National pension fund sheds 4% in 15 months

The National Pensions Reserve Fund lost almost 4 per cent of its value on the stock market in the 15 months to the end of June this year, it emerged yesterday.

The 3.95 per cent fall compares to a decline of 9.69 per cent in the average Irish managed pension fund over the same period and reflects the conservative management position favoured by the commission appointed to oversee the fund.

The fund, which is designed to pre-fund social welfare and public-service pensions from 2025 on, was held entirely in cash until the beginning of this year, when it began to be progressively invested in equities and bonds.

The commission's annual report for 2001, released yesterday, shows the fund was worth €7.7 billion at the end of 2001, having gained 3.27 per cent since its establishment eight months previously.

Just less than half of this total - €3.7 billion - was committed to the markets in mid-January, with a further €2.3 billion invested at the start of April.

As of yesterday, €2.3 billion of the fund's assets was still being held in cash in various EU countries, a policy described by the commission as "prudent".

The commission said the general expectation was for this cash to be fully invested by the end of the year, but admitted that continued instability in the markets could result in a change to this plan. International equity markets have, on average, fallen by 5 per cent in July, losses that the commission acknowledged yesterday the fund would not escape. They declined to estimate its current value.

As of the end of June, 54 per cent of the fund's assets were invested in equities and 31 per cent in bonds. The professed long-term strategy for the commission is an 80/20 split between equities and bonds.

The chairman of the commission, Mr Donal Geaney, said this asset-allocation policy had been reviewed on two occasions since the fund's establishment: once after September 11th and a second time in April this year.

Neither review resulted in a change to the original policy, which had been developed on the advice of Mercer Investment Consulting.

"Based on the best advice available to the commission, we are satisfied that the 80/20 equity/bond split is still appropriate," said Mr Geaney.

This allocation is based on a theoretical annual return of 6 per cent from equities over the 25 years of the fund's life. "Six per cent over 25 years is substantial," said Mr Geaney. "If things change again, we'll look at it again."

Responding to calls that the Government's commitment to the National Pensions Reserve Fund - 1 per cent of GNP every year - should be diluted in light of current concerns about the public finances, Mr Geaney said that continued support for the fund was a political issue.

He added, however, that the pension liabilities being addressed in the initiative were unlikely to diminish. "It is a real liability one way or another," said Mr Geaney.

The chairman's position has also come under the spotlight in recent months, in light of his very public downfall at troubled pharmaceutical firm Elan.

Mr Geaney said yesterday that he had at no stage considered his position as chairman of the fund and had not been asked to do so. "Nobody has called me directly," he said. Mr Geaney later confirmed that 0.0075 per cent of the overall fund had been invested in Elan, an allocation that led to losses of €13 million.

The biggest losses sustained by the fund to date are attributable to telecoms stocks such as Nokia and Ericsson, according to the commission.

Mr Michael Somers, chief executive of the National Treasury Management Agency, which has been charged with managing the fund, said yesterday that the markets were "extremely difficult", adding that any 25-year investment term was bound to experience some "blips".

Fine Gael spokesman on enterprise, trade and employment, Mr Phil Hogan, said yesterday that he hoped the commission had not "taken great risks" in the investment of the fund.