Denmark's second-largest pension fund, ATP, has been urged to re-evaluate its substantial allocation to Danish equities. An expert group, after an 18-month review of ATP's investment strategy, released eight recommendations. Among them, they advise ATP to explicitly state the rationale for its high position in Danish equities relative to global portfolios and to develop a quantitative framework to continuously assess if this allocation justifies deviating from a more global approach.
ATP's Danish equity portfolio, which constitutes about 5% of its assets under management and 10% of risk in its risk-seeking portfolios as of year-end 2025, has historically performed impressively, yielding an average annual return of 12.1% from 2015 to 2025. This strong performance is attributed to an overweight in Danish equities compared to their global market share and superior stock selection within the Danish market. ATP itself highlights its confidence in Danish equities, stating, "We are not a global asset manager." However, the review notes that while ATP has a comparative advantage due to its local market knowledge, the outperformance of the Danish stock market is unlikely to be a permanent feature.
The expert group raised concerns about concentration risk due to the material overweight in Danish equities, which are a small portion of global equities (less than 1%). The Danish market is also less liquid than the global market, and it is politically more difficult for ATP to reduce Danish stock holdings during downturns, as observed in 2022. This makes Danish stocks share some characteristics with illiquid investments. The review emphasizes that while a home bias is common among investors, ATP's extensive home bias can only be justified by continued risk-adjusted outperformance.
