The National Pensions Reserve Fund (NPRF) has seen its stake in two of Ireland’s bailed-out banks outperform its discretionary portfolio over the course of the third quarter.

According to a quarterly update, covering the three months to the end of September, the €15.6bn reserve fund saw the directed portfolio return 2.7%, increasing assets under management from €8.8bn to €9bn.

The directed portfolio, comprising the government’s shareholdings in Allied Irish Banks and Bank of Ireland, saw double-digit returns for the second quarter this year, following returns of 4.3% in the three months to June.

The discretionary portfolio, still controlled by the NPRF Commission until the fund is replaced with the proposed Ireland Strategic Investment Fund (ISIF), only returned 1.8% over the same period, resulting in an overall return of 2.3%.

However, the €6.6bn discretionary portfolio still outperformed the annualised return since the fund’s launch in 2001, returning 4.5% over the first nine months of the year, compared with a 3.9% return per annum over the last 12 years.

Its asset allocation remained largely unchanged compared with the end if June, with 30% invested in small and large-cap equities, as well as emerging market stocks.

A further third, or €2.1bn, of the portfolio was invested in alternative assets, including €716m in private equity, €402m in property and a similar stake in infrastructure, as well as commodity and holdings in absolute return funds.

The remaining €2.5bn was held within the financial assets portfolio – comprising fixed income and €1.8bn in cash holdings, down by €100m over the end of June, but a significant increase over the €1.5bn held at the end of March.

The Irish government is to use assets held within the NPRF’s discretionary portfolio to fund domestic investment, funneling investments through the ISIF, announced in June.

The step will see the link between pre-funding state pension liabilities and the NPRF severed.