IRELAND - The National Pensions Reserve Fund (NPRF) saw a negative return in the first quarter of 2008 of -10.5%, which has wiped €1.8bn from its value.
Latest figures showed the fund's value at the end of March was €19.4bn, down from €21.2bn at the end of December, which the NPRF attributed to an "extremely challenging quarter for investment management everywhere as markets felt the impact of the sub-prime crisis in the US".
However, the NPRF pointed out while it had achieved a negative return of -10.5%, the FTSE Eurobloc index fell 16% by the end of the first quarter, while the S&P 500 dropped 16.5% in euro-denominated terms.
In addition, the fund claimed despite the "poor performance during the quarter" it has "recovered somewhat since end of March" with gains of 4.5% in April, and highlighted despite the fall it is still showing a positive return of 4.2%, on an annualised basis, between its inception in 2001 until the end of March 2008.
The NPRF has also released full figures for the 2007 calendar year, which reveal the Irish government's pension reserve fund achieved a positive return of 3.3% over the 12 months, as returns were driven mainly by equity investments despite the "extreme volatility" in the second half of the year.
The figures showed the fund's commodities investments also performed strongly in 2007, while returns from its bond allocation were "broadly flat", although it highlighted performance was "assisted" by its policy of hedging 50% of its foreign currency exposure, helping to limit the "negative impact of euro strength on non-euro denominated returns.
Ireland established the NPRF in 2001 in order to meet as much as possible of the cost of social welfare and public service pensions to be paid between 2025 and 2055, and the figures showed since it began the fund has earned a total of €3.8bn above the initial government contribution.
However, Brian Cowen, the Irish finance minister, last month confirmed public sector pension liabilities in Ireland had reached €75bn, and admitted while long-term investment could lead to short-term volatility, he said at the time there were no plans to increase the contributions to the scheme which is currently 1% of GNP. (See earlier IPE story: Irish public sector pensions hit €75bn)
The NPRF stated in its results it is required by statute to secure the "optimal total financial return" for investments, subject to acceptable risk levels, so "consistent with this remit" it emphasised its asset allocation strategy is based on the expectation "equities and equity-like assets" will outperform bonds over the long-term.
But it added: "As equities are inherently more volatile than bonds, this strategy will inevitably lead to performance swings over short time periods."
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