Mercer said today that Irish Managed Pension Funds fell nearly 9% in September. This brings losses for the year-to-date to 23%.
Funds have suffered due to the most recent wave of global stock market declines, allied to ongoing weakness in Irish shares. More conservative pension funds, which have lower equity exposures, will have been more protected.
For example, a fund with 60% in global equities will have fallen 5%-6% in September and would be down about 15% year to date.
Noel Collins, Senior Consultant with Mercer’s investment consulting business said:“Such funds will also have benefited from diversification into a wider asset classes (such as infrastructure, forestry, commodities, corporate bonds) which will have performed better than equities during this downturn. However, it is only those funds which have little or no equity exposure that will have had positive returns, with Cash and Bond funds typically up between 2% and 4% so far this year.”
The proposed Government guarantee for the Irish banking sector will strengthen some Cash funds, where those funds are deposit-type Cash funds which hold deposits in banks covered by the guarantee. Collins noted: “For reasons of prudence, such Cash funds typically have deposits across a large number of banks, and so the impact of the guarantee might not be so significant. However, for the fund management industry, there may be a benefit resulting from an increase in flows from overseas cash investors.”
Collins noted: “The Government guarantee of course has wider and more significant implications for markets and for the Irish economy - initial reception from markets and financial commentators generally has been favourable. As with Government actions in other countries, any efforts which can meaningfully help stabilise and allow economies to function efficiently will likely lead to an improvement in equity performance. Such an outcome would be very welcome for pension funds, given the magnitude of negative returns.”
Bond yields have fallen recently due to the ‘safe-haven’ nature of bonds. However, there could be an interesting dynamic in bond markets, as the financing of Government actions in different countries may push bond yields higher. Collins observed: “An important follow-on effect is that if bond yields do move higher it would tend to help pension funds, as high yields reduce the value placed on pension liabilities. This could be one silver-lining for pension schemes in the current situation.”
No individual fund returns have been provided.
