Dan Boyle
Question:196 Mr. Boyle asked the Minister for Finance the current equity investments of the National Pension Fund; and the performance levels of each investment over the past year. [17514/03]
Written Answers. - National Pensions Reserve Fund.
One of the key principles underpinning the National Pensions Reserve Fund Act is the fact that the fund is managed by commissioners who are independent of Government. The commissioners control and manage the fund with discretionary authority to determine and implement an investment strategy. The Act requires the commission to follow a strictly commercial investment mandate with the objective of securing the optimal return over the long-term, subject to prudent risk management. In following this mandate, the commission has decided on a long-term asset allocation of 80% equities and 20% bonds.
These features of the National Pensions Reserve Fund Act are similar to the trustee arrangements which exist in private pension funds. Along with the statutory prohibition on drawdowns from the fund prior to 2025, they insulate the fund from day-to-day pressures on Government and enable the commission to take a long-term view. This is essential if the purpose for which the fund was established, to meet as much as possible of the cost to the Exchequer of pension payments from 2025 until at least 2055, is to be achieved.
Consistent with the philosophy underpinning the fund as I have just set it out, I do not regularly ask the commission for detailed reports on short-term investment returns. The fund's investment strategy is a matter for the commission and I have no say in it. It is my strong view that regular discussions between me and the commission on its investment strategy and the resultant short-term gains and losses, which may in any event never be realised, would seriously interfere with the long-term focus which must attach to a fund which will not start to make significant disbursements for over 30 years. I draw the Deputy's attention to the detailed provisions in the Act concerning the format of the commission's statu tory annual report to the Minister for Finance. The commission is specifically required to include in the report information on the investment strategy followed, a report on the investment return achieved by the fund and a valuation of the net assets of the fund at year end. These requirements are designed to ensure that detailed information concerning the fund is made available to the public at the appropriate time.
The commission's report for 2002 is due around mid-2003. The assets of the fund were held in cash up to 31 December 2001 and the Commission commenced entry into the markets in 2002. By end-December 2002 a total of €8,163 million had been paid into the NPRF since its inception in April 2001 by way of capital contributions from the Exchequer. Further capital contributions amounting to €551.5 million have been made this year to date bringing the total Exchequer contribution to €8,715 million. The provisional market value of the fund at end 2002, the latest date for which figures have been published by the commission, was €7,425 million that is, a decline of €736 million which represents the difference between the capital contributions by the Exchequer and the market value at end 2002. This decline is a net figure which takes account of investment income in both the temporary holding fund and the fund itself and also of gains in the bond portion of the fund offset by declines in the value of equities. The investment return since the fund's inception to end December 2002, measured according to industry standards, was 13.3% compared with a return for the fund's strategic benchmark of 24.4% and a return for the average Irish managed pension fund of 19.3%. I am advised that the chairman of the commission, in giving evidence to the Committee of Public Accounts on 19 June 2003, said that in the five and a half months to 17 June 2003 the fund has earned a net return of 5.5% and that the net decline in the value of the fund at that date was around €300 million.