Pension reserve fund drops by €1.2bn

THE value of the National Pension Reserve Fund (NPRF) fell 5.3% — €1.2 billion — in the first four months of the year, with the losses arising from Government-directed investments in AIB and Bank of Ireland.

The Government ordered the NPRF to take stakes in the country’s two largest banks as part of efforts to shore up the domestic banking system. The fund holds nearly 92.8% of AIB’s share capital and has a 36% stake in Bank of Ireland (BoI).

The NPRF has two main elements: a discretionary portfolio, which made a slight profit of 0.3%, and a directed portfolio, which holds the investments in the two banks.

The value of the holdings in both banks fell 12% in the first quarter. The total fund at the end of March was valued at €23.198bn — €9.815bn in the discretionary portfolio and €13.383bn in the directed portfolio. The fund stood at €24.2bn at the start of 2011.

“The directed portfolio produced a return of -12.0% over the quarter, which was largely attributable to movements in ordinary share prices of AIB and BoI, and also included dividend income of €214 million in cash received in February 2011 in respect of the BoI preference shares,” the NPRF said in a statement.

They said that following the announcement in November that the fund would provide up to €10bn of the state’s €17.5bn contribution to the EU/IMF Programme of Financial Support for Ireland, they liquidated assets to enable the contribution.

As a result, the discretionary portfolio was reduced to €9.8bn on March 31 and was further reduced in April to €5.3bn. The cash component of the directed portfolio, which was €5.5bn at the end of March, increased to €10bn.

“Although broadly flat year to date in euro terms, this reflected a volatile period for equities,” the NPRF said.

“However surprising resilience meant that most of the losses were recovered by quarter end, although returns to euro investors from global assets were dampened by the weak dollar.”

On the directed fund, the NPRF said investments in AIB and BoI are in ordinary and convertible non-voting shares and are valued at market price. Investments in preference shares continue to be valued at cost.

The NPRF is currently carrying out an independent review to determine the value at which the preference shares will be carried out in the fund’s financial statements for the year ended December 31, 2010.