LUNDBECKFONDEN INVEST

Invest generates returns with the primary purpose of securing sufficient reserves to protect the long-term ownership of the Foundation’s strategic investments and to maintain grant-making activities. The financial investments are spread across a diversified investment portfolio.

2022 was a challenging year, with significant losses across most asset classes. A traditional ‘60/40 portfolio’ – which sees investments allocated 60% to equities and 40% to bonds –would have experienced double-digit losses over the full year, as both equities and bonds experienced large losses. Against this challenging backdrop, Invest delivered a negative return of 5.9%.

For the first time in decades, inflation in the western hemisphere rose to more than 10%, fuelled by too much corporate and consumer demand chasing too little supply on the back of pandemic-led fiscal and monetary stimuli.

Russia’s invasion of Ukraine in February spurred an energy shock and, ultimately, almost a complete stop to natural gas flowing from Russia to Europe. In addition, global supply chain disruptions continued to plague companies in 2022.

Hence, central banks increased interest rates significantly to slow down the economies. Besides negatively impacting returns on both bonds and, in particular, long-duration equities, this also hurt cyclical assets due to widespread recession fears.

Return On The Investment Portfolio

Invest generated a loss of DKK 1,430m in 2022, versus a record gain of DKK 4,608m in 2021. The negative return was primarily driven by listed equities, which generated a loss of DKK 1,556m, or -12%. The investments in the consumer discretionary sector brought the largest negative return in absolute terms, followed by the IT sector. Industrials delivered a positive return, supported by the investment in FLSmidth.

The bond portfolio delivered a positive return of 2%, in stark contrast to comparison benchmark portfolios, which recorded significant losses. Invest benefited from early risk management actions, through buying put options on German government bonds, and having a very low duration risk.

Corporate debt/credit delivered a minor positive return of 0.8%, which was also materially better than the negative doubledigit returns for benchmark portfolios. The positive result was driven by distressed debt investments, direct loans and the internally managed high-yield corporate debt portfolio. The results also benefited from hedging against USD fluctuations.

Private equities generated a total return of -2.3%. Real assets, including real estate and woodland, generated a 6.5% return. Obel-LFI Ejendomme A/S and the woodland investments of LFI Silva Investments performed strongly.

In 2022, the expense ratio (including management fees) declined to 0.13% (0.18%) mainly reflecting lower payments of performance fees.

Investment Strategy

Invest has a long-term fundamental investment focus with a balanced approach to risk, quality and valuation, as it focuses attention on companies with secular growth – i.e., driven by forces that will likely be in place for an extended period of time. Invest entered 2022 with a ‘pro risk’ mindset, supported by the sentiment surrounding the ongoing global reopening, an expectation of strong earnings growth, and attractive investment opportunities within both equities and credit. The risk profile was adjusted towards less risk through derivates during 2022.

Long-term results for Invest remained strong, with annual returns of 7.7% and 7.8% over three and five years, respectively, both of which are materially above the benchmark return of 0.7% and 2.6%, respectively. This provides a firm endorsement of the investment philosophy and the strategy of investing in high quality companies across asset classes, with a view to generating an attractive long-term return while simultaneously having strong near-term risk management.