ATP’s exposure to US real estate is set to wind down over the next few years as it moves to a more direct investment strategy.
Denmark’s DKK705bn (€73bn) statutory pension fund, which has several real estate fund investments in the US, is not planning to make any new commitments to the market.
Some of its existing fund investments in the US are likely to be gradually wound down in line with ATP’s new strategy of investing directly. The pension fund has no plans to take a direct approach in the US.
Michael Nielsen, chief executive of ATP’s property investment arm ATP Real Estate, said: “We do not have any direct investments in the US, and whether we would get those I really don’t know.
“I find it a bit more complicated being a Danish direct investor in the US market, and right now we also have a currency issue.”
Nielsen said that ATP Real Estate now has investments in eight property funds in the US, including holdings in four large core funds and more value-add funds.
“But we have a currency issue in the current market, because ATP has a policy where we hedge all foreign currency exposure – except the krone and euro – meaning that if we invest in the US, we have to build into our business case the hedging costs,” he said.
“With the interest rate environment we have today, these hedging costs can be rather expensive, and, with property returns being under pressure as well, there wouldn’t be much room for covering hedging costs.”
ATP Real Estate is currently comfortable with its existing US investments, even though it does pay hedging costs on these.
“I think we went into these markets at the right time – in 2009 and 2010 – and this market has picked up,” Nielsen said.
As part of ATP’s recently announced overhaul of its portfolio construction and investment strategy, it has highlighted a sharper focus on direct investments.
Chief executive Carsten Stendevad said at the end of last year that, across all its asset classes, ATP had reduced fund investments by nearly €1bn, and that the trend was set to continue.
Nielsen said ATP Real Estate will try to copy its direct investment model in foreign markets as well.
“But it’s not so that we will sell off all our funds from one day to the next,” he said.
“Many of these funds are are closed-ended funds and they will simply wind down over the next three to five years. And then we have a proportion of open-ended funds and we simply monitor when is it the right time to exit these funds, or whether we prefer to stay in, if it is a very attractive fund.”
But he confirmed that ATP’s main principle was to move away from the indirect investment approach.
“If we open up for US investments again, we haven’t discussed how we should organise it,” Nielsen said.
In principle, however, ATP wants to keep investing in the US property market, he said.
“From a real estate point of view and risk diversification point of view, you should have something at least in these big markets, but right now we have the currency issue which means we are not an active investor over there,” he said.
ATP Real Estate last week reported an 8.8% return on its investments, up from 6.7% the year before, with its portfolio value ending the year at DKK34.6bn (€4.6bn).