Falling bank shares blamed as pension fund down 5.3% in Q1

THE National Pensions Reserve Fund sank 5.3 per cent in the first quarter as a result of its investments in the shares of AIB and Bank of Ireland, it said yesterday.

The NPRF also confirmed some €10 billion in assets have been liquidated under the terms of the EU-IMF finance deal signed by Ireland. In its quarterly update, it said it had cashed in equity investments of some €5.5 billion in February with a further €4.5 billion liquidated in April.

As a result, there is €5.3 billion remaining in the NPRF’s “discretionary” portfolio – the portion of its assets that has not yet been tapped by the State.

The “directed” portfolio stood at €17.9 billion in April. This now comprises bank investments totalling €7.9 billion and the €10 billion in cash.

As of the end of March, the total fund was €23.2 billion in size, down 5.3 per cent compared to the beginning of the year.

The discretionary portfolio made a positive return of 0.3 per cent over what was a roller-coaster quarter for equities, but this was more than cancelled out by a 12 per cent plunge in the value of the directed portfolio. This was due to the downward drag of the ordinary share prices of AIB and Bank of Ireland.

As of the end of March, the directed portfolio comprised a €5.6 billion investment in AIB, a €2.3 billion investment in Bank of Ireland as well as the cash recently liquidated from investments. During the period, it received dividend income of €214 million in respect of its preference share holdings in Bank of Ireland.

Most of the NPRF’s investment in AIB and Bank of Ireland is by way of preference shares, which continue to be valued at cost.

However, an independent valuation review is under way to determine the value they will be ascribed for the fund’s 2010 financial statements. The figures will be published alongside its annual report, which is expected to be released in July.

The NPRF described the return on its discretionary portfolio as “broadly flat”, but said this reflected a volatile period for equities. “Following a strong start to the year, a number of concerns emerged including geopolitical risk in the Middle East, the crisis in the euro zone and the Japanese tsunami, and these combined to produce a rapid sell-off,” it said.

“However, surprising resilience meant that most of the losses were recovered by quarter end, although returns to euro investors from global assets were dampened by the weak dollar.”

As of the end of March, half of the discretionary portfolio was invested in equities, with most of this sum relating to large cap stocks. A further 21 per cent relates mainly to bond investments, while 29 per cent is held in assets such as private equity, property and commodities.