Irish pension funds adopted a more active approach to asset management last year, according to a study published yesterday. The Irish Association of Pension Funds' (IAPF) annual Asset Allocation Survey also disclosed a cautious move out of equities in 2006.
Pension fund assets in Ireland grew 12.6 per cent to €87.7 billion by the end of last year. The figure is slightly below the 13 per cent average return on managed pension funds in the Republic in 2006, indicating that a disproportionate amount of pension assets are placed with fund managers that underperformed last year.
The IAPF study also states that 11 per cent of all Irish pensions - €9.7 billion - are invested in the Irish stock market. While the proportion of Irish pensions invested in the domestic market has fallen since the introduction of the euro zone, the IAPF figures indicate that the home market still attracts far more than its share of Irish pension assets.
This has benefited pension fund managers in recent years where the Irish market has outperformed its international peers.
Pension asset now account for 8 per cent of total Irish equity market.
Joe Byrne, chairman of the IAPF, said: "The increase in assets in Irish pension funds reflects the positive market environment throughout 2006."
He noted that the value of assets managed by Irish pension funds had almost doubled - from €44.8 billion - since 2002.
The trend in recent years towards passive investment - simply tracking markets - was reversed slightly in 2006, accounting for just 25.9 per cent of assets at the end of last year compared to 27.8 per cent a year earlier.
Equities globally accounted for 63.4 per cent of assets under management at the end of 2006, compared with 65 per cent in 2005. The movement away from equities may be more dramatic than first appears as, given strong stock market performance last year, a standstill investment allocation would have seen equities account for 68 per cent of assets.
Fund managers are increasing their allocation to property, with this class now accounting for 9 per cent of assets, up one percentage point on 2005. Most of the increase stemmed from investment in property outside the euro area, which doubled to 1.6 per cent last year.
Alternative investments - a class that includes such areas as currency holdings, forestry and private equity - saw a dramatic increase last year, trebling to 2.4 per cent.
Defined benefit schemes (where the final pension is based on salary and time served) still account for the lion's share of pension assets - 82 per cent compared to just 14 per cent for defined contribution schemes and the balance in additional voluntary contribution schemes.
Given the rapid growth in defined contribution schemes, where the final pension is determined by the level and investment performance of contributions, the data seems to confirm concerns about the amount of money people are putting into defined contribution arrangements and the ability of such schemes to adequately fund retirement.
