lagged behind that of the 1990s, when the average rate of investment return exceeded 10 percent (Table 6).<sup>11</sup>

**<u>Table 7: Investment Returns by Asset Class, 2001-2006</u>**

||2001|2002|2003|2004|2005|2006|Average|
|---|---|---|---|---|---|---|---|
|Bonds|6.5|10.6|4.7|7.0|4.4|2.7|6.0|
|Listed Equities|-13.5|-28.9|32.5|23.1|39.5|20.4|9.1|
|Other Assets|6.2|4.9|0.34|0.24|12.4|21.0|7.3|
|All Assets|-2.7|-7.9|7.6|8.3|11.4|7.9|3.9|

Source: ATP ATP operates with low expenses (Table 8). This reflects the large size of the fund and the compulsory participation of its members. These features produce economies of scale in administration and avoid large marketing costs. It also benefits from offering standardized products. This is in sharp contrast to private pension institutions, especially life insurance companies, which incur high marketing costs and offer a wider range of products. ATP administers several government funds on a cost recovery basis and also offers administrative services to other pension funds. These costs are reported separately. The internal administrative and investment expenses of ATP amounted to 7 basis points of average total assets in 2006. The higher level of administrative expenses in some years is explained by the development of new information systems. External asset management expenses, which are usually deducted from reported investment returns, amounted to an additional 11 basis points in 2006. These expenses have been increasing in recent years.

**Table 8: Internal Administrative & Investment Expenses, 2001-2006**

|basis points|2001|2002|2003|2004|2005|2006|
|---|---|---|---|---|---|---|
|Administrative|4|5|6|5|4|4|
|Investment|2|3|3|2|2|3|
|Total|6|8|9|7|6|7|

Source: ATP The high efficiency of ATP operations is also confirmed by the low level of expenses per account. In 2006, administrative expenses per account amounted to 33 DKK (about 5.5 USD)<sup>12</sup> Adding internal investment expenses brought the total to 55 DKK (Table 9). The low average cost per account is also explained, at least in part, by the presence of a large number of pensioners among its account holders. In 2006, the total number of members equaled 4.44 million people. Of these, 0.66 million were above and 3.78 million below pensionable age. Of the latter, 3.09 million paid a contribution in the preceding year. ATP

> 11 The data exclude the profits or losses generated by the use of interest rate swaps for hedging pension liabilities. There is some discrepancy in the reported data because the overall rate of return on the total portfolio amounted to 3.9 percent for the whole period 2001-2006, while each of the components achieved a higher rate. The data reported by ATP are daily, time weighted rates of return. But this approach should not produce the above discrepancy. Given that bonds and equities represent the vast majority of assets, the overall rate of return should lie between 6 and 9 percent, unless either or both of these rates are overstated in the calculations. The same pattern of discordant rates of return is reported by ATP for the five years ending in 2005 (ATP 2005:32).

> 12 The average exchange rate for 2006 equaled 5.95 DKK per USD.

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