Performance of managed funds in last 10 years surpassed inflation, says expert

OVER the last 10 years managed funds returns were well ahead of inflation, despite the stock market falls over the last three years, Irish Association of Pension Funds (IAPF) stressed yesterday .

IAPF chairman John Feely said for the 10-year period to the end of 2002, the real return, over and above inflation, was 7.9% per annum.

The 10-year period highlighted the importance of taking a long-term view.

“We are not seeking to trivialise the falls that have occurred in the last three years but to put them in a longer-term context,” he stressed.

“Pension fund investment is a long-term process typically covering time horizons of up to 40 years but the last three yearshave emphasised the importance of trustees reviewing their portfolio to make sure it is in line with their objectives,” he said.

After two decades of exceptional investment performances, negative returns have been experienced in equity markets in each of the last three years, along with increased volatility.

“In the current environment it is appropriate to review investments to be satisfied current investment strategy remains appropriate,” said Mr Feely.

The level of stock market falls are of concern to pension fund trustees, plan sponsors and members faced with worries about potential pension fund deficits, he said.

“However, it is important to recognise that last year was not all bad news,” he added. Bonds have provided some protection given their perceived safe haven status. Property also produced a positive return.

The typical Irish pension fund, while holding approximately two thirds of its assets in equities, has a spread of assets. This mean that pension funds were not as severely hit. However, the loss was, on average, approximately 19%.

How does this performance compare with recent years? From 1995 to 1999 funds experienced stellar returns. In this period they grew at rates of just over 21% per annum.

Unfortunately, these highs proved unsustainable and a painful adjustment has taken place over the last three years. In this three-year period to the end of December 2002, the average Irish pension fund fell by 8% per annum.