IRELAND - The National Pension Reserve Fund (NPRF) has reaffirmed its desire to invest at least €200m in domestic public sector infrastructure projects, particularly as there is likely to be a shortage of assets for these projects going forward.
At a meeting of the Irish Public Accounts Committee, Dr Michael Somers, chief executive of the National Treasury Management Agency (NTMA), told members "we are very conscious of the fact that very little of this fund has been invested in Ireland".
He claimed the NPRF has been "constantly trying to find projects" as it originally allocated €200m of the €20bn pension fund to be used towards infrastructural projects in Ireland, but claimed "up to now there has been no shortage of assets to build projects. Money has been freely available but that is going to change".
Somers highlighted previous failed bids - in which the NPRF had been part of a consortium - had attracted negativity because of potential conflicts of interest between the NTMA looking for value for money and the NPRF seeking the best rate of return.
As a result, he pointed out the organisation has asked that if there is a Public Private Partnership (PPP) contract in the future the NTMA - as manager of the NPRF - should arrange the full funding of the project, either solely form the NPRF or with a consortium, and then only tender the design, build and maintenance.
That said, he admitted the pension fund has also struggled to manage the 3% 'Maastricht' limit on public spending, as he claimed if the NPRF builds an office block the spend rides close to the 3% limit, yet if it buys shares in a company - which then builds the office block - the investment doesn't count.
Somers admitted the NTMA has "had discussions with various State agencies which would like us to help them to build some projects", but said it had asked them to "confront this Maastricht issue because we could not do so. It is all to do with the overall government limit on how much money should be spent".
As a result he said: "There is €20bn in the fund that we have tried to invest in Ireland where we can and that while there has not been an issue about finding money until now, there will be one in the future."
Paul Carty, chairman of the NPRF Commission, added the fund currently invests around €590m, or 3% of the fund, in Irish equity and debt securities, and a further €60m to a small number of Irish venture capital firms, subject to their meeting a number of conditions, principally to do with fund size.
He did admit "a particular issue that arises from time to time is investment by the fund in Irish infrastructure", and added "we would like to invest in Irish infrastructure and infrastructure forms part of our target asset allocation".
Carty said: "One of the factors that would seem to have prevented us accessing this market is that until now there does not seem to have been any shortage of capital. However, the tighter lending environment which brought about by the credit crunch may lead to more investment opportunities for us. This is an area we are actively looking at."
The debate on the 2006 annual accounts of the NPRF meanwhile revealed recent volatility had reduced the value of the pension fund from €21.2bn at the end of December 2007 to €20.5bn at the end of May 2008.
Figures presented by Carty showed while the fund's equity portfolio responded well to "difficult market conditions" in 2007, it left them "vulnerable to the effects of further credit losses by banks and the crisis spreading beyond the financial sector".
As a result, while the pension fund reported a loss of -10.5% in the first quarter of 2008, Carty claimed the fund had benefited from an equity market rally in April which had "recouped much of this decline" to show a return of -5.3% in the five months to the end of May.
However, Carty confirmed although the pension fund is expected to grow to €140bn by 2025, it is expected the NPRF will only be able to meet 25-30% of the public pension liabilities that will have arisen by that date.
He said "exercises will be done to try to quantify in numerical terms" what the liabilities are within the next 12 months, and confirmed the review would be a "detailed exercise" looking at issues such as life expectancy, age profile, and birth rate.
And in response to questions about the asset allocation targets of the fund in the current economic climate, Carty also said the commission is "very cautious", further suggesting meeting the targets for 2009 is a gradual process.
At present, he said, the fund is "holding back" as it is underweight in equities and overweight in cash, with a proportion of about 7%, or €1.4bn of the fund in cash, while the fund's targets for private equity and property investment is 8%, yet indirect property exposure is just 3.8%.
He said: "We would slow our investment in that area if we thought - as we do - that the opportunities might not be right for us. We are behind our targets in terms of private equity and property. We slow matters down and apply caution."
However commenting on the effect of the current volatility Carty claimed the fund is "very diversified to take into consideration the risk that applies, even in these volatile situations".
"That is why, since our last meeting, we have moved to alternative assets. We are looking at private equity and property for which the returns are likely to be better, as well as commodities. Diversification is essential in assessing risk," he added.
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