The Irish National Pensions Reserve Fund today reported negative return of 10.5%  in first quarter of 2008 and a positive return of 3.3% in 2007. The fund value at March 31, 2008 was €19.4 billion.

The Fund had a negative return of -10.5% for the first three months of 2008 in what it says proved an extremely challenging quarter for investment management everywhere as markets felt the impact of the subprime crisis in the US, the dislocation of international credit markets and lower economic growth generally in key economies. Over the quarter the FTSE Eurobloc index fell 16.0% while the S&P 500 fell 16.5% (in euro denominated terms). The Fund’s value at the end of March was €19.4 billion.

Despite the poor performance during the quarter and similar difficulties in the bear market of 2002, the Fund is still showing a positive return of 4.2% on an annualised basis from its inception in 2001 to end March 2008. As a result, the Fund has earned a total of €3.8 billion in excess of the Exchequer contribution since it was established. The Fund has recovered somewhat since end March and has gained 4.5% so far in April.

The Fund earned a positive return of 3.3% in 2007, bringing its value at end December 2007 to €21,153 million. The Fund’s positive performance in 2007 was mainly driven by its equity investments notwithstanding extreme volatility during the second half of the year arising from the subprime crisis and the resulting credit crunch. Commodities also performed strongly while bonds were broadly flat for the year. Performance was assisted by the Fund’s policy of hedging 50 per cent of its foreign currency exposure. This limited the negative impact of euro strength on non-euro denominated returns.

The Fund’s purpose is to meet as much as possible of the cost to the Exchequer of social welfare and public service pensions to be paid from 2025 to 2055. No drawdowns will be made therefore for another 17 years.

The current estimate of liabilities for public service pensions is €67 billion (se link below).

The Fund is obliged by statute to secure the optimal total financial return provided the level of risk to the moneys held or invested is acceptable to it. Consistent with this remit, the Fund’s asset allocation strategy is founded on the expectation that equities and equity-like assets, whose performance is linked to the rate of economic growth, will outperform financial assets such as bonds over the long term. However, it says that as equities are inherently more volatile than bonds, this strategy will inevitably lead to performance swings over short time periods.