PUBLIC PENSION FUND MANAGEMENT

NATIONAL PENSIONS RESERVE FUND IN IRELAND

Anne Maher Washington DCChief Executive 24-26 September 01The Pensions BoardIreland

2.

WHAT I WILL COVERWHAT I WILL COVER

Background

Objective and Process

National Pensions Reserve Fund Act

Establishment and Strategy

Current Position

Issues and Prospects

3.

BACKGROUNDBACKGROUND

IRELAND HAS

FIRST PILLAR

Contributory (and non-contributory)

31% average industrial earnings

Pay-As-You-Go

Sustainable

PUBLIC SERVICE PENSIONS

Facing big cost increase (doubles over next 15 years)

DEMOGRAPHICS

Favourable for 10 years

4.

BACKGROUND (continued)BACKGROUND (continued)

IRELAND HAS

ECONOMY

Modern and successful

GDP growth of 9.9% per annum for last 5 years

INVESTMENT

Domestic and international experience

FUNDED PENSIONS

Well developed

Covering 50% workforce

NATIONAL PENSIONS POLICY INITIATIVE

Examined long-term retirement provision

5.

OBJECTIVE AND MOTIVATIONOBJECTIVE AND MOTIVATION

To secure pensions in retirement for progressively ageing population

6.

FIRST PILLAR National Pensions Policy Initiative Report 1998

PUBLIC SERVICE PENSIONS Commission on Public Service Pensions Report 2000

BUDGET STRATEGY Dept. of Finance Report of Budgetary Strategy for Ageing 1999

LED TO

TEMPORARY HOLDING FUND FOR SUPERANNUATION LIABILITIES ACT 1999

NATIONAL PENSIONS RESERVE FUND BILL 2000

NATIONAL PENSIONS RESERVE FUND ACT 2000

PROCESSPROCESS

7.

NATIONAL PENSIONS RESERVE FUND ACT 2000NATIONAL PENSIONS RESERVE FUND ACT 2000

Establishes Fund Obligation to pay 1% GNP per annum (plus additional sums if approved by

Parliament) Sets up independent Commission Requires strictly commercial investment mandate Has prohibition on drawdowns until 2025 Appoints NTMA as manager Allows Commission to appoint investment managers and custodians Provides for accountability and annual reports Requires annual audit Winds up Temporary Holding Fund

8.

ESTABLISHMENT OF FUNDESTABLISHMENT OF FUND

Fund set up on 2 April 2001

7.2 billion Euros rising to 41 billion Euros by 2025

Commission appointed

7 members

NTMA to act as manager

Agreement of Investment Strategy

9.

INVESTMENT STRATEGYINVESTMENT STRATEGY

Issues

Asset allocation and manager structure

Eurozone/Non-Eurozone Equity Split

Active/Passive Split

10.

INVESTMENT STRATEGY (continued)INVESTMENT STRATEGY (continued)

Major AssetClasses

OverallAllocation

Proportion tobe PassivelyManaged

Proportionto beActivelyManaged

Equities of whichEurozone

Global ex Eurozone

80%40.0%40.0%

27.9%14.2%

12.1%25.8%

Bonds 20.0% 14.8% 5.2%

Total 100.0% 56.9% 43.1%

Agreed Strategy

11.

CURRENT POSITIONCURRENT POSITION

Consultants appointedGlobal Custody

Manager Selection

Transition Manager Selection

Manager SelectionMandates out to tender

12.

Mandates out to Tender 3 Pan European Equity Activity Core portfolios valued at about 300 million Euros each 1 US Equity Enhanced Index portfolio valued at about 350 million Euros 1 US Equity Active Growth portfolio valued at about 300 million Euros 1 US Equity Active Value portfolio valued at about 300 million Euros 1 (or possibly 2) Japanese Equity Active portfolio(s) valued in total at about 300

million Euros 1 Pacific Basin ex Japan Equity Active portfolio valued at about 90 million Euros 1 (or possibly more) Eurozone Equity Passive portfolio(s) valued in total at about 2

billion Euros 1 (or possibly 2) US Equity Passive portfolio(s) valued in total at about 625 million

Euros 1 Eurozone Long Bond Active portfolio valued at about 350 million Euros 2 Global Equity Active portfolios valued at 350 million Euros each

Current Position (continued)Current Position (continued)

13.

TENDER PROCESS

Stage OneStage TwoCriteria

COMMITTING THE ASSETS

PaceAverage in over period of months?

Current Position (continued)Current Position (continued)

14.

Government AccessIndependent CommissionCommercial investment mandate

Distortion of Markets and Corporate GovernanceGeographic distribution at discretion of CommissionControlling interest in any company prohibited

Targeted InvestmentNo mixing of financial and social objectivesCommercial investment mandate

ISSUESISSUES

15.

Manager SelectionCommission is internationalSubject to EU procurement of services for public funds Directives

DrawdownsProhibition until 2025Must be determined by increases in over 65s

Changes in CircumstancesProvides for continued monitoring

ISSUES ISSUES (continued)(continued)

16.

Very little!Parliamentary, political or public

Role of NTMA as managerCommission should have had freedom to appoint

Appointment of CommissionersConflicts of interestLack of representation

Other (better?) uses for moniesContribution to individual pension policies

PUBLIC REACTIONPUBLIC REACTION

17.

Part of overall Irish pension reform/planning

Broad consensus that it is right course

Fund is in place

Wide range of safeguards

And I believe it should achieve its objective.

CONCLUSIONCONCLUSION