PFA: The optimism continued in Q3 2021 - returns totalled DKK 16.0 billion

The optimism in the financial markets continued in the 3rd quarter, which has generated total returns at PFA of DKK 16.0 billion. It was particularly equities and private equity investments that generated the returns, and this has resulted in customers obtaining returns of up to 12.7 per cent in the first nine months with PFA Climate Plus being the frontrunner.

While most people in Denmark were enjoying the sun and their summer holidays, the pension returns experienced an additional boost in the 3rd quarter. The vaccine rollouts, the reopening of society and the continued liquidity injections from the central banks were particularly favourable to the equity markets which continued the upswing that has characterised the whole year and increased returns far into the 3rd quarter. The total returns generated by PFA amounted to DKK 16.0 billion after the 3rd quarter, which is DKK 4.4 billion higher than in the same period of last year.

“The first nine months of 2021 have offered solid returns. Thus, a lot of customers have had their pension savings nicely padded with returns of up to 12.7 per cent. Once again, in 2021 it has also turned out to be the case that taking risks has paid off, as it has been equities and private equity investments in particular that have pulled up the returns. At the same time, it has turned out that climate-friendly investments have also paid off, as PFA Climate Plus was the best performer with the highest returns,” says Kasper A. Lorenzen, Group CIO at PFA.

PFA’s large equity portfolio has generated returns of 10.7 per cent. Alternative investments have also contributed positively with 9.6 per cent returns, and private equity investments have done particularly well - though PFA’s infrastructure investments have also performed strongly. The real estate portfolio had a good 3rd quarter as well, so far generating returns of 4.6 per cent this year. The bond portfolio generated negative returns of -2.5 per cent due to falling bond prices as a result of rising interest rates.

Returns of up to 12.7 per cent for customers - PFA Climate Plus being the frontrunner

The total returns in market rate products after the 3rd quarter amounted to DKK 23.4 billion or 6.8 per cent. This means that PFA’s customers with market rate products obtained returns of between 0.9 - 12.7 per cent depending on the selected risk profile. The higher the risk and the more time until retirement, the higher the returns, which is not least due to the favourable development in the equity markets.

At the same time, PFA Climate Plus continues to perform well and actually outperforms the main product, PFA Plus. For example, customers with PFA Climate Plus and 15 years until retirement and a high-risk profile received an additional percentage point after the 3rd quarter when comparing the two products.

“PFA customers have now invested around DKK 8 billion in PFA Climate Plus, which is our extra climate-friendly savings solution, and this has turned out to be a good investment. Since we launched PFA Climate Plus in the early summer of 2020, the returns have outperformed those of PFA Plus. We operate with a lot of sustainability and climate considerations throughout all of our portfolios, but with PFA Climate Plus, the green ambitions and CO2 reduction targets are significantly higher. It is an interesting development, and it has shown that a strong focus on the climate and good returns can go hand in hand,” says Kasper A. Lorenzen.

PFA has just dialled up the green ambitions with the statement that the climate footprint of the entire portfolio must be reduced by 29 per cent already in 2025. This is to take place via PFA’s membership of the UN-backed Net-Zero Asset Owner Alliance initiative. Here, PFA joins together with 40 of the world’s largest investors to support the Paris Agreement and commit to significant CO2 reduction targets every fifth year between now and 2050.

The returns from PFA’s average interest rate environment amounted to -3.9 per cent. The negative return in the average interest rate environment is mainly due to a decrease in the value of interest hedging positions. As this development is offset by a smaller need for provisions on the liabilities side, the impact on PFA’s collective reserves is limited, and the development will therefore not affect the prospective return for PFA’s average interest rate customers. 

Inflation and concern about a Chinese housing market collapse puts pressure on the financial markets 

The upswing and the positive developments that were otherwise characterising 2021 changed in September, as growing concerns began appearing in the financial markets as the 3rd quarter ended. This has also continued into the 4th quarter.

Signs of overheating economies in several countries, the halting of central banks’ massive stimulus measures, increasing commodity prices and higher inflation have taken some of the steam out of the strong growth in equity markets that otherwise characterised the year. And with the Chinese property giant Evergrande’s major financial difficulties and the risk of its collapse, it is expected that we will be going into a more turbulent period and we expect returns to be more modest for the rest of the year.

“Since the Covid-19 pandemic started and briefly resulted in major equity market declines in March last year, we have seen a historical upswing and very high returns. This was not least due to the willingness of central banks to keep the wheels of the economy turning. That pace cannot continue, however, and therefore there is nothing unnatural about the financial markets right now catching their breath and things beginning to balance out. We still believe there is room for additional returns in the 4th quarter once things begin calming down again, and the pension savings may increase even further before the end of the year. However, at the same time we are also very aware that we are now moving into a new phase where the financial markets will be under greater pressure, and this may also result in additional volatility,” says Kasper A. Lorenzen. 

With over DKK 620 billion in customer funds, PFA are the largest commercial pension company in Denmark and among the largest in Europe.

Investment return per asset group in Q3 2021
AssetQ3 2021
Listed shares10,7 %
Alternative investments9,6 %
Property4,6 %
Bonds(2,5 %)
Returns in PFA Plus, Q3 2021
Years to retirement30155-5
Profile D - high risk11,8%11,8%5,7%4,6%
Profile C - moderat risk8,8%8,8%4,3%3,3%
Profile B - low risk 5,8%5,8%2,9%2,1%
Profile A - very low risk2,7%2,7%1,5%0,9%

The return includes 5 per cent in Individual CustomerCapital and a return for Individual CustomerCapital of 8 per cent per year.

Returns in PFA Climate Plus, Q3 2021
Years to retirement30155-5
Profile D - high risk12,7%12,7%6,1%4,9%
Profile C - moderat risk9,4%9,4%4,6%3,5%
Profile B - low risk6,2%6,2%3,0%2,2%
Profile A - very low risk2,9%2,9%1,6%0,9%

The return includes 5 per cent in Individual CustomerCapital and a return for Individual CustomerCapital of 8 per cent per year.

Returns in PFA Invest - Q3 2021
PFA Invest Balance AA1,1%
PFA Invest Balance A3,6%
PFA Invest Balance B9,3%
PFA Invest Balance C12,5%
PFA Invest Balance AKK6,5%

Additional information

Oliver William Gunner, Head of Press, (+45) 28 56 23 22 /