IRELAND - Assets held in Ireland's National Pensions Reserve Fund (NPRF) fell by almost 30% over the third quarter, with the sovereign fund's exposure to two Irish banks to blame for the decline.

However, returns were not negative across all of the scheme's investments.

The discretionary portfolio - controlled by the NPRF Commission rather than the Department of Finance, as is the case with its bank-exposed directed portfolio - returned 0.2% over the quarter and cut losses on its year-to-date investments to just 0.1%.

In a statement, the fund noted that the discretionary portfolio's positive return was the result of being relatively underweight equities and came in spite of stock market turbulence.

At the end of September, less than one-third of the €5.3bn was invested in equities, with the majority of this in large-cap stocks - compared with a 39.8% allocation to alternative assets, where private equity and property accounted for 16.8% and 9.7% of the portfolio, respectively.

The NPRF also noted that its decision to purchase two-year put options in July this year helped counteract the stock market volatility seen since August.

Addressing the decline in the directed portfolio - used to invest in shares of Allied Irish Banks (AIB) and Bank of Ireland (BoI) - the statement noted a further €10bn investment in July. Of this, €8.8bn went to AIB, with €3.8bn used to recapitalise the bank.

The fund now owns 99.8% of AIB's ordinary shares.

A further €1.2bn were contributed to BoI, partially to underwrite a July share issuance by the institution and partially to participate in it.

The €10bn forms part of the €17.5bn contribution by Ireland toward the troika's multi-billion bailout package, agreed by the previous government.

In June, the directed portfolio was still valued at €15.5bn - since then falling to €9.6bn - with total assets under management falling from close to €21bn to €14.9bn over the third quarter.

However, the fund stressed that, since its inception in 2001, the discretionary portfolio had achieved an annual return of 3.2%, compared with 0.4% for the average Irish pension fund.

Its bank holdings lost 36.5% over the three months to September, resulting in an overall loss of 27.2% over the period and 33% year to date.

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