“Danish pension funds have become more involved in alternatives. They have now built up significant buffer zones and can start taking more risks,” says Jan Willers, financial analyst at the firm. “The low interest rate environment has also increased interest in the sector – all Danish life and pension funds are looking to increase their alternative allocations.”

The funds have typically had a larger exposure to bonds than their Nordic peers, which has generally resulted in lower returns. In response to this, many Danish funds are now looking to diversify their asset allocations.

“We reduced our exposure to bonds last year and have continued diversifying into alternatives as a response to low bond returns,” says Michael Nellemann Pedersen, CIO at PKA.

“We are looking at whether we can get higher and/or more stable returns from other asset classes instead of bonds and that could, for instance, be through hedge funds,” adds Niels Erik Petersen, CIO at the architects’ pension fund and the agronomists and veterinarians’ pension fund.

This is bolstered by the findings of our quarterly investor survey, which found that four out of five Danish pension funds plan to increase their exposure to infrastructure over the next six months.

ATP, for example, has earmarked some 3 per cent of its total assets to infrastructure, though these funds are not yet fully committed. Furthermore, ATP was interested in buying the Danish state-owned railway system and leasing it back to the government last year. “We consider infrastructure to be an asset class of its own. Infrastructure assets are by their very nature essential to society, so demand for infrastructure services will often be less dependent on the business cycle,” says Henrik Jepsen, CIO for beta at ATP.

The €15.6bn PKA has also taken on exposure to infrastructure, mainly in the energy sector. The eight PKA-funds have invested more than €200m in the asset class with a focus on environmentally friendly energy, such as bio fuels, windmills and hydropower.

“Infrastructure offers good risk diversification. We are currently investing 3 per cent in infrastructure and are interested in both established as well as more high-risk investments,” says Mr Nellemann Pedersen.

The €8.3bn PensionDanmark started investing in infrastructure last year, through two infrastructure funds provided by Goldman Sachs and Energy Capital Partners. At the same time, the fund believes infrastructure investments to be a good complement to bonds, since it expects the asset class to give higher yields while also lowering portfolio risk. PensionDanmark had 4.2 per cent of its assets invested in infrastructure, hedge funds and credit funds by the first quarter of 2007 and expects to significantly increase its investments in infrastructure going forward.

nrpn’s quarterly investor survey further revealed that all Danish respondents plan to increase their private equity exposure over the next six months. They also showed a strong interest in hedge funds and property.

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