DIP Pension, the Danish pension fund for engineers, suffered its first loss in years in 2008, but that has not stopped it from continuing its efforts to diversify. The DKr25bn (€3.4bn) fund’s chief investment officer Soli Preuthun is committed to the notion that the best portfolio is the most diversified one, and the fund appears to have little interest in moving towards a more defensive position.

This is a distinct departure from where the fund stood in February this year when its chief executive officer Søren Kolbye Sørensen told nrpn that the best investment available was a cash deposit in a guaranteed bank. Now the fund is looking to put some of the cash it kept on the sidelines during the darkest months of the crisis to work.

Ms Preuthun, who has been CIO at DIP since 2001, says: “We are deep believers in the value of diversification. We’re always looking for new asset classes to add to the portfolio. At the end of last year, we went further into credit and increased our exposure. It hurt at first, but it has been better recently.”

While DIP is fairly conservative with a 63 per cent allocation to bonds, which are predominantly Danish, the remaining assets are decently diversified. Nearly a quarter of the fund (23 per cent) is allocated to equities that are both foreign and domestic, and there are small holdings in forestry and private equity.

At the moment, private equity only makes up 1 per cent of the assets, but Ms Preuthun would like this to grow to 3 per cent in the near future. The allocation had been higher in the past, but between 2001 and 2006 the fund moved away from less liquid assets due to solvency problems. In 2006, the fund underwent a significant restructuring that drastically reduced its obligations and moved towards a more flexible defined contribution (DC) fund. While these moves tend to be vociferously opposed by members, she comments that it was actually a very easy process. She says that engineers are “clever people” who saw the benefits of the switch, and as a result the fund is now better positioned to invest in the usually less liquid private equity sector. The same cannot be said for hedge funds, where DIP has no investments and some scepticism on absolute return strategies. Despite this, Ms Preuthun says it will continue to look for opportunities in the hedge fund and fund of hedge funds arena.

Probably the largest investment adjustments made in the past few months were related to its real estate portfolio, once again in the interest of becoming more diversified. In January, the fund sold all of its DKr487.5m worth of direct commercial property and moved most of the money into a property fund run by Aberdeen Property Investors Denmark. The thoughts behind the move were that property funds offer more diversification and liquidity than direct property investments. Mr Kolbye Sørensen hinted that the fund’s residential property holdings would soon follow suit, but to date there have been no further developments with the fund’s other property holdings. However, all indications point towards the scheme eventually using real estate funds for all of its investments in the asset class.

Ms Preuthun comments: “In the long run, we want our real estate portfolio to be more diversified. We still have a heavy exposure to Danish property, with only three foreign funds (which are invested in China, the US and Europe), and we’d like more than that. But the overall exposure to real estate is 8 per cent and I think that will be the maximum.”

All of the fund’s investments are benchmarked to various MSCI indices and with an overall return of -9.5 per cent after taxes, the fund is relatively happy with its external managers. Ms Preuthun does not blame the negative return on its managers, and instead acknowledges that some did well, especially in the context of one of the worst markets in decades. While the fund is making a number of moves with its investments, it does not appear that the scheme is preparing for a shake-up of its asset managers.

Earlier this year, the fund signed a deal with Swedish SRI and ESG advisory firm Ethix that will help make its investments more socially responsible. It also signed up to the UN’s principles for responsible investment. In its charter, DIP says it aims to achieve the highest possible returns for its members, but it also believes that its money should be invested in transparent and responsible assets. Ms Preuthun admits that this is not always an easy balance to achieve, but she believes that the deal with Ethix will help and that sustainability is crucial as a long term investor.

Moving forward, the fund would like to make become accessible to more people and thereby grow its membership. At the moment, all of the scheme’s members are engineers who work in the public sector, but Ms Preuthun would like to be able to compete with schemes in the private sector. This is permitted by Danish law, but it is not allowed under DIP’s self-imposed rules.

Ms Preuthun is convinced that the scheme will have the opportunity to compete in the future, but she is not sure when this will happen. Perhaps non-coincidentally, at the fund’s most recent annual meeting, a non-engineer was elected to the board of trustees for the first time in DIP’s existence.

Printer friendly version

Email this article to a friend