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The Irish Association of Investment Managers changed its recommended reference bond index from the ABN Amro Irish Government five-year index to the Merrill Lynch Emu Direct Government five-year plus index to take effect at the start of this year.
“This enables clients to benchmark against a much broader market,” says Ann Fitzgerald, secretary general of the IAIM. The lack of government debt issuance meant that from next October there would be just two liquid bonds left in the five-year index – rendering the index inadequate as a broad benchmark.
Investment managers agreed that the new benchmark should still be a five-year plus marker, and various index providers made presentations to the Irish market. The Merrill Lynch index was preferred for its transparency and ease of replication, says Jennifer Richards, performance measurement manager at Mercer in Dublin.
Preston Peacock, vice president at Merrill Lynch in London, says the fact that Merrill Lynch’s benchmark was objective and rules-based also helped it win the day. User-friendly information on Merrill Lynch’s index is available on Bloomberg terminals, he says. “So investment managers and clients would be able to see all the details of what composed the index... and this would enable detailed analysis,” Peacock says.
Ireland is not likely to be the only eurozone country switching its government bond benchmark to an index which encompasses sovereign debt from other European countries, fund managers say. However, Ireland’s need to change was particularly pressing because of the low volume of debt issuance.
“Now that the foreign exchange risk has been removed... mandates will have been expanded and the change in benchmark will follow,” said one manager. Rachel Fixsen

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