The 88 per cent slide in the price of Irish market heavyweight Elan undermined the performance of pension funds in the first quarter of the year, according to figures published yesterday.
Group pension managed funds lost 0.5 per cent of their value in March, bringing their return for the quarter to 2.7 per cent.
The ISEQ was the worst performing stock market in the three-month period, according to Deborah Reidy of Hewitt & Becketts, falling 2.8 per cent against a gain of 4.5 per cent of euro-zone markets as a whole and positive returns elsewhere around the globe.
Heissmann head of investment consulting Fiona Daly said Elan's collapse had knocked around 1 per cent off the value of the average Irish pension fund, with Mercer senior consultant Tom Geraghty putting a figure of around €400 million on the hit to funds over the past three months.
He said the performance highlighted the risk to pension funds of the highly concentrated nature of the Irish market. "The top 10 companies in the ISEQ made up about 80 per cent of the index at the end of last year [ when Elan accounted for 9 per cent of the market against its current rating of around 1 per cent], with the top five companies accounting for 60 per cent of the index," he said.
"Ultimately, this translates into the fact that approximately 15 per cent of the average Irish pension managed fund is invested in the top 10 Irish stocks, significantly increasing both stock and sector concentration risks."
While acknowledging that fund managers had cut their weighting of Irish stocks from over 30 per cent in 1998, he said that allocating close to 20 per cent of a fund to a market accounting for less than 1 per cent of the "global equity universe" didn't constitute "prudent diversification of investment holdings".
Ms Reidy said the quarterly figures illustrated that "passive or index tracking is not necessarily the low-risk option for pension investors".
The best performing fund managers this year have been those with little or no holdings in Elan - Canada Life/Setanta, Bank of Ireland Asset Management (BIAM) and Bank of Ireland subsidiary New Ireland.
KBC and AIB Investment Managers have been the poorest long-term performers.
