Elan's spectacular share price collapse wiped around €400 million off the value of Irish pension funds and highlights the over-reliance placed on domestic equities by Irish investmnet managers , according to Mercer investment consultants.
Mercer's quarterly report of Irish pension fund performance suggests the average holding of Elan across Irish investment managers was about 1 per cent within their managed funds, with a subsequent negative performance impact of 0.8 per cent over the quarter.
The average Irish Pension Managed Fund increased by 2.7 per cent over the first three months of 2005 according to Mercer.
Canada Life and Setanta's Managed Fund topped the table over the quarter gaining 4.4 per cent, followed by Acorn Life's Managed Fund returning 4.1 per cent. Davy's Exempt Pension Managed Fund lagged competitors over this period with a return of 1.6 per cent.
Mr Tom Geraghty of Mercer said: "The dramatic rise and fall of Elan serves to highlight the stock specific risk in the Irish market. The top 10 companies in the ISEQ made up about 80 per cent of the index at the 31st December, 2004, with the top five companies representing 60 per cent of the index.
"Ultimately this translates into the fact that approximately 15 per cent of average Irish Pension Managed Funds are invested in the top 10 Irish stocks, significantly increasing both stock and sector concentration risks, and not achieving the full benefits of diversification into the global equity markets."
Mr Geraghty said that for historical reasons, the domestic Irish equity allocation of many Irish pension schemes is heavily biased towards the Irish market.
Although the allocation to Irish equities has fallen in recent years, from over 30 per cent in 1998 to less than 20 per cent today, the strong performance of Irish equities in recent years has slowed this downward trend.
"However, performance issues aside, a 20 per cent allocation to a market that represents under 1 per cent of the global equity universe doesn't in my view constitute prudent diversification of investment holdings".
Over the five year period to the end of March the average Managed Fund has returned -1.2 per cent per annum., with BIAM's Managed Fund (+2.3 per cent) and New Ireland (+2.2 per cent) leading the way.
KBCAM (-3.7 per cent) underperformed over this period. Looking at the 10 year period, the average Managed Fund returned 10 per cent, comfortably exceeding the corresponding inflation figure of 3 per cent.
New Ireland has been the top ranked manager over this period returning 11.6 per cent with BIAM a close second returning 11 per cent.