| Ireland's National Pensions Reserve Fund shuns hedge funds |
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| 20/02/2005 | |||||||||||||||||||||
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The National Pension Pensions Reserve Fund (NPRF) will not invest in hedge funds for the time being, preferring property, private equity and commodities as alternative investments. The Irish buffer fund, whose first drawdowns to shore up the Irish retirement system are expected in 2025, has set an 18% target for alternative investments over the next 5 years. Back in August 2004, a spokesperson for the scheme had told bfinance that the fund was a mulling hedge fund investment, but that no decision had been made yet. The €11.6bn NPRF issued concerns about the rapid growth of hedge funds, currently one of the hottest investment vehicles among institutional investors despite its poor performance in 2004. According to the Irish reserve fund, the rapid growth of hedge funds "could crowd out successful strategies, the difficulties in identifying consistent top quartile managers and the lack of regulation of the sector." Nevertheless, the NPRF does not discard to invest in this strategy over the long term. This announcement runs counter to the seemingly general enthusiasm for hedge funds in the investor community. Watson Wyatt Investment Consulting said that the UK pension funds it advises doubled the number of alternative investment mandates to fund managers in 2004. Aggressive asset mix But the NPRF does not share the same analysis for the other alternative assets, property and private equity, whose respective 8% allocations will take place on a phased basis until 2009. The initial investment strategy, designed in 2001, was made up of 80% equities and alternative assets, and 20% to bonds. The review of the investment strategy leave the equity target at 69% and fixed-income at 13%. Thanks to its long-term investment horizons, the NPRF says that it can maximise its returns with a heavy allocation to equities and other alternative assets. As a comparison, the French Fonds de Réserve pour les Retraites, France's own reserve fund whose first drawdowns are planned in 2020, has a 55 equity / 45 fixed-income asset mix. Target NPRF Strategic Asset Allocation (end 2009)
Incremental allocations to what the NPRD labels "new asset classes", such as small cap equities, corporate bonds, property and PPPs have already been made. "In 2004 we accelerated this and evaluated all prospective asset classes with the objective of increasing the NPRF's prospective return without substantially changing its risk profile", said Donal Geaney, the Chairman of the NPRF. "The approach adopted is in line with international best practice and we reviewed the strategic asset allocation of high performing peer funds in assessing the benefits in the NPRF's case." Julien Laplante |
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