Elan’s dive hits Irish pension funds

THE plunge in Elan’s share price has wiped €400 million off the value of Irish pension funds in the first quarter.

Since February 28, when Elan announced the suspension of trading of its MS drug Tysabri, its shares fell by more than 68% on the day.

Overall, the fall over the first quarter of 2005 has been 80% and it undermined the growing status of the stock, which has climbed to being the fourth largest stock during last year after a gain of 250%.

At the end of December 2004, Elan represented over 9% of the index against just slightly more than 1% of the index yesterday.

That sharp reversal of fortunes had a considerable impact for the many Irish pension schemes with holdings in Elan.

Not all managers had gone back into the stock but Mercer Investment Consulting said the average holding across Irish investment managers was approximately 1% within their managed funds.

That led to a negative performance impact of 0.8% over the quarter on their respective funds, said Mercer.

While difficult to make an accurate assessment, Mercer said up to €400m has been wiped off the value of Irish pension assets in the first quarter because of Elan.

Tom Geraghty, senior consultant with Mercer Investment Consulting, said: “the dramatic rise and fall of Elan serves to highlight the stock specific risk in the Irish market.”

“The top 10 companies in the ISEQ made up about 80% of the index at the 31st December 2004, with the top five companies representing 60% of the index.

“Ultimately this translates into the fact that approximately 15% of average Irish Pension Managed Funds are invested in the top 10 Irish stocks, significantly increasing both stock and sector concentration risks, and not achieving the full benefits of diversification into the global equity markets.”

In the first quarter the average Irish Pension Managed Fund increased by 2.7% over the first three months of 2004, according to the latest figures released by Mercer.

Canada Life/Setanta’s Managed Fund topped the table over the quarter gaining 4.4%, followed by Acorn Life’s Managed Fund returning 4.1%.

Davy’s Exempt Pension Managed Fund lagged competitors over this period with a return of 1.6%.

In the five-year period to the end of March, the average managed fund has returned -1.2% pa, with BIAM’s Managed Fund (+2.3%) and New Ireland (+2.2%) leading the way.

KBCAM (-3.7%) under performed over this period.

Over 10 years the average managed fund returned 10% a year, comfortably exceeding the corresponding inflation figure of 3% a year, said Mercer.

New Ireland has been the top ranked manager over the period returning 11.6%.