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PROGRESS OF IRISH FUND Pensions Board

VIEWS: 3 PAGES: 27

									     3rd PUBLIC PENSION FUND
    MANAGEMENT CONFERENCE



    Transparency and
Accountability: The Case for
         Ireland

    Anne Maher           September 20-22, 2004
    Chief Executive            Washington DC
    The Pensions Board
    Ireland
               AGENDA



Background to Irish Fund
Progress of Irish Fund
Transparency and Accountability
  Importance
  Key Components
Transparency and Accountability in Irish
Fund

                                           2
      BACKGROUND TO IRISH FUND

                   Fund Establishment
Fund recommended by Reports of:
  Commission on Public Service Pensions
  National Pensions Policy Initiative
  Department of Finance Budget Strategy for Ageing Group

July 1999: Minister for Finance announced Government
decision
December 1999: Temporary Holding Fund for
Superannuation Liabilities Act, 1999 set up
February 2000: National Pensions Reserve Fund Act, 2000
passed into law
April 2000: Establishment Day and National Pensions
Reserve Fund Commission appointed
                                                           3
     BACKGROUND TO IRISH FUND


 National Pensions Reserve Fund Act, 2000
Fund to be controlled, managed and invested by
National Pensions Reserve Fund Commission
Independent of Government
Fund to receive annual Exchequer contribution of
1% GNP
Commission mandate: to generate commercial
return
National Treasury Management Agency (NTMA) to
be Manager for 10 years
Payments from Fund to Exchequer from
                                                   4
2025
       PROGRESS OF IRISH FUND


Started with clear objective and agreed Mission
Statement
Decision on investment strategy and portfolio
construction
Appointment of service providers
  Competition
  Selection process
Decision on market entry strategy
Market entry and subsequent performance


                                                  5
           PROGRESS OF IRISH FUND


                 Mission Statement

“To meet as much as possible, within prudent risk
parameters to be agreed by the Commission, of the
cost to the Exchequer of social welfare and public
service pensions to be paid from the year 2025 until
the year 2055 as provided for in the National Pensions
Reserve Fund Act, 2000.”




                                                         6
  PROGRESS OF IRISH FUND


        Investment Strategy


20%
                40%

                        Eurozone Equities
                        Non-Eurozone Equities
                        Eurozone Bonds
  50% hedged

40%




                                                7
                   IRISH FUND


Commission decided on heavy equity investment
          strategy for four reasons

  Very long-term view given Fund’s drawdown profile

  The Fund’s strong cash flow

  The nature of the pensions to be partly prefunded

  An assumed average equity risk premium of 3% p.a.




                                                      8
           PROGRESS OF IRISH FUND


         Competition for Service Providers
   Restricted Procedure under Public Services
               Directive 92/50/EEC
Phase I: Notice published in the Official Journal of the
  EU inviting service providers to submit request to
           participate in tendering process
Phase II: Limited number of applicants invited to reply
 to request proposal (‘RFP’) within 40 days; site visits
by Agency; presentations (‘beauty parade’) by further
                       short list.
       Award Criteria: The most economically
              advantageous tender.
                                                           9
            PROGRESS OF IRISH FUND


               Market Entry Strategy
     Average-in (spread market risk over time)
or
     Fully invest (increased risk – Fund retains
     upside)
or
     A hybrid insurance (options based) approach

        Commission decision = average-in


                                                   10
    PROGRESS OF IRISH FUND


               Asset Allocation


 26.1%            14.5%              13.0%      20.0%

                  14.0%              12.8%
 17.3%
                                                           Cash*

 56.6%            71.5%              74.2%      80.0%      Bonds
                                                           Equities




End 2002        End 2003       End June 2004   Benchmark


*Includes other net current assets




                                                                      11
        PROGRESS OF IRISH FUND


   Fund’s Appetite for Alternative Assets
Commission recently decided to allocate 10% of Fund
in 5 new asset classes
  Small cap equities – 2%
  Corporate bonds – 2%
  Property – 4%
  PPPs - €200m. initially
  Private Equity – not determined
Why?
  Potential for improved risk adjusted returns
  Fund has no medium term liquidity needs
  Can live with J curve effect
To be decided - Hedge/Absolute Return Funds/
Emerging Market Equities                              12
       PROGRESS OF IRISH FUND


       Tactical Asset Allocation (TAA)

Fund has made TAA decisions
  Market entry – averaging-in: effectively TAA

  Currently underweight bonds

    12.8% compared with 20% benchmark

Fund’s strong cashflow would facilitate TAA

But does TAA skill exist so as to add meaningful
value?


                                                   13
             PROGRESS OF IRISH FUND


             Overall Performance Summary
               2003    2002         Since          Since
                                  Inception      Inception
                                (cumulative)   (annualised)
Irish Fund     12.8%   -16.1%      -2.2%          -0.8%


Benchmark      16.6%   -21.6%     -11.8%          -4.5%


Relative       -3.8%   5.5%        9.6%           3.7%
Return


             2004 Fund Performance
  1 January to 30 June 2004           4.5%

                                                              14
  TRANSPARENCY & ACCOUNTABILITY

                   Importance
Greatly increased focus arising from corporate and
accounting scandals, for example Enron
New legislation and regulation affecting accounting and
corporate disclosure and governance, for example,
Sarbanes-Oxley Act 2002 in US and Higgs and Smith
reports together with new accountancy regulation in UK
OECD guidelines for Pension Fund Governance, EU
Pensions Directive, national pensions regulators and
supervisors all have disclosure and accountability
requirements for private pension funds
General climate change also affects public funds

                                                          15
  TRANSPARENCY & ACCOUNTABILITY


                IMPORTANCE

Accountability is essential part of good governance

Public awareness and understanding is best
discipline

Some evidence that good mechanisms to
understand and communicate with plan
stakeholders is a driver of organisational
performance




                                                      16
  TRANSPARENCY & ACCOUNTABILITY


             KEY COMPONENTS

Focus of liability on a governing body or person
accountable to someone

Good governance of governing body/person

Effective accounts and audit requirements

Effective custody requirements

Public transparency and reporting to all
stakeholders

Independent oversight
                                                   17
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

               Responsible party

Commission consisting of Chairperson and 6
Commissioners

Commission is body corporate who can sue and be
sued

Eligibility requirements

Disclosure of interest requirements

Commission control, manage and invest Fund

Commission accountable to Parliament
                                                  18
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

    The National Pensions Reserve Fund Act, 2000
                    provides for:
Preparation of accounts and audit by the Comptroller & Auditor
General (senior auditor in State) of the accounts
The publication by the Commission of an annual report of its
activities and of the audited accounts of the Fund
The chairperson of the Commission to appear before and give
evidence to the Committee of Public Accounts on the policies
of the Commission in relation to the Fund
The Chief Executive Officer of the Fund Manager to give
evidence to the Committee of Public Accounts on the regularity
and propriety of all transactions on the Fund and on the
economy and efficiency of the Commission and the Manager in
regard to the expenses of operation of the Fund
                                                               19
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

                 Accounts and Audit
Must keep all proper and usual accounts of moneys and
other assets
Must include separate account of administration fees and
expenses incurred by Commission
Audited Accounts of NTMA (the Fund Manger) must note
record of expenses incurred by NTMA as Fund Manager
Accounts signed by CEO of Fund Manger and a
Commissioner must be formally adopted by the
Commission and submitted to the Comptroller & Auditor
General for audit not later than 4 months from end of
financial year
Copy of audited account must go to Minister and
be laid before each House of Parliament
                                                           20
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

         Report and Information to Minister
Not later than 6 months after end of financial year
Commission must make report to Minister of its activities for
the year
This report must be laid before each House of Parliament
Each report must include:
  Information on investment strategy
  Report on investment return
  Valuation of net assets and detailed list of assets
  Information about investment management and custodianship
  Information on fees, commission and other expenses incurred
  by Commission and Fund Manager
Report shall also include any other information the
Minister may direct                                             21
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

  Chairperson of Commission to appear before
      Committee of Public Accounts (PAC)

PAC is parliamentary committee responsible for
examining and reporting on departmental expenditure

PAC holds public hearings and conducts tough
examinations

Chairperson of Commission must appear before and
give evidence to PAC at such times as PAC reasonably
request

Evidence given relates to policies of Commission,
subject to confidentiality of commercially sensitive
information
                                                       22
  TRANSPARENCY & ACCOUNTABILITY IN
            IRISH FUND

CEO of Fund Manager to appear before Committee of
             Public Accounts (PAC)
 CEO must give evidence to PAC on
   Regularity and propriety of transactions recorded in any
   record subject to audit
   Economy and efficiency of Commission and Fund Manager
   Systems, procedures and practices employed by
   Commission to evaluate its effectiveness
   Any matter affecting the Commission referred to in any
   report of Comptroller & Auditor General

 CEO must not question or express opinions on policy of
 Commission
                                                              23
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

     Other Requirements for Accountability
Minister may appoint person to examine any aspect of
Fund and Commission – Fund Manager must assist this
and give access to all records
Independent valuations of assets
Independent assessment of investment performance
Public Procurement procedures must be used for
appointment of all service providers including EU
Procedures under Public Services Directive 92/50/EEC
Appointment of custodians
Commitment to open and transparent reporting subject
to preserving confidentiality on commercially
sensitive information                                  24
TRANSPARENCY & ACCOUNTABILITY IN
          IRISH FUND

     Other ways of accounting to public
Fund Manager website www.ntma.ie
Press briefings
Conference presentations
                  New Additions
National Pensions Reserve Fund Review (between
year end and publication of statutory Annual
Report)
Quarterly performance statements

                                                 25
               CONCLUSION


      Transparency and Accountability
Are part of good governance
Are strong features of funds which work well
Growing in importance globally
No one ideal model as it must be country specific
based on:
  Capacity to regulate
  Standards of accounting
  Trust law
  General governance quality
Must be there in legislation and in practice
                                                    26
            CONCLUSION



          In the case of Ireland

We have good legislative requirements

We need to work harder at making them be
‘seen’ to work in practice




                                           27

								
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