The State's pension reserve fund, currently worth almost €12 billion, is to extend its investments into areas such as property, oil, gold and forestry over the next five years.
To date, the National Pensions Reserve Fund has confined its investments to traditional asset classes such as equities, bonds and cash. But in a bid to boost returns, it is planning to expand into alternative assets such as property, private equity and commodities by 2009.
The fund, which was set up four years ago to meet as much as possible of the State's pension costs 20 years from now, says its long-term investment horizon allows it to put its money into areas that lack liquidity but offer the potential of high returns.
It expects to invest around 8 per cent of its money, or close to €1.9 billion, in property over the next five years. However, the fund's focus will be global with Irish property likely to account for just a tiny percentage of its total investment.
Private equity, or the provision of finance to unquoted firms, is expected to make up a further 8 per cent of the fund while commodities such as oil and gas, precious metals like gold and platinum, and forestry will account for 2 per cent of the fund's portfolio.
But the vast bulk of the funds will remain invested in companies on the stock market while a good chunk will also remain in bonds, considered to be among the lowest-risk investments.
Last year, the fund delivered a return of 9.3 per cent, or €951 million, although it underperformed its benchmark. Since it was set up, its value has risen from €6.5 billion to €11.7 billion and this is expected to increase to €140 billion by the time it reaches maturity in 2025.
The decision to establish the fund, which receives an annual contribution from the Exchequer worth 1 per cent of GNP, was taken by former finance minister Charlie McCreevy to address what is known as the pensions "timebomb", caused by the declining number of workers relative to retired people in society.
While there are currently more than five people of working age to every pensioner, there are expected to be fewer than two taxpayers to fund each pensioner by the middle of the century. Three in every four people now working are expected to benefit from the fund in their retirement.