Turmoil stalls pension funds

Irish pension funds stalled in September as markets struggled to cope with the fallout from the Northern Rock crisis.

Financial stocks, in particular, had a turbulent month. That had a disproportionate impact on the Irish pension funds which, as a group, are overweight in Irish equities which, in turn, are dominated by the big banks.

The average return of managed pension funds last month was just 0.1 per cent, bringing the 12-month performance for the sector down to just 7.6 compared to 9.4 in August and 13 per cent last year.

There was a sharp divergence in performance in September with AIB Investment Managers (AIBIM) well ahead of its peers as it recorded growth of 1.1 per cent - more than twice the return of its nearest challengers.

Bank of Ireland Asset Management (BIAM) continued its recent run of poor returns, its 0.9 per cent loss the most significant of the four fund managers in the red at the end of the month.

The one good piece of news for pension funds was that, over the month, long-bond prices fell fractionally. These prices are seen as a proxy for the cost of purchasing a pension annuity on retirement.

None of the managed pension fund managers have posted growth in the last three months, with losses ranging from 1.7 per cent at AIBIM to 5.3 per cent at BIAM. The Irish industry average was -3.3 per cent.

So far, in 2007, the average fund has grown by just 1.4 per cent, significantly lagging inflation. AIBIM again leads the way with a return of 4.3 per cent, followed by Eagle Star (3.5 per cent). BIAM (-2.5 per cent) is, along with KBC Asset Management, the only fund recording losses for 2007 at the end of September. The longer-term picture is more encouraging for Irish pension funds with average returns of 13.5 per cent each year over the last three years.