11 LEO Foundation Annual Report 2020
Investments
Management review
Financial statements
Investments – a roller coaster year The main objectives of our investments are to ensure continued financial capability to support LEO Pharma’s long-term continuation and strategic development, as well as provide funds for the LEO Foundation’s philanthropic activities. In line with these objectives, we strive to generate the best possible returns while retaining a sensible, well-balanced risk profile.
The financial markets were on a roller coaster ride in 2020. After a very strong start to the year with global equity returns boosted by a stronger US dollar, markets turned around completely following the global outbreak of COVID-19. In less than a month, global equities were down more than 30%, and credit spreads widened to levels not seen since the financial crisis of 2008-09. COVID-19 continued to be the key theme for the remainder of the year. Huge financial and fiscal support across the world stabilized markets, and a slow recovery started. Risk appetite increased in Q4, following the US presidential election and signs that COVID-19 vaccines would soon be available. 2020 was by no standards a normal year. Yet looking at the LEO Foundation’s financial investments in isolation, it would be tempting to characterize 2020 as a normal year, in which most asset classes, despite uncertainty and surprises, delivered returns at year-end in line with long-term return targets.
Strong return despite roller coaster impact LEO Holding’s financial portfolio generated a return of DKK 968 million or 6.5%, with all the
main asset classes – equities, credit (including currency hedging), government and mortgage bonds, and alternatives – contributing positively. Equities contributed almost DKK 800 million and achieved an asset class return of 11.4%. However, returns for individual mandates were between -6% and +45%, highlighting the importance of diversification. Credit contributed DKK 40 million, while the government and mortgage bond portfolio returned 1.6% – a strong return given the negative yields on government bonds. Alternatives generated a return of 4.8% (DKK 100 million), driven by strong hedge fund returns, and negatively impacted by private equity funds being in the early stages of their investment period.
Asset allocation of the investment portfolio at 31.12.2020
Equities 51.9%
Increased allocation to illiquid alternatives – and a new Tax Code of Conduct
Credit 24.5%
In 2020, LEO Holding continued to execute its long-term strategy of increased allocation to illiquid alternatives. This included commitments to – and investments in – distressed credit, private equity, and real assets. The exposure to real assets increased by almost DKK 600 million,
Alternatives 14.2% Government and mortgage bonds 9.4%
