IRELAND - Irish pension funds should re-evaluate their Irish equity weightings following recent anxieties over allocations to Elan and AIB, and venture further into other European stocks, according to William M Mercer.
Mercer recently produced a survey highlighting the likely impact of both companies on the typical Irish pension fund portfolio, concluding that funds could expect to underperform by up to 2% as a result of the plummeting share prices.
But according to Mercer, a weighting of 5% or less to the asset class is now a more appropriate allocation in light of recent events - around 13% lower than a traditional average weighting.
Even so balanced managed funds have posted a near 17% decline in commitments to Irish equities since 1997 - one factor that softened the Elan/AIB blow.
The bias towards Irish equities is a historical one based on the fact that liabilities were payable in the then domestic currency - the Irish Pound - thus eliminating any currency risk, added Mercer. However, this risk was effectively eliminated with the introduction of the euro in Ireland in 1999.
“The issue for trustees to consider in light of recent events is whether they take ownership of this decision themselves to continue to delegate their Irish equity allocation to their manager”, said the firm.
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