The National Pension Reserve Fund, which was established in 2001 to supplement the current public pension system from 2025 until at least 2055, returned 19.6 per cent in 2005, taking its total value to E15.4 billion, or 11.5 per cent of gross national product.
During 2005, the National Pensions Reserve Fund Commission, which controls and manages the fund, announced a significant diversification of its strategic asset allocation, primarily through an 18 per cent allocation to alternative asset classes – property, private equity and commodities – to be achieved on a phased basis by end 2009.
Property/Private equity
The fund’s property programme commenced at the end of 2004 and its private equity programme commenced in mid 2005. The aim of these programmes is, subject to the availability of suitable investment opportunities, to invest E2 billion (8 per cent of total fund value) in each of these asset classes by the end of 2009. Private equity offers the prospect of additional return over quoted equities while property offers both attractive returns and significant diversification benefits. The fund’s long-term investment horizon with no drawdowns before 2025 make them both natural asset classes in which to invest.
At the end of 2005 the fund had commitments to 12 separate property investment vehicles totaling E404 million, with E124 million of this total commitment having been invested. Some of the funds the NPRF has invested in include the German Residential Investment Partnership, the Scottish Widows – Airport Industrial Property Unit Trust, and the CB Richard Ellis Strategic Partners US Fund IV.
With regards to private equity, at the end of 2005, the fund had commitments to three separate buyout vehicles totaling E181 million, with E8 million of this total commitment having been invested.Private equity ranges from venture capital (the provision of finance to start-up and emerging companies) to buyouts (the purchase of established businesses or going concerns). The NPRF’s private equity programme is targeting investments in Europe and the US on a broad 50/50 basis. While the main investment focus will be in the buy-out area, it is also planned to allocate funds to venture capital.
According to the Commission however, one of its main challenges will be obtaining meaningful allocations in these funds, as many of the better funds can be oversubscribed. Hence, one of the key elements of its strategy is to use the fund’s long-term investment horizon and strong cash flow, to build long-term relationships with the best private equity funds.
Commodities
The fund’s commodity investment programme commenced in May 2005. It earned strong returns of 25.9 per cent as continued recovery in global growth, in particular very high growth rates in emerging market economies, put upward pressure on commodity prices.
With energy comprising 67 per cent of the overall Goldman Sachs Index, returns on the index are predominantly driven by oil and gas prices. A quarter of the fund’s overall commodity allocation will be to forestry and the Commission expects to finalise details of how it will enter the forestry market during 2006.
The NPRF is accessing the commodities market through the purchase from investment banks of certificates which reflect the return on the production weighted Goldman Sachs Commodity Index. In 2005, E170 million was invested in such certificates.
Re-tendering
In its annual report, the NPRF’s commission also announced that it is to re-tender the fund’s E6 billion passive equity mandates.
Currently, Bank of Ireland Asset Management/State Street Global Advisors manage a E2,655 million Eurozone large cap passive portfolio, while Barclays Global Investors manage a E1,374 million North American large passive portfolio, and a E1,987 million Eurozone large cap passive portfolio. |
