflation has been the best performing factor we have.
Overall, our climate ambitions are to invest Kr.200bn (£23bn) by 2030.
Real estate has also long been part of your portfolio – what does it involve? Yes, we have been invested for more than 50 years. We have a subsidiary, ATP Real Estate, which has 130 employees operat- ing one of Denmark’s largest real estate portfolios. We take care of everything from the man- agement and development of the assets – the whole value chain within real estate. A lot of our focus has been within Den- mark. For our global portfolio, it has been more of a partnership approach, with select global asset managers where we team up on projects.
On your credit segment, presumably it is part of the factor approach? This goes into our equity risk factor. We have had a substantial credit portfolio – in private markets and listed credit for many years. We are also quite a large credit investor in the derivatives markets. Our latest project internally is to implement a green bond corporate credit portfolio.
A big negative tranche is government and mortgage bonds, which appear to be fail- ing to fulfil the normal fixed income role?
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