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Irish NPRF Up 1.9% in Q3

Submitted by Leo Kolivakis on 10/30/2010 16:32 -0400

A follow-up to my recent post on the luck of the Irish running out. Bloomberg reports, Irish National Pension Fund Posted 1.9% Return in Third Quarter:

Ireland’s
National Pensions Reserve Fund earned a return of 1.9 percent to 24.5
billion euros ($34 billion) in the third quarter.

The
fund’s so-called directed investments in the country’s two biggest
banks, Allied Irish Banks Plc and Bank of Ireland Plc, delivered a
return of minus 2.5 percent, the NPRF in Dublin said in an e-mailed
statement today.

The return on the fund’s discretionary
portfolio was 3.6 percent. That fund amounted to 17.9 billion euros at
the end of September, it said.

Donal O'Donavan of the Irish Independent reports, National pension fund loses €400m in AIB and BoI deals:

The
National Pensions Reserve Fund (NPRF) has suffered a loss of €400m on
the investments it was forced to make in Bank of Ireland and AIB,
according to figures released last night.

In 2009 the NPRF invested €3.5bn in preference shares in AIB and the same amount in Bank of Ireland.

However, this €7bn investment was worth €6.6bn by the end of September, according to data released by the NPRF.

Overall
the fund showed a return of 4.9pc in the nine months to the end of
September. It brings the total value of the fund to €24.5bn.

The
NPRF was instructed by Finance Minister Brian Lenihan to make the
"directed investments" to meet the banks' capital requirements.

Some of the preference shares have since been converted into ordinary shares, which have fallen in value.

The
most recent figures do not take into account the fall in the value of
AIB shares since its effective nationalisation was announced on
September 30.

News of the losses comes
as the NPRF prepares to pump up to €5.4bn in equity into AIB on behalf
of the State at a fixed price of 50c per share.

Based on AIB's
closing share price of 32.4c yesterday, the NPRF will suffer an
immediate loss of €1.9bn if it funds the full amount.

The set price per share for the fundraising makes it highly unlikely that any private investor will buy into the deal.

The
fund had €4.14bn of cash on its books at the end of September. It can
support the AIB capital raising with a mix of fresh cash and by
converting some of its preference shares into ordinary shares.

The
NPRF said the return on the directed investments was 1.9pc between
January and September, but fell 2.5pc between July 1 and the end of
September.

Directed investments account for 27pc of the total wealth managed by the NPRF.

The return on investments not ordered by the Government was 6pc in the nine months to the end of September.

Strong performance by the listed equities that make up over half the investments was the main driver of growth.

As
well as quoted shares, the fund also has investments in Eurozone
government bonds, corporate bonds and in property and private equity.

While
the losses on bank shares are a concern, one debt market source said
the multi-billion scale of the NPRF meant it had "an ace up Ireland's
sleeve, heading into 2011."

Ireland is the only one of the so called "peripheral euro economies" to have such a large savings account to fall back on.

The NPRF receives an annual investment from the Government and is not due to begin paying out on its investments until 2025.

Its
investment objectives include a target of outperforming the cost of
five-year government debt over rolling five-year periods.

A copy of the National Pension Reserve Fund's report is available on their website.
Not sure if the NFRP has an "ace up Ireland's sleeve", but as shown
below, the asset mix is fairly aggressive with almost 70% made up of
listed equities and alternative assets (they are thus far not allowed to
buy Irish government bonds; that may change):

(click on image to enlarge)

Just like CPPIB and PSPIB, the NFRP is lucky because it is is not due to
begin paying out on its investments until much later (2025 for NFRP).
That means it can afford to take on more risk in its asset mix and does
not have the liquidity constraints of more mature pension plans. Having
said this, these so-called "directed investments" will be scrutinized as
will further political interference in the investment decisions. If
these investments blow up, who will be accountable to Irish pensioners?

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Wed, 11/10/2010 - 06:19 | 715618 cheap uggs for sale

Sun, 10/31/2010 - 12:22 | 688929 JimboJammer

The European Dominoes will fall.....

Sun, 10/31/2010 - 08:35 | 688799 Lord Welligton

Interesting background from Namawinelake.

http://namawinelake.wordpress.com/2010/10/31/why-is-brian-lenihan-about-to-take-e1-8bn-from-pensioners-to-bail-out-aib-shareholders-and-junior-bondholders/

"The short answer is “I don’t know” but this is precisely what this modern day inverse of Robin Hood is about to do – take €5.4bn from our National Pension Reserve Fund (NPRF) to buy shares in Allied Irish Banks (AIB and for our international friends again has nothing whatsoever to do with Anglo Irish Bank which is known here domestically simply as “Anglo”), and he is making the NPRF buy the shares at €0.50 each when two days ago, on Friday last they closed at €0.337 per share meaning that the NPRF will incur a loss of €1,760m from the start."

Sun, 10/31/2010 - 12:29 | 688939 THE DORK OF CORK

There is something very rotten in the state when it pulls out all the stops to bail out private holders but does not make simple changes to the private pension rules so that it can compete on a more even playing field with Germany's ability to raise low interest debt.

I smell the squid.........

Sun, 10/31/2010 - 13:06 | 688993 Lord Welligton

"I smell the squid........."

Peter Sutherland advising from behind the curtain?

And of course it is German, French and British banks that get paid off.

For me at any rate, when listening to Fianna Fail cabinet ministers on the subject of banks, it is perfectly obvious that Treason has taken place. Though unless Article 39 can be interpreted to include "Financial War" we may just be left to pick up the peices.

Article 39

Treason shall consist only in levying war against the State, or assisting any State or person or inciting or conspiring with any person to levy war against the State, or attempting by force of arms or other violent means to overthrow the organs of government established by this Constitution, or taking part or being concerned in or inciting or conspiring with any person to make or to take part or be concerned in any such attempt.

http://www.taoiseach.gov.ie/attached_files/Pdf%20files/Constitution%20of%20Ireland.pdf

Sun, 10/31/2010 - 13:56 | 689090 THE DORK OF CORK

I agree , they cannot be that stupid even if they have come from a limited FF gene pool.

Who can forget the sale of Eircom to its very owners only to make a loss on their speculation - a true classic.

Sun, 10/31/2010 - 14:48 | 689188 Lord Welligton

Worth a look?

http://www.irisheconomy.ie/index.php/2010/10/31/pension-reserve-fund-set-to-make-e18-billion-loss-on-aib-shares/#comment-87982

6th comment down.

"Any further support to AIB on terms that favour the shareholders and bondholders over the interests on the Citizens of the State and knowing what is now known can only be seen as treasonous.

There simply is no other word for it."

Sun, 10/31/2010 - 08:08 | 688794 Goldenballs

It is time to change the rules,in the UK politicians dare not give us a referendum on EU membership as they know what the answer will be.Like the UK Ireland cannot get much worse if it goes it alone,how long do you stay on a sinking ship knowing full well certain nations have used all the lifeboats.The game has not played out yet,the short term fixes are narrowing the options all the time,the hit has to be taken whether planned or it just happens,it will come.

Sun, 10/31/2010 - 07:46 | 688785 THE DORK OF CORK

Well I have some sympathy with this change as the Irish Goverment has little power left to exercise any sovereignty.

We are not like a UK or US which have many levers to pull in their efforts to gain market dominance.

The Euro masters seem willing to preserve a strong currency Volcker style and thus will try to run down the Periphery to save the core.

Before there was large Pension schemes here in Ireland people saved at their local post office buying Irish tax free bonds so effectively these retirement savings were tied to the states solvency.

With regard to Pat McArdles piece he seems to be referring to private pensions here and specifically the Minimum Funding Standard (MFS) - employers have no choice but to close down pension schemes to comply with these standards as the deficits are so big.

The calculation for the cost of funding pensions for existing workers in a wind up situation is based on purchasing German annuities - the risk free bench mark from a insurance company's perspective.

Since these yields have fallen sharply the cost for funding has risen alarmingly and is now far above what it would be if Irish funds were used.

Mccardle states that the society for Actuaries and the Irish Association for pension funds proposed a switch to Irish Bonds.

He however states that the official response has been muted.

Irish pension funds at the moment hold 20 billion Euros in Gov Bonds - only 4 Billion in Irish Bonds.

McCardle states that it would be possible to shift 12 Billion in Irish bonds with official encouragement.

The may sound naively nationalistic and perhaps misplaced but there still is huge savings in this country from the boom and all of us on this little Island need vital services to continue to make this a acceptable place to live.

We have become the most globalised country on the planet with disastrous results for our culture and economy - maybe its time to change the rules.

Sun, 10/31/2010 - 00:28 | 688659 gwar5

What have the irish done now? They're nothing but trouble ever since the potato thing.

Sun, 10/31/2010 - 13:37 | 689055 Lord Welligton

Sat, 10/30/2010 - 21:28 | 688498 THE DORK OF CORK

Leo - reading the business pages of the Irish times on Friday - a Pat McCardle seemed to suggest that Irish Pension funds should be directed towards shoring up the Irish fiscal debt........

Watch this space.

Sat, 10/30/2010 - 23:30 | 688616 Leo Kolivakis

Already referred to it here:

http://pensionpulse.blogspot.com/2010/10/luck-of-irish-running-out.html

Another disaster, if they go through with it.

Sat, 10/30/2010 - 22:14 | 688552 Orly

It is the shape of things to come...

Sat, 10/30/2010 - 18:37 | 688308 bank guy in Brussels

Leo asks:

« If these investments blow up, who will be accountable to Irish pensioners? »

This will be another case for Irish hero Joe McNamara ramming his big cement mixer truck into the gates of the Irish parliament -

Great slogan on the back of the truck at the end of the video after it has rammed the gates:

The People Have
Had Enough
All Politicians Have
Been Sacked
With Immediate Effect
Power to the People

Here's the video with the actual ramming, and wonderful Irish commentary by the people filming it:

http://www.youtube.com/watch?v=Ur5UjwmBnbA

Irish NPRF Up 1.9% in Q3

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