The ATP Group Annual Report 2012

Management's Review Business Model Risk Pension Hedging and investment Hedging Investment Administration Social Responsibility The ATP Group Financial StatementsDevelopment in overall return on InflationDKK milion2,0001,5001,0005000(500)(1,000)(1,500)Q1 Q2 Q3 Q4The portfolio of infrastructure investments produced a returnof DKK 0.8bn. This portfolio includes forestry investments inNorth America and Australia. At end-2012, the overall marketvalue of ATP's forestry investments was DKK 1.8bn.The externally managed beta reference portfolio with strongrisk diversification recorded a return of DKK 0.4bn. Thisportfolio is invested in a large number of assets, the objectivebeing for the return to be stable in changing economicclimates.The portfolio of financial contracts, consisting of inflationswaps, recorded a negative return of DKK 0.2bn.Hedging strategies consisting of inflation caps and swaptionsprovide protection from rising inflation in a fairly simpleand efficient manner. This portfolio yielded a negative returnof DKK 2.6bn, driven by falling volatility of long-dated yieldsin Europe during 2012.Valuation of real-estate investmentThe market value of each domestic property is calculated in accordance with the rules laid down by the Danish FinancialSupervisory Authority (FSA). The required rates of return on ATP’s properties range widely from 5.0 per cent to 8.5 percent. The weighted average required return on all properties amounted to 5.6 per cent in 2012, down from 5.7 per cent in2011. The market value of the European real-estate funds is based on individual market valuations of the underlying realestateportfolios. Valuations are performed mainly by external market assessors in accordance with internationally acceptedprinciples.Inflation caps and swaptionsWhen entering into agreements on inflation caps, ATP pays a fixed premium. At the same time, ATP's counterparty undertakesto pay the difference between an agreed rate of inflation and the actual rate of inflation, if this difference is to ATP's advantage.Over the life of the inflation cap, ATP cannot lose more than the premium paid – regardless of inflation developments.When entering into swaption agreements, ATP also pays a fixed premium. At the same time, ATP's counterparty undertakesto pay the difference between an agreed 30-year nominal interest rate and the actual nominal interest rate, if this difference isto ATP's advantage. Over the life of the swaption, ATP cannot lose more than the premium paid – regardless of interest-ratedevelopments.The ATP Group – Annual Report 201253