IRELAND – Defined benefit (DB) schemes in Ireland increased their bond allocation to nearly 40% of assets at the end of last year, a 10-percentage-point increase in fixed income exposure since 2010, according to a survey by the Irish Association of Pension Funds (IAPF).

Total assets under management in the Irish pensions market also rose by 11% year on year to €80.5bn, recovering €17bn in value since the end of 2008 according to the IAPF’s annual pension investment survey.

The increase was despite the 0.6% pensions levy on assets under management, costing the industry €500m last year.

The reported reallocation to fixed income came at the expense of equity holdings, down 12 percentage points to 47% since 2010 – a trend questioned by IAPF chief executive Jerry Moriarty.

“The pressure to continue to reduce short to medium-term exposure to equities in what is generally a long-term investment period is questionable,” he said, “particularly at a time when markets appear to be an upward trajectory.”

The survey further found that nearly three-quarters of fixed income exposure was to long-dated bonds.

Up by 11 percentage points from 58% of the average bond portfolio in 12 months, the IAPF said the increased reliance on long-dated issuance was a reaction to demands from the Pensions Board.

“A more conservative investment strategy reduces the risk of significant losses but, over the long term, can make the attainment of the retirement ambitions of current workers more difficult,” Moriarty said of the 39% of DB funds now invested in fixed income.

The pension association also found an increased interest in passive management of DB assets, with 54% of the more than €50bn in the sector invested in such strategies, up from 44% in 2011.

Moriarty also noted that members of Ireland’s defined contribution (DC) funds, accounting for €30bn in assets, continued to show “significant conservatism” at a time when they could be benefitting from equity growth.

Despite an equity exposure of 53%, well above the allocation of the DB industry, DC funds continued to hold nearly one-sixth of assets in cash and also reported a significantly lower exposure to alternative assets.

However, DC funds have nonetheless increased alternatives holdings by 3 percentage points to 3.8%, compared with a 1-percentage-point drop to 5% by DB funds since 2011.

Overall, Irish pension assets stood at €80.5bn at the end of 2012, an €8.2bn increase year on year.