Exceptional investment returns resulted in a 34 per cent rise in the total value of Irish pension funds in 1997. The value of the funds' assets increased to £25.8 billion from £19.2 billion at the end of 1996. The rise was driven by the strong performance of the Irish and other equity markets and a strong inflow of new pension contributions, according to the Irish Association of Pension Funds (IAPF) which released its annual investment survey for 1997 yesterday.

Pension funds achieved average investment returns of 30 per cent last year, up from about 15 per cent in 1996. IAPF chairman Mr Paul O'Faherty described the 1997 returns as "exceptional", particularly against inflation of 2 per cent. A more realistic long term expectation would be for future real returns of 4 to 5 per cent per annum, he suggested.

A breakdown of the distribution of Irish pension fund assets shows that some 60.4 per cent or £15.6 billion was invested in Irish assets - equities, fixed interest property and other investments - down marginally from 60.6 per cent at the end of 1996. Of the £10.2 billion balance, some 16.8 per cent was invested in European equities, 15.1 per cent in non-European equities and 7.7 per cent in other overseas investments.

The survey shows that 26.6 per cent of the total assets of pension funds was invested in the Irish equity market at the end of 1997, up from 23.6 per cent. But exposure to international equity markets was down to 31.9 per cent from 32.4 per cent at the end of 1996. Assets held in continental European equities increased to £2 billion in value from £1.5 billion but the increase to 7.78 per cent of total fund assets from 7.6 per cent was marginal.

Fixed-income investments accounted for 26.5 per cent of total assets, down from 29.6 per cent, with Irish fixed-income investments down to 20.9 per cent from 24.8 per cent. Fixed-income investments as a proportion of total investments have fallen from 38.7 per cent in 1992 largely because of the decline in interest rates in a low inflation environment.

At the end of 1997 some 58.5 per cent of Irish pension funds was invested in equities in the Irish and overseas markets, up from 56.1 per cent in 1996. Pension fund exposure to Irish and overseas markets was marginally lower at 6 per cent of total assets down from 6.5 per cent. Some £15.6 billion of the total pension fund assets were invested in segregated assets, with £8 billion in unitised assets and just over £2.1 billion in insured assets.

A breakdown of investment returns for 1997 shows that North American and Irish equities were the strongest performers with returns of 58.5 per cent and 50.9 per cent respectively. The crises in the Asian markets meant a negative return of 22.2 per cent in Pacific equities and a negative return of 11.9 per cent on Japanese equities.