IRELAND - Typical Irish pension funds with exposure to Elan and AIB are likely to suffer a "significant" impact on their performances over the coming year, according to consultant William M Mercer.
But the projected loss of 2% is unlikely to pose an immediate threat to the solvency of Irish pension schemes, continued Mercer.
Plummeting shares prices of corporate giants Elan and AIB in recent days have caused anxiety among Ireland’s pension schemes, especially on the back of poor returns and volatile markets of 2000 and 2001.
Irish funds held around 18% of assets in Irish equities at the end of 2001. Elan was the single largest Irish Stock making up approximately 22% of the market cap at the end of December. It has dropped by a total of 65% in the last five weeks amid investor woes over its accounting practices in light of the Enron debacle.
AIB, hit by scandal at US subsidiary Allfirst, was the second largest stock at the end of last year (14% of the index). The firm posted a 16% dip in the first day following the Allfirst announcement, making a year to date return of -13%.
But most pension funds can take some solace from the fact that most managers did not have a full index weighting in Elan. Furthermore, the overall exposure to Irish equities is significantly lower than it would have been five years ago. Finally, even after the setbacks the average managed fund return since 1996 is around 12% per annum or 8% ahead of price inflation, said Mercer.
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