Green light for Irish fund
The Irish parliament has given the green light to the National Pensions Reserve Fund – the war chest it hopes will meet spiralling social welfare costs in the light of demographic imbalances from 2025 onwards.
The fund is set to have around IR£6bn (e8bn) pumped into it by the year end but it has been estimated that it could grow to as much as 33% of GDP by 2020.
The bill, however, still has to be brought into force by the minister for finance, Charlie McCreevy.
According to Michael Somers, chief executive of the Dublin-based National Treasury Management Agency (NTMA), the fund will be managed by a body known as the National Pensions Reserve Fund Commission – comprising four to seven so-called ‘commissioners’ – akin to trustees, while the NTMA deals with the fund’s day to day business (see page 8).
Somers says he expects McCreevy to signal a February or March start to the fund’s activities. Significantly, he believes the lion’s share of the fund’s assets will be outsourced to begin with – a move which should whet the appetites of asset managers.
And he believes that few of the assets will go to the Irish stock market. Irish government securities will not be in the fund’s possible investment list to ensure that it cannot be used to artificially support government borrowing in the future.
“Our own view is that probably very little will end up being invested in Ireland, since Irish stocks come to just 1% of Euroland equities. “ But there will be heavy discussions about the asset allocation and split between equities, bonds real estate and cash.”
At a recent investment conference of the Irish Association of Pension Funds, Anne Maher, director of An Bord Pinsean (the Irish Pensions Board) said the bill would mark a “significant development” in Irish pensions. There is expected to be around IR£6bn transferred to the new reserve fund.
“Assuming an annual investment return of 5% in real terms, and with no draw-downs allowed, the fund could approximate to over 33% of GNP by the end of 2020,” she noted.
She commented that the fund would have a strictly commercial investment mandate with the objective of securing the optimal return over the long-term – subject to prudent risk management.