Irish Economy
Irish pension managed fund returns in double digits in 2014
By Michael Hennigan, Finfacts founder and editor
Jan 8, 2015 - 10:52 AM

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Irish pension managed fund returns were in double digits in 2014 with one sample of funds returning an average of 15.6% with returns ranging from 17.8% (Setanta Asset Management) to 11.2% (New Ireland).

Rubicon Investment Consulting said Irish pension managed funds delivered strong returns during December, with a mean gain of 1.3% for the month. Setanta Asset Management took top spot with a return of 2.5% for the month, while Kleinwort Benson Investors propped up the league table with a return of 0.5%. Managed funds returned 4.5% on average over the final quarter of 2014. Setanta Asset Management delivered the strongest return over the fourth quarter at 6.7%, while New Ireland produced the weakest return, returning 2.1% over the same period.

The average managed fund return has been a very strong 15.5% per annum over the past three years. The five-year average return is a healthy 10.7% per annum. Irish group pension managed fund returns over the past ten years have been 5.8% per annum on average.

The Aon Hewitt Managed Fund Index [pdf], an index representing the performance of traditional Irish pension managed funds, increased by 1.0% in December. This has contributed to the index delivering a positive return of 16.7% in 2014.

Global equity markets rose coming into year end, as investors weighed up the prospect of further policy easing from the European Central Bank early next year, a strong US non-farm payrolls report and recent significant oil price falls giving a boost to consumer spending. The FTSE All World Index increased +1.1% in euro terms over the month and returned 19.3% since the beginning of 2014.

"2014 proved to be another positive year for equity markets at a global level, however, this masks some significant regional differences in returns at a local level. For instance, North American equities was the best performing equity market in 2014, and when you include the currency gains from a stronger US Dollar for a Eurozone based investor, the FTSE North American index returned 28.2% for 2014. At the other end of the scale, Eurozone equities had a disappointing year (the FTSE Eurozone index returned just 4.9%), as deflation fears and anaemic Eurozone growth weighed on Eurozone stocks," commented Denis Lyons, senior investment consultant at Aon Hewitt.

Oil prices were down 19.2% in US Dollar terms for the month of December, following a decision from OPEC at the end of November, to maintain production levels despite falling prices.

Core Eurozone government bond yields decreased again in December. The German 10 year Bund yield decreased by 16 bps to 0.54%, while the French 10 year bond yield decreased by 13 bps to 0.84%. Peripheral Eurozone bond yields also decreased over the month of December with the Irish 10 year bond yield falling 13 bps to 1.24%.

"Some of the big market themes in 2014 were the further reduction in bond yields, which surprised most market observers, the significant fall in the price of oil, and the weakness of the Euro due to expected further policy easing by the ECB in 2015. Investors should have seen significant market gains over 2014 in most asset classes, except for any holdings in cash which is yielding close to 0%. However, liability sensitive investors, such as Irish Defined Benefit pension schemes, may have seen their statutory funding position deteriorate over the course of 2014. This is due to strong asset returns being offset by a further increase in the valuation of the liabilities of pension schemes, due to lower bond yields over 2014," continued Lyons.

LCP Ireland said in a report: "The DB (defined benefit) funding level of our sample scheme remained stable during December. While assets were up by 1.9%, liabilities (calculated using a MFS proxy) increased by 2.0%. As a result, the funding level of our sample scheme remained broadly stable at 95.0%.

The Pension Purchase Strategy (in respect of DC - defined contribution schemes) increased during the month as bonds performed well during the month (this should also be reflected in higher annuity prices). More risk based strategies increased modestly as other asset classes had mixed performance during the month."

Finfacts 2012: Irish Economy: Pension fund charges are taking 17.4% of retirement savings in occupational schemes

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