IRELAND - Irish pension funds have been caught in a  "perfect storm" of stock market declines, as managed pension funds fell 21% in the 12 months to June 2008, Hewitt Associates has revealed.

Latest figures from the consulting firm's Irish Managed Fund Index showed over the last year Irish pension funds have returned -21%, although it pointed out funds with "relatively high" exposure to Irish equities may have suffered more, because in the same period the Irish ISEQ Index fell 42.2%.

In the six months to June 30 2008, pension funds performed slightly better with negative returns of -14.9%, and in the last three months Hewitt revealed the index has improved further to report returns of just -4.2%.

Hewitt claimed the global credit crunch at the end of 2007 had triggered a steep stock market decline, primarily in financials - which dominate the ISEQ - and that, in turn, combined with a housing downturn to create a '"perfect storm" for Irish investors.

As a result, the consultancy warned the poor performance over the last 12 months could be "disastrous" for members of defined contribution (DC) funds who are close to retirement if they have not yet started the move from equities to bonds - generally advised to begin five years before retirement.

In addition, Hewitt said the current economic conditions highlighted the need for trustees of DC schemes to consider offering members additional options to allow diversification away from traditional areas, such as equities, and in particular Irish equities.

Deborah Reidy, spokeswoman for Hewitt Associates, said: "The last 12 months to the end of June have been a particularly difficult period for all pension funds, in particular those with relatively high exposure to Irish equities."

As a result she claimed the "recent disastrous performance highlights the benefit of being a member of a defined benefit (DB) scheme where the employer takes all or part of the investment risk for members".

That said, Hewitt admitted many DB schemes will have seen significant fall in their funding levels because of volatility in the equity markets, but claimed those which adopted well-diversified investment strategies "will undoubtedly have fared better off than those invested in traditional managed fund strategies".

It claimed the better performing schemes would generally have a lower equity weighting - with almost no Irish equity bias - alongside higher bond weightings and some investment in alternatives real assets such as commodities, non-Irish property or hedge funds.

Hewitt claims "recent events have highlighted the need for true diversification in pension funds".

However, the latest figures for the Hewitt Managed Fund survey for the end of June revealed its managed fund index achieved a negative return of -8.3% for the month, slightly lower than the average managed fund which reported a return of -8%.

Oppenheim Investment Managers was the best performing fund in June with a return of -6.5%, closely followed by Davy (formerly Aberdeen) which returned -6.6%, while Eagle Star and Standard Life Investments both achieved -6.9%.

Canada Life/Setanta Consensus and Hibernian were joint-bottom in the monthly survey with returns of -9.1%, although AIBIM Passive also performed poorly with a return of -8.7%.

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