THE NATIONAL Pensions Reserve Fund earned profits of €16.9 million by lending shares and securities to short sellers speculating on global stock markets during 2005 and 2006, The Irish Timeshas learned.
The fund generated profits of just over €10 million in 2006 and €6.9 million in 2005 from its securities lending programme, the investment director responsible for the fund, John Corrigan, said yesterday.
However, no Irish publicly-quoted shares were included in the fund's securities-lending programme, and "there is no intention of including them in the future", Mr Corrigan added.
The fund is a public resource, an extra-budgetary reserve enjoying a status similar to the Social Insurance Fund.
It is financed through Government investing 1 per cent of gross national product each year in the reserve. At the end of March 2008, the fund was valued at €19.4 billion.
It has been argued that short selling shares by financial institutions and hedge funds has been a major source of the volatility and instability that has characterised global equity markets over the past year.
Short sellers attempt to generate profit from falling share prices. They borrow stock they do not own, sell them on stock markets and hope to buy them back later at a lower price. The borrowed shares are then returned to their original owners along with a fee.
Mr Corrigan said the pensions reserve fund's securities-lending programme was "lucrative".
The arrangement is operated through the fund's global custodian, Bank of New York Mellon Corporation.
The reserve fund was established in April 2001 to meet as large a proportion of the cost of social welfare and public service pensions from 2025 onwards. No money can be drawn down from the fund before that date. It is controlled by the National Pension Reserve Fund Commission and its functions include the shaping of the reserve's investment strategy. The commission is chaired by Paul Carty, former managing partner of Deloitte & Touche Ireland.
Members include Dr Brian Hillery, chairman of Independent News & Media, and Maurice Keane, former group chief executive at Bank of Ireland. The National Treasury Management Agency is the fund's manager and its chief executive, Dr Michael Somers, is a member of the commission ex officio.
Reflecting the slide in global equity markets, the fund posted a negative return of 10.5 per cent in the first quarter of this year.
However, despite this slippage, the reserve has still returned an average annual return of 4.2 per cent since its establishment in 2001. Consequently, by the end of March 2008, it had earned a total of €3.8 billion in excess of Exchequer investment contributions since its inception in 2001.
