IRELAND - The National Pension Reserve Fund (NPRF) reported an overall return of 4.8% in the first quarter of 2009 as its direct investments in Bank of Ireland and AIB delivered 4.2%.

At the end of March 2010, the pension fund's discretionary portfolio - representing 70.2% of total investments held and excluding the €7bn directed investment portfolio used to recapitalise two banks last year - produced a return of 5.1% driven by a strong equity performance.

The NPRF noted performance was strongest among investments in non-eurozone markets and boosted by the strengthening of the dollar against the euro. But it warned that, due to equity markets having now priced in substantial earnings growth in 2010, "any failure to deliver will disappoint".

The value of the pension fund increased by more than €2bn to €24.5bn, although this included the transfer of around €1bn in assets from three university pension funds under the Financial Measures (Miscellaneous Provisions) Act 2009. (See earlier IPE article: Ireland unveils uni pension transfer details)

At the end of the first three months of 2010 the discretionary portfolio had increased in value from €15.3bn in December to €17.2bn and the directed investments portfolio accounted for 29.8% of the fund with a value of €7.3bn.

This increase in the value of the directed investments was attributed to the payment of the first annual dividend on the Bank of Ireland (BoI) preference shares owned by the NPRF in February. (See earlier IPE article: Irish roundup: Bank of Ireland, AIB)

However, because the European Commission had requested that discretionary coupon payments on tier 1 and tier 2 capital instrument in BoI - including the NPRF's preference shares - are not paid while it considers the bank's restructuring plan, the dividend comprised of €250.4m ordinary shares.

The NPRF revealed these shares had increased in value to €295m by the end of March 2010. This confirmation of a 4.2% return on its directed investments follows an announcement earlier this week that the NPRF's holdings in BoI could increase to 36% of the bank's ordinary share capital as it participates in a capital raising for the bank.

Despite converting some of its preference shares to ordinary shares as part of the transaction, the NPRF will still retain approximately €1.7bn of preference shares with a slightly higher coupon rate of 10.25%. (See earlier IPE article: NPRF to increase holding in BoI to 36%)

The overall asset allocation of the NPRF's discretionary portfolio (excluding its directed bank holdings) at 31 March 2010 comprised: 32.3% in large cap equity; 3.5% in small cap equity; 3.4% in emerging markets; 2.8% in private equity; 1.8% in real estate; 0.7% in commodities; 5.4% in bonds; 0.8% in currency and asset allocation funds; 15.3% in cash, and 4.2% in university pension fund assets.