IRELAND - The National Pension Reserve Fund (NPRF) has reported a negative return of -12% in the first half of 2008.

Figures published today showed the NPRF generated a negative return of -1.7% on its investments in the second quarter of 2008, which combined with the first quarter fall of -10.5% reduced the value of the fund from €21.2bn at the end of 2007 to €19.5bn by June 30 2008.

This represents a small increase in the value of assets compared to the end of the first quarter, when the pension fund stood at €19.4bn. (See earlier IPE article: NPRF falls by €1.8bn in Q1)

The NPRF, which is designed to meet as much of the cost of social welfare and public service pensions as possible between 2025 and at least 2055, said the -12% negative return reflected the "challenging conditions which have marked 2008".

In particular, it said the fund had suffered in the first three months of the year as global equity markets were impacted by the combination of the credit crunch and the rising price of commodities.

Officials pointed out the equity markets had temporarily rallied in May and April, increasing the value of the fund's assets, before "yielding to mounting concern about global inflation and slowing economic activity".

Following the publication of the latest results, the NPRF confirmed "in light of the uncertain market environment that has existed since the onset of the credit crisis, a cautious approach is being taken to investing the quarterly Exchequer contributions".

Figures from the latest annual report of the National Treasury Management Agency (NTMA), responsible for managing the NPRF until 2011, showed in 2007 the Exchequer contributed €1.7bn into the fund.

According to the report, published today, the value of the NPRF increased by €2.3bn in 2007 to €21.2bn, although only 3.3%, or €637m, was the result of investment returns.

However, comments made in the report also suggest based on current projections the NPRF should reach €140bn by 2025, and as a result should be able to meet pension costs until 2070.

As manager of the fund, the NTMA is directly responsible for the passive bond portfolio, valued at €1.7bn at the end of 2007, as well as the €1bn cash position and foreign currency hedging operations of €5bn.

The remaining investments are outsourced to specialist fund managers, but the asset allocation of the fund at December 31 2008 was 72.1% in listed equities, 1.9% in private equity, 3.1% in property, 1.3% in commodities, 16.9% in fixed income, 0.8% in currency funds and 3.9% of assets in cash.

Figures from the annual report confirmed the NPRF is pursuing an asset allocation strategy of 66% in equities, 20% in alternatives - including 10% in private equity and 8% in property - and 14% in financial assets such as currency and fixed income by the end of 2009.

Officials admit the NPRF "slowed the pace of investment in its property and private equity programmes" in 2007, initially because of little room for improvement in credit conditions, and then because of the effects of the credit crunch.

That said, at the end of year the NPRF had commitments of €1.1bn in property and €941m in private equity investments, and confirmed committed cash reserves will be invested in the sectors as suitable investment opportunities arise.

The NTMA also confirmed the NPRF holds shares in more than 2,500 quoted companies, however in the past few weeks the organisation has come under pressure to divest from companies with operations in Zimbabwe. (See earlier IPE article: NPRF to raise concerns over Zimbabwe investments)

Both Progressio Ireland, a development agency, and members of the political opposition party Fine Gael, have called for the fund to implement an ethical review of its investments.

At a recent meeting of the joint committee on foreign affairs it was revealed the Irish minister of finance, Brian Lenihan, had agreed to examine the overall issue of ethical investment. (See earlier IPE article: Ireland to review ethical investments)

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