DENMARK - The DKK398.6bn (e53.4bn) ATP recorded half year profits of 4.5bn, despite changing interest rates causing a drop in both assets and liabilities.
In H1, the group's hedging activities generated a profit of DKK5bn following changes in the interest-rate spread between swaps in euros and Danish kroner, said CEO Lars Rohde. This helped strengthen ATP’s reserves, totalling DKK56.6bn at 30 June 2006.
The Danish swap market is not that big, so we have made the main part of our swaps on the asset side denominated in euros, while obviously liabilities are mainly in krona, he explained.
So what has happened in H1 is that the interest rate differential between euros and krona went up a little bit - 0.1% or so - meaning the interest rate measured in krona has risen more than that of euro swap rates. That means the drop in market value of liabilities is greater because they are calculated using the Danish interest rate, but on the asset side using the euro rate.
That is the reason why we have positive results in the hedge business, he said, and added that it was satisfactory to note the ATP's reserves had been significantly strengthened during H1 despite a turbulent period with rising interest rates.
The market return on investment of the ATP investment portfolio was DKK6.1bn, or 1.7%, which he attributed largely to a high return on private equities and real estate and to the performance of listed domestic equities, which contributed DKK 2.2bn to the return. The total market return on listed equities was DKK 3.0bn, equivalent to 3.6%.
The fund also saw its assets drop from DKK417 at year end to DKK398.6bn at present, with liabilities dropping similarly.
We hedged our liabilities, and they are just like an old-fashioned long-dated bond, explained Rohde. So when interest rates go up, the value of the liabilities goes down. On other hand, we have covered liabilities with interest rates sensitive swaps, so we have losses on the asset side and losses on the liability side, so the overall result is a net income of approximately DKK5bn.
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