Market falls hit pension funds

IRISH Pension funds assets fell by €3 billion in the last month as share prices fell around the world reducing the total to close to €97bn.

Figures released by Mercer Investment Consulting show that the value of Irish pension fund assets have dropped by approximately €3 billion in July alone.

Mercer estimates that the average Irish managed pension fund dropped by close to 3% in July.

Mercer noted that the worst performing sector over the month was Irish equities with the ISEQ down 8%, most of the developed global equity markets were also in negative territory.

Head of Mercer Investment Consulting in Ireland Tom Geraghty pointed out that as the average Irish Managed Pension Fund has approximately 18% invested in Irish equities, the performance of the ISEQ has a big impact on the average pension fund.

“The significant overweighting in Irish equities is an issue we believe deserves serious rethinking,” added Mr Geraghty.

“The Irish market accounts for less than 1% of the FTSE World Index and yet comprises 18% of the average managed fund in Ireland. This situation leads to a significant overexposure to one single market with high stock and sector concentration risks.

“Undoubtedly investors have been well compensated for this risk with the Irish equity market out-performing its international peers handsomely over a longer time period,” he said.

Mr Geraghty said that in a world of uncertainty, the one and probably only truism in investment markets is that diversification is king.

On the positive side of the equation for defined benefit pension funds, the funding level of the pension schemes of Irish plcs is estimated to have improved by 15% — 20% since the beginning of 2007 to the end of June.