ATP – Interview


This is part of factor investing. We need to balance our equities. A lot of people mis- understand what we mean about rates: we are talking about the carry and roll, not the level. This year has been particularly bad. Probably the worst year for fixed income in modern history. But over time, it serves its purpose.


If we are looking at the stagflation envi- ronment that everyone is talking about, then a lot of the factors will not perform. The question is then not whether we should have a balance between equities and rates, but whether we should be heav- ily risk on.


What are the “other risks” you spoke of? For the past 25 years we have been want- ing to minimise complexity. If we can accept the complexity and be properly compensated, we will do it. So, this is all of that. ‘Other risks’ includes factors such as illiquidity, structuring, legal affairs and risks that are more esoteric than the three macro factors.


Your approach successfully returned 35% last year. What do you put such a strong performance down to? ATP has a two-fold approach: we have a large hedging portfolio and an invest- ment portfolio.


When it comes to the hedging portfolio – the objective is to hedge liabilities 100% – removing all the market risk from guar- antees in the life-long defined benefit scheme.


In the investment portfolio, we apply lev- erage to reach a high risk level. So, it is a great return, but we also take a lot of risk.


Have there been periods when the factor investing approach did not work? It depends how you define “did not work”. Any strategy will lose money. What we can say is that despite the Covid situation, inflation and Ukraine crisis, the strategy has performed as we expected it to. It has done what we told the board it would. This approach has worked within our expectations.


According to your annual report, you seem to be more realistic on your return expec- tations going forward. How will that trans- late into numbers?


Our long-term expectations have been adjusted down a little, but we still have quite a high return target for our invest- ment portfolio given the amount of risk we take. We still believe long term there is going to be attractive risk-adjusted returns. We do not think the absolute returns will be as high, given the level of rates. And we have a lot of pressure from inflation, but we see no reason for not being involved in long-term risk taking either. We still think equity will be compensated fairly and a Sharpe ratio of around 30% is realistic. There is no reason why a long-term inves- tor should not be able to get that.


We believe private equity will create value.


You have touched on elements of ESG. What is your approach to the various chal- lenges presented by integrating such factors? We have been working on ESG for about 12 years now. We have quite a large inter- nal team. From the beginning we have tried to focus our resources on a limited number of resources and to do them well. I would say we have been one of the front runners in this area. In our investment belief it is effective integration within the whole organisation. It is a preference for active ownership, making a difference.


MIKKEL SVENSTRUP’S CV


2020: Chief investment officer ATP


2017: Investment director P+ (Pension fund for Akademikere)


2012: Sales director Nordea


2010: Executive sales director UBS


2005: Global distribution director Barclays Capital


We do not run our ESG strategy to become the ‘greenest of the green’. We believe in investing in the transition. In the long- term there is going to be a good risk-re- turn trade off in investing in companies that take their ESG responsibilities seriously.


What do you expect to see in your invest- ment portfolios in the coming years? Last year Denmark’s government approved changes to our business model. We are looking to implement them in the next couple of years. It is quite a big pro- ject. It has changed the underlying prod- uct, changed the way we are going to invest our existing money. So, it is about managing that transition without disturbing our investments and the day-to-day running of the fund. We will then have to consider if there is any- thing we need to fundamentally change about our strategy. So far, we have been doing okay.


ATP’S FACTOR STRATEGIES Equity: 35% Rates: 35% Inflation: 15% Other risks: 15%


Issue 114 | June 2022 | portfolio institutional | 15


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