Arthur Morgan (Louth, Sinn Fein)
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Question 128: To ask the Tánaiste and Minister for Finance the impact of recent developments in international financial markets on the National Pensions Reserve Fund. [2390/08]

Brian O'Shea (Waterford, Labour)
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Question 129: To ask the Tánaiste and Minister for Finance his views, in view of the recent stock market volatility and the impact on the National Pensions Reserve Fund portfolio of its holdings of Irish equities, on a need to review the mandate of the NTMA or a re-weighting of the portfolio; and if he will make a statement on the matter. [2318/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 128 and 129 together.

The National Pensions Reserve Fund was established in 2001 with the objective of meeting as much as possible of the cost to the Exchequer of social welfare pensions and public service pensions to be paid from the year 2025 until at least 2055.

Under the National Pensions Reserve Fund Act 2000, the National Pensions Reserve Fund Commission controls and manages the National Pensions Reserve Fund. The Commission has discretionary authority to determine the Fund's investment strategy in accordance with the Fund's statutory investment policy of securing the optimal total financial return provided the level of risk to the moneys held or invested is acceptable to the Commission. This framework has given the Commission the freedom to develop, outside of the political process, a long-term investment strategy primarily based on a diversified portfolio of real assets. Indeed, a long-term State fund with no need for liquidity and no requirement to match liabilities on a yearly basis has some clear advantages in seeking to maximise long-term investment returns.

I am aware and I accept that the appropriate investment strategy for a long-term fund can lead to short-term volatility. In its 2006 Annual Report, the Commission states that its asset allocation strategy is founded on the premise that real assets, such as equities and property, whose performance is linked to the rate of economic growth, will continue, over the long term, to outperform financial assets such as bonds. It goes on to say that, while equities are inherently more volatile than bonds, with sharp performance swings over short time periods, the Fund's long-term investment horizon enables it to accept this volatility in a trade-off for the higher expected return.