The National Pensions Reserve Fund posted the best annual growth of its five-year history in 2005, rising in value by 19.6 per cent, or €2.4 billion.
This brought the value of the fund to €15.4 billion at the end of December, with the increase due mostly to strength in stock markets around the world.
The fund's goal is to pay for the bulk of social welfare and public service pensions over coming decades. Three in every four people working now are expected to benefit from the fund during their retirement.
The fund's total value included a €1.3 billion contribution from the Exchequer, the equivalent of 1 per cent of economic output.
Since its inception in 2001, the fund has earned €3.3 billion in excess of the State contributions.
Paul Carty, chairman of the National Pensions Reserve Fund Commission, which oversees the fund, said the 2005 result reflected the fund's policy of "averaging in" its investments during the weaker markets of its earlier years. This saw the fund allocate its cash bit by bit into assets such as stocks and bonds, rather than all at once.
Of last year's performance, he said: "We can't expect returns like that every year."
Even with growth of almost 20 per cent, however, the return was slightly behind the average achieved by private-sector fund managers in the Republic last year. Mr Carty attributed the difference to the fund's dollar hedging policy.
"We're very much on target," he added. The commission wants to have a fund of €140 billion by 2025 and, with this in mind, revamped its asset allocation policies last year.
This saw €404 million being committed to property projects around the world, and a further €181 million promised to private-equity funds, structures that take active investments in companies.
This cash will be drawn down over a period of years, with the fund hoping to have allocated €2 billion to both by 2009.
The commission is also examining a possible entry into forestry investment. Just 0.75 per cent of the overall pensions fund was invested in Irish-based assets at the end of 2005, with these including stocks such as AIB, Ryanair, CRH and Anglo Irish Bank.
Mr Carty reiterated the commission's desire to allocate some of the fund's assets to domestic infrastructure projects through public private partnerships (PPPs).
"The commission has a strong desire to invest in PPPs," said Mr Carty, adding that €200 million had been earmarked for this area. Some €20 million had been committed last year to the project to upgrade Dublin's M50, but this fell through when the tendering process was halted. A new tender for the €1 billion project is under way and the commission would like to offer funding to the winner.
"We intend to go back again," said Mr Carty.
The commission is also involved in a tender of its own, following the withdrawal of a €6 billion passive investment mandate from three fund managers, including Bank of Ireland Asset Management, last year.
