It has been a merciless year and a half. Once touted as the fastest growing economy in Europe, Ireland has more recently been battered, particularly on the equity front. Mercer estimated that Irish pensions lost €4bn in 2007 because of high equity exposure. Hewitt Associates revealed that its Irish Managed Fund Index returned -21 per cent over the last 12 months. And to make matters even worse, Ireland’s largest fund, the €20bn National Pension Reserve Fund (NPRF), lost 10.5 per cent in the first quarter of 2008.

The figures are ugly, and those in the industry will admit it. F&C’s director for marketing and client service, Graham Brooks, says the firm has cut back its equity exposure and is preparing for difficult times.

He says: “There is a buyers’ strike in Ireland, and it will continue for a few more months. We’re probably in a recession, but not close to how bad it was in the 1980s. The hedge funds are doing well on short-selling, but whoever makes the call on when to get out of commodities and go into financials will make a fortune.”

Pension funds also have a gloomy outlook, but few are panicking. They believe that as long-term investors they will be able to ride out what they hope is a short-term problem.

John Corrigan, director of the NPRF, said the poor results were a result of a generally high equity exposure among funds. Ireland’s population is relatively young, so most funds tend to be equity heavy. He does not believe there has been a wholesale adjustment of strategy in Ireland, but he did mention that the fund will look into other assets as a way to beat declining returns. The NPRF itself has 66 per cent allocated to equities.

He says: “I don’t believe there has been a restructuring of strategy. A number of funds, including ourselves, would have looked at and will continue to look at hedge funds. There isn’t a great exposure to hedge funds in Ireland, so that is unfinished business I suppose.”

Pat Ferguson, chief executive officer of the €1bn construction workers’ pension scheme, echoes this sentiment. This fund lost 5 per cent in 2007, and even though he reports that things have not improved since, he states that it is not prepared to make a major strategic change.

He says: “There are no major changes on the table as we are finalising our strategy. We’re not pleased with our returns, but we have to look long term, and in that respect our fund is ok. The Irish market has suffered but it had been good earlier.”

Pension organisations such as the Pensions Board and Irish Association of Pension Funds (IAPF) are not blaming trustees for the problems, but both groups have indicated that trustees need to pay more attention to these risks.

David Malone, head of information services at the Pensions Board, which regulates occupational schemes and protects members, says the board is concerned with the low returns and says trustees must do more to ensure an acceptable level of risk is taken.

He says: “Last year certainly was tough and the start of 2008 has been extremely tough. And it’s an ongoing area of concern. We can all take it on board that schemes are long-term investments, but there’s always a nervousness when it’s this volatile.

“This comes back to the responsibilities that are on trustees to ensure that they are comfortable with the investment strategies that are being undertaken and that the level of risk appropriately reflects the profiles of their members. And that they also have good default strategies in place.”

Jerry Moriarty, director of policy at the IAPF, admits that it has been a busy time for the organisation. Particularly so with a new government green paper on the future of pensions. The paper has called on the industry to submit suggestions on how pension provision can be improved in the country.

Mr Moriarty too recognises that pension funds are long-term investors, and that the system is sufficiently funded. However, he also voices concerns on funding levels and risks taken by trustees.

He says: “It’s of concern to members, particularly those in defined contribution schemes coming close to retirement. We keep telling trustees that they really need to look at how they structure their fund choices for members and have appropriate choices available.”

However, things could be improving. While equities remain highly volatile, some recent reports indicate the climate could be getting better. Hewitt’s more recent report showed that managed funds returned 4.4 per cent in April, which is a dramatic gain on the first quarter’s figure of -11.4 per cent.

Furthermore, figures from Rubicon Investment Consulting showed that Irish group managed funds returned 0.2 per cent in May. It was the second month in a row that these funds had positive returns. While they are hardly great returns, at least they are back in the positive. But for now equity markets remain volatile, and as long as this is the case, Ireland’s equity-heavy pension funds are in for choppy weather.

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