Portfolio management of the Resolution Fund and the Deposit Guarantee Fund
Finansiel Stabilitet is responsible for ensuring that sufficient funds are available to maintain an effective contingency planning set-up. In relation to this responsibility, Finansiel Stabilitet manages the Resolution Fund and the Deposit Guarantee Fund, which may be deployed for crisis management of failing financial institutions.
The two funds have been built up through the contributions made by financial institutions. Finansiel Stabilitet is responsible for the investment of the funds and the statutory use of the funds’ assets in connection with crisis management. It is important to Finansiel Stabilitet that the management and investment of the two funds generate a market-conform return with low currency, interest rate and credit risk, and that the available financial resources of each fund are at all times proportional to the fund’s potential liabilities. Finansiel Stabilitet has developed portfolio management policies for both funds.
For the part of the funds invested in securities, a risk profile has been defined with an duration risk of about 2.5 years.
In 2024, market developments were affected by a number of central bank rate cuts. From June to December 2024, Danmark’s Nationalbank cut rates by a total of 1 percentage point. DESTR (Denmark Short-Term Rate), the rate that Finansiel Stabilitet receives on its cash deposits, thus stood at 2.6% at the end of 2024.
The rate cuts supported the performance of the part of the portfolio invested in short-term mortgage bonds. As illustrated by Figure 1 below, the mortgage bond portfolio generated a yield of 0% in the period from January to May, and the yield was thus below the return on cash deposits. From June onwards, however, the mortgage bond portfolio delivered an excess return, mainly driven by capital gains as a result of the interest rate cuts. In 2024, the mortgage bond portfolio generated a yield of 3.7%, compared with a return on cash deposit at DESTR of 3.3%.