Irish funds drop 23% 'but could have been worse' - IAPF

IRELAND - Irish pension schemes lost almost €20bn in 2008, but this is “less than might have been expected” following reductions in equity allocations to domestic stocks, The Irish Association of Pension Funds (IAPF) has revealed.

Figures from the organisation’s annual asset allocation survey showed the value of Irish pension scheme assets dropped 23% from €86.6bn to €66.7bn by the end of 2008, although it confirmed investment in equities dropped below 50% during the year.

The survey showed equity allocation dropped from 66.3% at the end of 2007 to 47.8% a year later, a shift which Patrick Burke, chairman of the IAPF, said is “less than would have been expected from market movements alone”.

He suggested market changes would on their own have left equity investments to be worth approximately 54% of total assets, so the even lower asset allocation left him to conclude “we must surmise that this reflects a decreasing appetite for equities”.

This view appears to be supported by a continued decline in Irish equities held - traditionally a large part of the pension fund allocation - as the proportion dropped to just 3.5% by the end of last year from 8.2% in 2007 and 12.4% in 2003. 

Bond allocations, meanwhile, increased from 18.5% to 25.6% in 2008 and alternative assets jumped from 2.3% to 7.1%, although the IAPF also highlighted a significant move into cash - from 3.8% to 11.4% over the year - which it suggested could represent a “tactical decision to invest in cash until there is greater stability in markets”.

Despite the 23% fall in the value of funds, Burke claimed: “The change is less than might have been expected based solely on market conditions and may reflect changes in investment strategy and/or reasonably strong cashflow into pension funds during the year.”

Elsewhere, the survey findings suggested there has been a continued move to defined contribution (DC) schemes, as 70.8% of assets were managed on behalf of defined benefit (DB) schemes, 1.9% were in additional voluntary contribution (AVC) schemes, and 27.3% were in DC - almost double the 14% reported in 2006.

However, Jerry Moriarty, director of policy at the IAPF, warned ahead of the government’s supplementary budget on 7 April: “The loss of almost €20bn in pension funds assets emphasises the scale of the problem which pension funds are facing. It underlines the need not to do anything in next week’s Budget which would cause further damage to the retirement prospects of pension scheme members.”

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