June 25, 2022

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1 billion market losses for KLP

1 billion market losses for KLP

The pension company KLP provided a yield result, a return in excess of what the company guaranteed to its clients, minus 7.9 billion NOK in the first quarter. Therefore, KLP has taken out NOK 7.9 billion from the reserve fund to provide the return the company has guaranteed to its customers, according to a press release on Monday.

The yield was minus 0.75 percent in the first quarter.

– Considering the market development we have seen, the result is satisfactory, but these are very turbulent times. It was a very turbulent quarter, CEO Sverre Thornes says.

– Not likely to improve much in the second quarter?

– No, this is correct. It shows the importance of building resilience in the good times to meet the kind of market we’re seeing now.

A month and a half into the second quarter, the MSCI World Index was down about ten percent. The main index on the Oslo Stock Exchange fell by just over three percent.

– We tolerate well

KLP has hundreds of thousands of pension clients through municipalities and corporations. The Group also engages in banking, non-life insurance and real estate activities. At the end of the quarter, KLP’s total assets were NOK 902.9 billion.

KLP notes that the global economy has been severely affected by the war in Ukraine and price hikes. This has partly led to significant declines in the stock market and higher interest rates.

For us, there is a very big difference between whether the drop in value is caused by higher interest rates, i.e. an immediate drop in bond values, or a drop in the stock market. When the value of bonds goes down, we will have higher income in the future. We will also have new money invested at higher interest rates. All other things being equal, higher interest rates are beneficial for KLP owners if you look at the retirement system, says senior manager Thornes.

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There is a lot of tension about how the interest rate hike will affect the stock market. In the US, technology stocks, as measured by the Nasdaq, have fallen about 25 percent since the new year. The other two major indices in the US, the world’s most important financial market, also posted double-digit declines from their highs.

Thornes in KLP does not believe there will be a major market crash.

Higher interest rates ease the economy and put pressure on wages and prices. It will certainly be uncomfortable when you slow down, but that’s the whole point of higher interest rates. Then it cannot be ruled out that the stock market will react negatively, but the global economy is doing well, so a serious crash I think is less likely, he says.

Loss in global stocks

KLP distributes its portfolio into various asset classes such as stocks, bonds, real estate, loans and other financial assets.

At the end of the first quarter, 30.1 percent of the portfolio was invested in stocks. These investments gave a total return of 3.2 percent for the quarter. Investments in Norway helped curb negative development.

KLP’s global equity return was less than 4.9%. The Norwegian Equity Portfolio delivered a positive return of 4.7 percent in the quarter.

KLP’s investments in non-traded and held-to-maturity bonds accounted for 28.4 percent of the portfolio at the end of the quarter. Return measured at amortized cost was 0.8 percent in the first quarter.

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Other than that, existing bonds gave a negative yield of 4.6 percent and real estate a positive return of 1.4 percent in the quarter.

While client profit ended up at NOK 7.8 billion, the company’s after-tax profit was NOK 388 million, it was reported.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.