The Irish Association of Pension Funds (IAPF) is seeking support for the creation of an Irish-focused investment fund, arguing that pension portfolios have shifted too far away from domestic assets over recent decades.
Irish investments now account for just 3 per cent of the €145 billion held in occupational and private pension schemes in the country, down from a majority of assets in schemes before the turn of the millennium.
The decline was down to several factors, including the introduction of the euro, which removed currency risk from investing across Europe, pressure from international consulting firms on trustees to diversify investments, growth of passive investment, particularly global index funds, which made international diversification cheaper and more accessible, the impact of the financial crash on Irish banking stocks and fewer companies listed in Dublin.
How can tech offer solutions for obesity and weight management?
IAPF chief executive Joyce Brennan said that while returning Irish pensions to being mainly invested in domestic assets “is not a strategy that anybody would want to go back to, the pendulum has probably swung too far the other way”.
RM Block
Brennan suggested that “dialling up” Irish investments initially to about 5 per cent of portfolios would be a good start.
“It’s important that investment consultants, pension trustees, and investment advisers are satisfied that this would provide better outcomes for members [of pension schemes],” she said. “We’re talking about a very small increase in percentage terms, but in capital terms that’s absolutely enormous.”
The IAPF proposed in a recent paper issued to industry participants that they come together to set up an Ireland-focused long-term investment fund to channel more long-term capital into the Irish economy, where attractive risk-adjusted opportunities exist.
Brennan said the representative group is not being prescriptive at this stage on the structure of such a fund, as it seeks to canvas views of the wider pensions sector, while also providing a basis for future engagement with Government departments and European public body stakeholders.
“The investment manager for any such vehicle remains to be determined. This paper does not assume any specific manager or sponsoring institution. Its purpose is to test whether such a fund could be made investable, scalable and relevant for Irish pension stakeholders and other long-term investors,” the paper said.
A fund could comprise a broad assembly of assets, including equities, bonds, European private equity and venture capital, private credit, as well as infrastructure and property and forestry holdings, according to the paper.
Brennan said the proposal should also feed into discussions around Government plans to introduce a savings and investment scheme for small investors, and the State’s new auto-enrolment pension plan for workers who were not previously part of an occupational or private plan.
