IRELAND - Irish managed pension funds have reported returns of 4.4% in April, a significant improvement from the negative return of -11.4 in the first quarter of 2008, Hewitt Associates has revealed.

Betty O'Reilly, of Hewitt Associates, said the latest figures from the Hewitt Managed Fund Index "reflects a recovery in values on global equity markets" as the FTSE World Equity Index was up more than 7% in April, while the Irish market rose by just under 3%.

However, O'Reilly warned markets "have some further way to climb to recover the losses of the previous nine months. The Hewitt Index is showing a decline of 7.5% on a year-to-date basis".

Hewitt pointed out the fall in world equity markets since mid-2007 has "understandably generated concerns on funding crises for pension funds", but O'Reilly said while the "recent pick up is very welcome, it is too early to say if the worst is over", as the Hewitt InVision Survey for Q1 2008 revealed average returns in Irish managed funds of  -11.4%.  (See earlier IPE story: Irish managed pensions drop  15% in 12 months)

That said, the consulting firm claimed the long-term picture is more reassuring, as recent analysis by the firm on the impact of market cycles showed, even allowing for the recent falls, Irish pension managed funds have risen by 6.5% per annum above inflation over the last 20 years.

O'Reilly said: "Markets, by their nature, are cyclical, tending to overheat on the upside and over react on the downside. It is too early to say if the April trend marks a new cyclical upturn, but there is reassurance in longer-term trends."

For example, the InVision survey revealed in 1990 the Hewitt managed fund index fell 15.7% over a three-month period, but after six months it returned to its previous high and enjoyed "sustained growth" until 1998.

At this point, the index fell again by 11.9% in a three-month period before recovering to previous levels after four months, while in the spring of 2003, as market values "bottomed out", the managed fund index lost 30.4% over a period of 28 months.

Hewitt argued in each market cycle, the recovery has been "greater than the downturn", which is reflected in the long term increase in value as  €100 invested in an average managed fund in 1988 is worth €694 today, a return of almost 10% per annum, and well above the inflation rate for the same period of 3.2%.

In addition, the firm's analysis claimed over the last 30 years Irish pension fund returns are in excess of 13% per annum, while inflation has averaged 5.6%, giving a long-term real return of 7% per annum to a typical Irish pension fund investor.

O'Reilly added: "Pension fund investors are there for the long term. While market crises make alarming headline news, long term statistics are reassuring".

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