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Bank recapitalisation assets hold back Irish state fund returns

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  • Bank recapitalisation assets hold back Irish state fund returns

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IRELAND - The National Pension Reserve Fund grew by almost 11.6% in the final quarter to €22.3bn, preliminary end of year figures from the National Management Treasury Agency (NTMA) have revealed.

The NPRF's asset allocation has been split into a discretionary investment portfolio and a direct investments portfolio - which comprises the preference shares in Bank of Ireland and Allied Irish Banks - following the direction from the minister of finance in March 2009 to use €7bn of assets to recapitalise the two banks.

In 2009 the discretionary portfolio earned a return of 20.9%, resulting in an annualised return of 2.6% a year since the inception of the fund in 2001. However when the bank preference shares and related warrants - which are held at cost - are taken into account the overall return for the NPRF is 11.6%.

This is a significant improvement from the -29.5% return recorded for 2008. John Corrigan, chief executive of the NTMA, said the NPRF's equity investments were the "primary contributor" to the strong return following a sustained rally through the year-end. (See earlier IPE article: Ireland's NPRF reviews strategy amid bank bailout)

That said, the NTMA - which oversees the NPRF - noted the strength of this rebound has left markets vulnerable to earnings disappointment and weakness in economic indicators. Accordingly, during the equity rally, the NPRF had reduced its absolute risk and equity exposure through phased equity sales.

The fund had avoided selling equities to fund the recapitalisation programme - instead using cash reserves and liquidating the government bond portfolio. However, the investment in the two banks in May meant the NPRF's level of equity holdings in its discretionary investment portfolio increased from 57% to over 80%. Therefore, through the remainder of the year, it gradually sold €2.7bn of its equity holdings to reduce the exposure to quoted stocks to 63% by the end of December.

The value of the NPRF increased from €20.9bn at the end of September to €22.3bn by 31 December 2009. Although the investment return was responsible for some of this gain in the third quarter, the report also noted around €880m in assets were transferred from 10 university and state body pension schemes to the NPRF on 31 December 2009.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email

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