The National Pension Reserve Fund is back in the black after a 12.7 per cent gain last year more than wiped out losses sustained in 2002. Cliff Taylor, Economics Editor, reports.
The fund benefited from the recovery in global markets in 2003 and will continue its policy of gradually building up its equity holdings this year.
The fund was valued at €9,556 million at the end of 2003, compared with €7,426 million at the end of the previous year, according to its annual results, published earlier this week. Allowing for the exchequer contribution of €1,103 million, there was an appreciation of €1,027 in the fund's investments last year.
The fund was established by the Government to assist in meeting pension costs after 2025 and 1 per cent of GDP is invested by the Exchequer each year. The 2003 performance, when the fund gained €1,027 million more than made up for the deficit of €737 million for 2002. Since its inception the fund's investments have gained €290 million.
The fund has adopted an "averaging in" approach to equity markets, investing money gradually rather than all at once. The fund invested more than €1.9 billion last year in global equity markets, but did not invest in bonds which it believes are fully priced. It will continue to build up its equity holdings this year, as currently they represent 72.5 per cent of its total assets, compared to a long-term target of 80 per cent, according to Mr John Corrigan, the fund's chief executive, but will continue to avoid bond markets for the moment.
The pension fund is run as part of the National Treasury Management Agency, the body which manages the national debt and the State Claims Agency. It also encompasses the National Development Finance Agency, which advises on and raises money for major State infrastructure projects. Ms Anne Counihan, head of legal and corporate services at the NTMA, has been appointed to head the NDFA to replace Mr Jim Farrell, who is retiring.
The NTMA annual results confirm that the total cost of servicing the national debt last year was €2,027 million, which is €203 million below the target set in last year's Budget.
This will benefit the Minister for Finance, Mr McCreevy, when he presents his Exchequer figures for 2003 next Monday. Given strong tax figures for November, it appears that he will be able to report that Exchequer borrowing in 2003 was well below the €1,510 million estimate made in last month's Budget.
The NTMA figures show that the national debt increased by some €1.78 billion last year, bringing the total to €38.1 billion. The debt to GDP ratio is 34.8 per cent and remains the second lowest in the EU.
The NTMA has taken advantage of low interest rates and locked in an increasing amount of debt at fixed rates, according to Dr Michael Somers, its chief executive. More than 75 per cent of the debt is now at fixed rates, up from 67 per cent at the end of the previous year, he said.
The results showed that the National Development Finance Agency had advised on six projects in its first year of operation, with a combined value of approximately €700 million and had organised funding of €250 million for some of these.
The number of projects is picking up, it says, and the NDFA is now advising on financing of such major projects as the Dublin port tunnel, the upgrading of the M50 and other major road projects.
The pension reserve fund has put €200 million aside to invest in Irish infrastructure projects, but has yet to find ones with a sufficiently attractive return. It may decide to tender to finance some of the major upcoming projects.
The State Claims Agency, which manages personal injury and property claims against the State, currently manages more than 2,000 claims. It is seeking to recover costs from about 500 plaintiffs who brought proceedings for alleged asbestos-related injuries.
The State has spent some €2.5 million defending these claims and judgment was reserved in the High Court in October in a test case where the claims agency was seeking to recover money from a claimant.
