Michael Nielsen tells Rachel Fixsen how tightening credit conditions could work to ATP’s advantage

While the spectre of tightening credit could spook real estate investors, Denmark’s ATP believes the new monetary political momentum puts it at an advantage where property is concerned.

Michael Nielsen, head of real estate at the DKK723bn supplementary labour-market pension fund, points out that since it now largely avoids debt within its property investments, it is in a particularly good position to snap up the best deals.

“Of course, rising interest rates can and will have an impact on real estate pricing,” he says. “But they could also have a benefit for us in that the highly-geared investors we compete with don’t have the advantages they had before. There could be examples where we would be in a better position,” Nielsen says.

And there are other ways the change could help ATP as a property investor. “Rising rates could mean inflation, which is good for us because rental income can be indexed to inflation,” Nielsen says.

But otherwise, he says, changes to interest rates are simply part of a cyclical pattern the pension fund is used to. “As a long-term investor, we have a buy-and-hold strategy, so we have to deal with these cycles where we have low interest rates changing to high; it’s not something we are concerned about, but we do look very much into the consequences of it.”

A lack of gearing is all part of the new real estate strategy ATP put in place earlier this year. “We will not use any leverage or external financing in our investment,” Nielsen says.
But, he adds, this is not quite an absolute. The property team could find some reason – tax purposes, for example – why it makes sense to add debt to certain investments.

The overall thrust of the new strategy is one of direct control over investments. “We have moved away from fund investment, simply because we find that by investing directly we can be in better control – in terms of where we put our money, when we buy, how we manage the investment and when we exit it,” Nielsen says. Including debt in investments puts some of the control in the hands of others, he says.

ATP has several deals in the pipeline, some in Denmark but most of them elsewhere in Europe. “There are some interesting deals in the market, but we also find that many investors are chasing these deals which have long-term, stable cash flows,” he says. “We see pricing getting more and more aggressive in the core space.”

At the moment, ATP has a property allocation of DKK4.6bn, with 40% of this in direct investments in Denmark and 60% of it invested in Europe and the US.

While it is now aiming for direct investments rather than funds, Nielsen says it will keep the window open a little to put some money into the most attractive funds. “But 80% to 90% will be in direct investment.”