Denmark’s biggest pension fund, which manages about $115 billion in assets, says it’s growing increasingly worried about how markets will react when crisis-era correlations across asset classes start to reverse.
One of the many side effects of excessive monetary stimulus has been that investors need to operate in a market in which diversification is harder to achieve. Signs of price distortions are everywhere, with the economic text books offering little help in understanding how today’s central bank policies will shape the future.
“It’s better to make money off fundamentals rather than from central bank policies,” Stendevad said. “The central bank activity that has pushed great returns for so long really is worrying. It is our single biggest concern.”
The fund has adjusted its investment approach in order to better reflect the underlying risk. In its return-seeking portfolio, ATP has changed the way risk is measured. Rather than allocating each investment into one of five risk classes, it now decomposes each investment into four risk factors: inflation, interest rates, equities and a bucket labeled “other.”
