Róisín Shortall (Dublin North West, Labour)
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Question 161: To ask the Minister for Finance the value of the National Pensions Reserve Fund at the end of each year since its inception; the value of the Exchequer contribution in each of these years; the projected contribution in respect of 2009; the overall cost of maintaining and investing in the fund in each of these years; the amount paid out in fees, charges and other costs to fund managers, fund administrators and others in each of these years; if the cost [i]vis-À-vis[/i] the return on the fund has been subject to a recent value for money audit; if there are plans to conduct one in view of the losses incurred in 2008; and if he will make a statement on the matter. [2771/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The National Pensions Reserve Fund (NPRF) was established in 2001 to meet as much as possible of the costs of social welfare and public service pensions from 2025 when these costs are projected to increase dramatically due to the ageing of the population.

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. The National Treasury Management Agency acts as Manager of the Fund and the Commission performs its functions through the Manager.

The value of the Fund at the end of each year from 2001 to 2007, as published in the NPRF Commission's Annual Report and Accounts, was as follows:

A preliminary 2008 end-year valuation for the Fund of €16,355 million was published in the National Treasury Management Agency's Statement of Preliminary Results for 2008. This valuation was, in the case of direct quoted investments, based on valuations at close of business on 30 December and, in the case of indirect investment vehicles, based on the most recently available valuations. The Fund's investment return from 1 January to 30 December 2008 was -29.5 per cent, reducing its annualised performance since inception in 2001 to 0.6 per cent (compared to 6.0 per cent at end-2007).

The Statement notes that the Fund's performance reflects the exceptionally difficult global market conditions in 2008 as the worsening credit crisis took its toll on economic growth. Following the dramatic deterioration in conditions since early September — in particular following the collapse of Lehman Brothers — the credit crunch escalated into the most serious financial and economic crisis since 1929, with major international stock market indices down in the region of 40 per cent for the year and the domestic ISEQ index recording a decline of some 66 per cent. All long-term investment funds have been severely affected by these extreme market conditions. In the first eleven months of 2008, the value of the NPRF declined by 28%, compared to the average Irish managed pension fund which declined by 32.6%. Overall, from inception (April 2001) until 30 November 2008, the annualised return on the NPRF was 0.9%, while, in the same period, the average Irish managed pension fund gave a return of -1.5%.

The Statement adds that the investment strategy of the NPRF Commission is primarily focused on building up a diversified portfolio of equities and other real assets on the basis that — as has historically proved the case — real assets will outperform financial assets such as bonds over the Fund's long investment timeframe. While this strategy means that the Fund will suffer volatility over certain short-term periods — and in severe bear markets it will experience negative returns — ultimately the Fund's performance will be determined by the long-term growth of the global economy over a 25 to 30 year period, rather than by sharp market movements in response to extreme events.

The National Pensions Reserve Fund Act 2000 provides for the payment each year to the Fund from the Exchequer of a sum equal to 1% of GNP. €6,515 million was paid into the Fund from the Temporary Holding Fund for Superannuation Liabilities in 2001. This included 1% of GNP contributions in respect of 1999 and 2000, the proceeds of the sale of Telecom Éireann (€4,528 million) and the interest earned on those sums. The amounts paid over in respect of 2001 and subsequent years under the statutory requirement to pay over an amount equal to 1% of GNP were as follows:

For 2009, 1% of GNP for NPRF purposes, as published with the Budget Statement, would be €1,584 million.

The fees and expenses incurred by the Commission in managing the Fund, and which are charged to the Fund, are set out in its Annual Report. These are principally comprised of investment manager fees but also include custodian fees, fees and expenses of commissioners, IT systems, legal and tax advisory fees and consultancy fees. The fees for the years 2001 to 2007 were as follows:

The level of fees and expenses each year is mainly driven by the size of Fund assets under management. As a large institutional investor, the NPRF Commission is able to negotiate very competitive fees with its fund managers. The fees and expenses set out above do not include the costs incurred by the NTMA in its role as Manager of the Fund, which are borne by the Exchequer. The costs for the years 2001 to 2007 were as follows:

The Commission participates each year in a survey run by a Canadian firm, Cost Effectiveness Management, which measures the total operating costs of pension funds relative to their peers. The most recent survey, which was in respect of 2007 costs, found that the costs of the NPRF are in line with the average costs of peer international pension funds.