Irish state pension to commit €1bn to PE

The NPRF has announced plans to commit an 18 percent allocation to additional asset classes including private equity and real estate, but excluding hedge funds.

The National Pensions Reserve Fund (NPRF), Ireland’s state pension reserve fund, is planning to expand its strategic asset allocation into alternative assets including private equity and real estate, according to its 2004 annual review.

The NPRF, which was launched in April 2001, currently has approximately €12 billion ($15 billion) of assets under management. Previously the fund had only invested in traditional asset classes including equities and bonds.

In a bid to diversify its portfolio, the NPRF will seek to commit eight percent of its assets – around €960 million – to private equity by 2009, according to chairman Donal Geaney. A similar amount will be committed to real estate investments over the same period and a further two percent will go to commodities, including oil and gas, precious metals and forestry.

By the end of 2009, the fund aims to have 69 percent of its allocation in quoted equities, 18 percent in alternative assets and 13 percent in bonds.

The report specifically stated that the NPRF “has decided not to invest in hedge funds for the moment…because of the rapid growth in the asset class which could crowd out successful strategies, the difficulties in identifying consistent top quartile managers and the lack of regulation in the sector.”

Due to its funding structure, the NPRF is ideally suited to investing in private equity. Set up by the Irish government, the fund will receive an annual contribution of 1 percent of Ireland’s GNP and no drawdowns can be made from the fund before 2025.

According to the NPRF, this should allow the fund to exploit the lack of liquidity inherent in some of its chosen asset classes in anticipation of the excess return available to investors as compensation for these factors.

The value of the NPRF rose by 9.3 percent (€951 million) in 2004, bringing its total value to €11.7 billion equivalent to 9.6 percent of GNP. Since it was set up, the fund has risen from €6.5 billion and is expected to increase to €140 billion by 2025.