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News : Irish Last Updated: Jul 6, 2010 - 6:55:23 AM

Irish pension funds lost ground in Q2 2010; Average annual return negative over 5 years - - below inflation over 10 years
By Finfacts Team
Jul 5, 2010 - 12:01:52 AM

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Irish pension funds lost further ground in June, as the average managed fund returned -1.8% for the month. Standard Life Investments and Eagle Star/Zurich Life shared top spot with a return of -1.5% for the month, while Setanta Asset Management  propped up the league table with a -2.7% return. As a result of losses experienced during May and June, the average managed fund delivered a return of -3.7% over the second quarter (Q2) of 2010. The average annual return was negative over 5 years and below inflation over 10 years.

During the second quarter, the best performing managed fund was that of Standard Life Investments, which lost 2.6%; while the worst performing managed fund over the three months to the end of June was that of Setanta Asset Management, which returned -4.9%. In spite of this, the average managed fund has advanced 1.9% over the first half of the year; with returns ranging from a high of 3.7% (Standard Life Investments) to a low of 0.4% (Aviva Investors). Over the past twelve months all of the managed funds surveyed delivered double-digit growth, with the average fund returning 17.7%. Returns for the past year ranged from 20.3% (Standard Life Investments) to 15.0% (AIB Investment Managers).

Fiona Daly, Managing Director, Rubicon Investment Consulting, commented: "The average managed fund return has been a very disappointing -9.1% per annum over the past three years. The five year returns to the end of June are mostly negative, with an average return of -0.2% per annum over this period. Irish group pension managed fund returns over the past ten years have been a disappointing 0.3% 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 funds suffered from the uncertainty in the global markets over the last few months," commented Brian Delaney, Investment Consultant at Hewitt Associates. "Global equities fell by 3.3% over the quarter, while Eurozone equities declined by 8.9%."

Equities markets have suffered in recent months following the uncertainty surrounding Eurozone sovereign debt. With mixed economic signals emerging from the U.S., particularly the lack of improvement in employment figures, investors are nervous about the persistence of the global recovery.

"The poor performance of equities has affected Irish pension funds"
added Delaney. "The Hewitt Managed Fund Index, an indicator of the performance of traditional Irish Pension Managed Funds, fell by 3.4% in the last 3 months. This has reduced the gains made earlier in the year, and the average managed fund is now up just 2.5% since the start of 2010."

German and French bond yields fell significantly over the quarter as investors sought a safe haven from the riskier sovereign debt of the peripheral Eurozone countries. "The decline in bond yields has led to an increase in the liabilities of the Defined Benefit schemes," Delaney said. "Coupled with falling equity markets, pension schemes need to be wary of falling back into funding difficulties."

The difficulties in Europe has led to a decline in the value of the euro against all the major currencies. This has helped to boost the returns from non-Eurozone markets since the start of the year.

For the year to date, global equities have increased by 5.9% while Eurozone equities have fallen by 8.1%. Eurozone bonds have returned 3.2% and the Hewitt Managed Fund Index shows that the average pension fund has gained 2.5%.

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