IRELAND - Absolute return strategies are one of the potential asset classes under consideration by the National Pension Reserve Fund (NPRF) for future investment.

The NPRF is currently conducting a "root and branch" review of its investment strategy, which is expected to be completed in the first quarter of 2010. However, while the review has not been triggered by the crisis - the last full review took place in 2004 - it is expected the scheme will look at lessons learned from the crisis as well as potential new investments.

John Corrigan, former director of the NPRF and now chief executive of the National Treasury Management Agency (NTMA), told attendees at an IPE awards seminar in November that absolute return funds was one area of consideration for future asset allocation. At the time, however, he highlighted concerns about the execution of such strategies and the level of reliance on the particular skill of managers to pick "winners". (See earlier IPE article: NPRF's Corrigan named head of NTMA)

In an interview with IPE for the February issue of the magazine, Adrian O'Donovan, senior manager and commission secretary at the NPRF, said: "We can't prejudge the results of the investment strategy review but one lesson from the financial crisis is the need to consider the extent to which the fund is truly diversified."

He noted that while the NPRF has investments across a number of different asset classes which perform differently in certain economic situations, during the crisis there was a "flight to safety with investors eschewing all risk assets as they sought safety in government bonds".

"Up to now we have managed the fund by focusing on long-term risk and accepting the volatility that accompanies this. There may be a need in future to give more emphasis to diversification in all market conditions. Absolute return funds represent one possible strategy we are looking at in this context," added O'Donovan.

He also noted that as part of the review the fund is also looking at the potential for "being more dynamic in different market conditions, taking larger positions away from benchmark when market volatility reached levels with which the fund was not comfortable or when pricing moved to extremes".

Further insight into how the NPRF weathered the crisis in 2009 can be found in February issue of IPE, to be published next month.

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