Pensionsselskabers porteføljesammensætning i praksis - med fokus på private equity

Abstract

Falling rates in world economic has led to major changes in the financial marketplace. The risk premiums have fallen on the traditional assets and seem to be stabilized for a long period of time anticipated by a loose fiscal policy. Due to low-risk premiums, investors are starting to look for higher risks in other assets to compensate the low expected return. Alternative assets such as private equity seems to fit in this spot and have therefore gained a higher allocation in investment portfolios. This thesis investigates how the Danish pension funds construct their investment portfolio in the life cycle funds and how this affects the allocation to private equity. Danish pension funds have to the Solvency II regulation when they invest the customers pensions. This led to the hypothesis saying that there is a link between the regulation and the portfolio construction in the pension funds. In order to answer the research question and the hypotheses, the efficient portfolios are created based on the modern portfolio theory and data from JP Morgan. The efficient portfolios are created in three optimizations following two different types of methods used by the pension funds. The first construction method is based on two underlying portfolios which represents a low and a high-risk investment and the other one is based on three portfolios which also includes a medium-risk portfolio. The first and second optimization demonstrated that the total share allocated to alternative assets was too high and collided with the prudent person-principle as a part of the Solvency II regulation. It also concludes that requirements to the allocation of the assets are needed. The third optimization was defined by limits in the allocation are introduced. The limits secured that the portfolio fulfill the Solvency II regulation. The results of the thesis can conclude that the hypothesis is supported because the optimal asset allocation is restricted by the prudent person-principle. Finally, he thesis also concludes that there are various methods that can be used in the construction of an investment portfolio. The thesis explained various methods and the results showed that there is a minor variation between these methods. The thesis doesn’t conclude which method is more preferable.