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Irish Pension Reserve Fund Moots Hedge Fund Investment

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DUBLIN, Ireland (–Ireland’s National Pensions Reserve Fund is considering investing in hedge funds, according to a spokesman of the National Treasury Management Agency. The NTMA, which has been appointed manager of the fund through April 2011, has already announced that it aims to have 18% of funds under management invested in alternative assets by 2009.

Founded in April 2001 as the result of an act of parliament passed the previous year, the fund is controlled and managed by the National Pensions Reserve Fund Commission, which is required to perform its functions through the manager. Its mandate is to meet the majority of the costs of welfare and public service pensions from 2025 onwards when these costs are expected to rise sharply as a result of increasing life expectancy and lower birth rates.

The government has undertaken to invest 1% of GNP in the fund annually, and no withdrawals can be made from it until 2025. It is unfettered by matching constraints, and investment policy is therefore much more flexible than at other pension funds, state funded or otherwise. Last year the fund earned 2.41 billion euro, or 19.6% on its investments. After a 1.32 billion euro contribution from GNP, the fund had 15.4 billion euro at year end, and as of the end of June, the fund had 16.35 billion euro under management.

In his introduction to the NPRF annual report, published last week, Chairman Paul Carty noted that “the biggest risk the commission could run would be to take an overcautious investment approach and thus reduce the fund’s potential contribution to Ireland’s increasing pension costs.”

Over time, the fund’s investment options have come to include small caps, emerging market equities, private equity, commodities, real estate and forestry. Mr. Carty says exposure to these asset classes will increase the fund’s potential return while diversifying its risk. The fund also intends to integrate environmental, social and governance policies into its investment process and signed the United Nations’ “Principles for Responsible Investment” in April this year.

Its 50% currency hedge policy on non-euro denominated equities also will be extended to the non-euro private equity and property segments of the portfolio. The fund’s current allocation of only 2.3% of assets to alternatives (0.1% private equity, 0.9% property, 1.3% commodities) will be raised to 18% (8% private equity, 8% property, 2% commodities) by 2009. A mooted 2% (500 million euro) allocation to hedge funds would bring the total to 20%. There is also a 2% allocation to equities in emerging market equities.

In the property area, the fund will invest in property vehicles rather than making direct acquisitions. The annual report estimates the 8% investment target for 2009 should involve investments of around 2 billion euro by that time. The fund also considers private equity a natural fit for its investment program, given that it has no liquidity requirements before 2025. Its main private equity focus will be in the buyout area, although it says it also plans to make allocations to venture capital.

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Contact Bob Keane with questions or comments at [email protected].