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Pension funds look to international specialists Back  
The level of specialist investment management among Irish pension funds is growing fast, with employment of international investment managers on the increase.

According to the Mercer Investment Consulting 2006 Pension Fund Investment Survey, the trend towards specialist international managers amongst Irish pension plans has increased dramatically, with close to 38 per cent of respondents indicating that over 60 per cent of their pension assets are now managed by international money managers. According to Figure 1, a further 18 per cent had between 20-60 per cent of their assets managed on such a basis.

Tom Geraghty, head of Mercer Investment Consulting, Ireland noted, ‘We expect this trend will continue to filter its way to the smaller/medium end of the market with clear challenges for the local investment management community where the challenge of increased specialisation in areas of true skill becomes even more pertinent.’

Elsewhere in the survey, to which 150 organisations responded, a greater focus on risk management is highlighted. According to Geraghty, this focus can be reflected in three primary approaches being adopted by investors:

• De-risking – there has been a modest reduction in the average strategic level of risk of Irish pension funds over the last three years, with for example, the average equity allocation falling from 75 per cent to 69 per cent.
• Pension liability risk management – there is significant interest in managing interest rate risk with growth in the use of liability driven investment techniques.
• Risk diversification – pension funds are embracing alternative asset classes and indeed active management (or alpha) strategies where there is strong evidence of consistent added value and where managers possess true stock-picking skills.

Despite Ireland representing less than 1 per cent of the global equity markets, approximately 20 per cent of survey participants have an allocation of greater than 20 per cent of their pension assets to Irish equities, while 48 per cent have a 10-20 per cent allocation.

However, although the Irish stock market continues to perform very strongly, and Irish pension plans continue to have significant allocations to Irish equities, this proportion looks set to continue to decline, with close to 30 per cent having plans to reduce their allocations over the next three years, according to the survey. Over 40 per cent of these participants plan to reduce this allocation by 50 per cent to 100 per cent.

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