IRELAND - The National Pensions Reserve Fund (NPRF) has recorded losses of almost e750m in the year ended December 31 2002.
In an attempt to soften the blow, chairman Donal Geaney pointed to the average performance of Irish managed pension funds which suffered losses of -19.3% in 2002, only slightly worse than the Fund’s -16.1%.
With 80% of the fund, which was set up to supplement the PAYG system by aiming to meet about one third of the cost of social welfare pensions payable between 2025 and 2055, invested in equities which returned -29.6%, 2002 was a testing year, especially considering the equity portfolio’s heavy US weighting, with a market value of some e1.5bn.
NPRF follows research from Goldman Sachs that predicts the probability of equities outperforming bonds over a 20 year time horizon is 100%.
Despite falls in equity markets, the NPRF commission decided that the major factors which had led it to adopt its investment strategy were still valid, namely an extremely long term horizon with no drawdown until 2025, a strong cash flow and an assumed average equity risk premium of 3% per year over the long term.
The commission did however decide in early 2002 to slow the planned pace of the fund’s investment, maintaining substantial precautionary cash balances, averaging 30% throughout the remainder of the year.
“The decision to slow the pace of investment, and the subsequent acquisition of assets at prices considerably below those prevailing in 2001 and early 2002, has mitigated the fund’s losses,” said the fund’s annual report.
In his statement in the report, Geaney said: “The performance should be seen in the context of the fund’s positive cash flow which extends to at least 2025 with some 90% of the projected income yet to be invested.”
The fund has slipped back into positive returns for this year to date, clocking in at 5.2% as of 18 July 2003.
The mark-to-market value of the fund now stands at e8.392bn.
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