IRELAND - Irish managed pension funds returned an average of -8.4% in September, resulting in a return -8.8% for the third quarter of the year and -25% for the last year, according to figures from Hewitt Associates.

The monthly Hewitt Managed Fund Index, which includes 24 managed funds, showed the average return was still in negative territory at -8.6%, though Eagle Star and Davy (formerly Aberdeen) limited that as best they could over the month to -6.7%.

Hewitt revealed the poor performance has resulted in the fifth consecutive negative quarterly return for managed funds, with the year-to-date returns standing at -22%, while the 12-month return to the end of September 2008 is -25%.

The worst performer was Standard Life investments Multi-manager with a negative return of -11%, however it was closely followed by Friends First Consensus which yielded -10%, and Acorn Life which returned -9.9%.

But Evelyn Ryder, spokesperson for Hewitt Associates, said: "While these returns may appear catastrophic and particularly in light of negative market sentiment, it is worth pointing out these levels of returns are not the worst on record."

Hewitt claimed August 1998 was the worst month for returns in the last 15 years with an average yield of -10%, but as markets fell by 8.3% in June this year Ryder admitted "the concern may be the frequency and magnitude of returns, as over the last 12 months there has only been three months of positive returns".

Ryder added while the bank guarantee provided by the Irish government earlier this week, and the "concerted efforts of governments globally to assist the financial system" has led to cautious gains in the market on the last day of the quarter, the Irish equity market has been "by far the worst performing market" over the month and quarter.

This is attributed to the large concentration of financial stocks in the Irish Stock Exchange (ISEQ), which dropped 20.7% in September compared with a drop of between 5-10% in all other developed markets.

Hewitt revealed that bond yields did rise to 5% in September, but they later dropped to 4.76% as investors reacted to the current turbulence, which combined with 'depressed' market values could put "significant pressures on the funding of defined benefit (DB) pension schemes.

Ryder said: "The outlook for equity markets is still uncertain and we do expect market volatility to remain. The three year return at -3.2% per annum is very disappointing but should be recognised that for the three year period to March 2003 the return was -10.2%, from which we did recover."

"Therefore we would urge investors to consider the investment returns in light of the longer term returns as pension investments are typically 15 years and longer," added Ryder.

Meanwhile, latest figures from Rubicon Investment Consulting claimed September was the worst month in a decade as Irish pension funds lost over a quarter of their value in just 12 months.

Rubicon's figures suggested the average fall was -8.3%, with Eagle Star performing the best with a negative return of -6.7% and Hibernian Investment Managers delivering the worst performance in its survey with a yield of -9.5%.

The average managed fund has delivered 3.2% a year over the past decade, which is below the Irish inflation rate of 3.8% a year in the same period, with only Merrion Investment Managers (formerly Oppenheim) managing to outperform inflation over the 10-year timeframe.

Despite the poor performance over the month, Rubicon suggested members of DB schemes and younger members of DC schemes "should not get overly worried about short or medium-term declines in equity markets", but warned older members of DC schemes should adopt a lower risk investment strategy as they reach retirement.

In particular Rubicon highlighted that many DC schemes choose a managed fund as their default option, but it warned this can cause an "unwelcome level of volatility" for older members approaching retirement and instead suggested trustees should consider adopting a "lifestyle" strategy as their default option.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com