IRELAND – Ireland’s €15.3bn National Pensions Reserve Fund is to divert 8% of its equity holding into real estate over the next five years after a strategic review revealed its cautious asset allocation formula was failing to maximise returns.
The NPRF commission, which is appointed by the finance minister to set the fund’s investment strategy, in 2001 allocated 80% to large-cap equities and 20% to bonds. But in a revised strategy document published last year the Commission opted for property as a potential source of long-term returns.
“Our strategy is to increase the fund’s returns without substantially changing its risk profile,” said NPRF spokesman Adrian O’Donovan.
By 2009 the fund plans to have invested €2bn indirectly through international property investment vehicles, including the Asia/European focused Morgan Stanley Real Estate Fund II and the Axa French Development Venture II. According to 2005 year-end results, it has already invested €402m in the first phase.
The NPRF fund will invest 50% in European property, 35% in North America and 15% in Asia-Pacific.
In addition to real estate, the fund has allocated 8% to private equity and 2% to commodities. Because liquidity is not an issue – the fund receives 1% of GNP from the exchequer and there will be no drawdowns before 2025 – it can exploit less liquid asset classes. The revised allocation percentages set are a result, said O’Donovan, of “modelling and judgment”, rather than external advice.
The fund grew by €3.6bn at the end of 2004 to €15.3bn (11% of GNP) at the end of 2005. Partly thanks to a rally in global equity markets, it earned a return of 19.2% in 2005 excluding the government’s contribution of €1,320m.