Irish pension funds gave back some of the gains made over the past three months with negative performances over the month of May. The average managed fund returned -2.8% for the month. Returns over 10 years are all down after inflation and four of ten funds were even negative in nominal terms.
Standard Life Investments took top spot with a return of -1.9% for the month, while Irish Life Investment Managers propped up the league table with a -3.9% return. In spite of this, the average managed fund has advanced 3.8% over the first five months of the year; with returns ranging from a high of 5.3% (Standard Life Investments) to a low of 2.2% (Aviva Investors). Over the past twelve months all of the managed funds surveyed delivered double-digit growth, with the average fund returning 20.0%. Returns for the past year ranged from 23.1% (Standard Life Investments) to 17.2% (AIB Investment Managers).
Fiona Daly, Managing Director of Rubicon Investment Consulting commented: "The average managed fund return has been a very disappointing -8.8% per annum over the past three years.
The five year returns to the end of May are mostly positive, with an average return of 0.8% per annum over this period. Irish group pension managed fund returns over the past ten years have been a disappointing 0.6% per annum on average, well below the Irish inflation rate of 2.5% per annum over the same time horizon. Indeed, none of the managed funds surveyed outperformed inflation over this period, while four of the ten funds failed to deliver positive returns over 10 years."
Pension consultants Hewitt Associates commented last April that over the last several years, a debate has ensued over how "active" the active managed funds were in practice. This was on the basis that very few varied their asset allocations significantly from the peer group average. For example, the vast majority of managed funds had an equity weight between 75% and 79% just prior to the credit crunch. In addition, it seemed odd that in all but 1 of the active managed funds, the Irish equity market (a small and concentrated market that comprised 1% of the global index) comprised between 17% and 22% of the total just before the market began its descent into oblivion. Similarly in more than half of funds, Irish Property had crept up over the 5% mark in spite of the obvious unsustainability of Irish property performance. Hewitt asked if these funds were truly active why was there such similarity in the asset allocations of the different funds? Accordingly employers, trustees and members have all begun asking what the definition of "active" is.
Hewitt said the investment management community has often pointed to peer group surveys as the reason they have been unwilling to actively manage their funds. They argued that if they are to be judged each quarter by their standing in the survey, they cannot accept the business risk associated with deviating from the average (and potentially underperforming that average). Therefore, the unique asset allocation of the Irish managed fund (with its historical bias to Irish equities and property) remained fairly static without justification solely because few managers found differentiation palatable. Any major shifts in allocation were predominantly due to market movements rather than active allocation.
The easy option according to Finfacts was go with the flow and collect big fees.
For those without the equivalent of the gold-plated public sector pension, in the private sector, the past decade has been a washout and it is only reasonable to expect another decade of low returns.