Irish pension funds haemorrhaged an estimated euro 27 billion (US$36.5 billion) in 2008, as the global economy moved towards recession and equity markets across the world went into freefall.
Roughly a third was wiped from the value of the average pension fund, after Irish asset managers took a battering from financial markets. According to Rubicon Investment Consulting, the average managed fund declined by 34.8 per cent, with the best performing manager – Setanta Asset Management – returning -29.6 per cent. Bottom of the performance table was Hibernian Investment Managers with a return of -38.8 per cent.
The consultant’s end of year survey of 10 group pension managed funds revealed poor returns were driven predominantly by over-exposure to an underperforming domestic equity market, with Irish equities declining 65 per cent over the year.
At the start of 2008, the average managed fund had just under 14 per cent of their total assets – equivalent to 18.1 per cent of their total equity content – invested in Irish equities, which made up only 0.3 per cent of the world equity market.
Approximately euro 4.6 billion was wiped off the value of Irish pension funds due to their exposure to Irish equities alone.
The Irish equity market suffered the worst percentage decline in 2008 when compared with the UK, North America, the Eurozone, the Rest of Europe, Japan and the Pacific Basin.
Equity market index returns to 31 December published by Rubicon show that in local currency terms, 28.3 per cent was wiped off the UK domestic stock market, 36.4 per cent off North America and 44 per cent off the Eurozone equity market index. The index for the Rest of Europe lost 38 per cent, Japan declined 42 per cent and the Pacific Basin dropped 42.4 per cent.
Rubicon says falling bond yields have exacerbated the situation for defined benefit (DB) pension schemes which will have seen their liabilities increase by between 5 and 10 per cent in 2008 as a result of this trend. The cost of buying a pension at retirement for members of defined contribution (DC) schemes has risen by a similar amount, the consultant said.
Meanwhile, the National Pensions Reserve Fund, which was set up by the Irish government in 2001 to fund future state and public service pensions, has increased its cash balances and maintained a “cautious approach”Â to equity investment since the onset of the credit crisis last year.
According to preliminary results from the National Treasury Management Agency, which oversees the NPRF, the fund is currently 15 per cent underweight its benchmark equity holding. The fund lost 30 per cent in 2008.