IRELAND - The €24.1bn National Pensions Reserve Fund (NPRF) has revised its long-term investment strategy, as circumstances have "changed materially" since the previous target asset allocation was set years ago.
The fund's commission has cut back on equities and aimed to boost diversification by investing in new asset classes.
It has also increased weightings to a number of asset classes - such as emerging markets, small caps, inflation-linked bonds, commodities, infrastructure and absolute return - which it said were more likely to deliver longer-term growth and protect against inflation.
The commission said it planned to cut its strategic asset allocation (SAA) to equities from 66% to 49%, slashing its allocation to global large caps from 56% of the portfolio to just 29%.
Global small caps and global emerging markets will be revised up from 5% to 10% each, while the fixed income component will increase from 13% of the portfolio to 18%.
Alternative assets jumped from 21% to 33% of the SAA, with 10% being earmarked for private equity, 8% property, 5% commodities and forestry, 5% absolute return and 5% infrastructure.
The commission said it would aim to manage short-term volatility risk more actively by varying asset allocation around these strategic levels.
"This policy," it added, "is based on taking significant positions if and when markets move to extremes, rather than on taking small positions on an ongoing basis or attempting to time the market."
The commission has also included a secondary objective of outperforming the cost of government debt over rolling five-year periods, as the Irish Exchequer had moved from surplus to deficit.
Meanwhile, the NPRF's Discretionary portfolio returned 2.3% over the first half of this year, but stumbled during the second quarter, losing 2.6%.
Pension officials said the €17.3bn Discretionary portfolio - which excludes the NPRF's Directed Investment portfolio - lost ground in Q2 due to the sovereign debt crisis and growing fears about the global recovery.
The €6.8bn Directed Investment portfolio returned 0.3% over the quarter and 4.5% over the year to 30 June.
Overall, the total fund lost 1.7% over the second quarter, returning 3% for the year to date and 11.5% in 2009.