Credit crunch knocks €175m off pension fund

POOR stock market returns triggered by the subprime credit crunch knocked 0.9% off the value of the national pension fund in the third quarter of 2007.

New figures yesterday showed the National Pensions Reserve Fund made a return of 5.9% for the first nine months of the year and the third quarter return registered a fall of 0.9% or €175 million over the period. At the end of September it was valued at €21,261m.

The value of the fund could be undermined further if the global credit crunch continues to destabilise markets, Dr Michael Somers, chief executive, National Treasury Management Agency warned.

NTMA manages the fund on the state’s behalf.

“Despite the volatility in global markets in the third quarter of the year, this is a solid investment performance by the National Pensions Reserve Fund,”, said Mr Somers.

At present equity markets have recovered the ground lost at the height of the credit crunch thanks to the cut in US interest rates and the injection of funds into the markets by the US and European central banks, he said.

But he warned that with the credit crisis likely to slow global economic growth and impact on company profits the outlook for the markets remained uncertain.

For that reason it was impossible to rule out a further fall in the growth of the fund as the markets come to terms with slower economic growth and lower corporate earnings, he said.

Meanwhile, NTMA has also announced it has sold €6 billion of 10-year bonds.

Concern over the credit squeeze lured investors to the bond issue. Ireland enjoys a AAA status from the top credit agencies such as Standard & Poors.

The October 2018 notes will pay 4.5% and were priced to yield 15 basis points more than benchmark German bunds.

Barclays Capital, Davy Stockbrokers, HSBC Holdings Plc and Deutsche Bank managed the sale.

This is the first time the government has sold new bonds since 2004 because the strong economy has resulted in strong tax revenues that have been well above expectations in recent years.

Due to the slowdown in the economy the tax take will be €1bn below the Budget estimate this year.