The National Pensions Reserve Fund was set up in 2002 to act as a cushion against some of the expected growth in future liabilities of Ireland’s state and civil service pension arrangements. Its purpose is to act as a demographic equalisation fund, helping to redress potential underfunding which may arise because of an ageing population. Future governments will be able to draw on the fund at their discretion, so as to cap any rises in pay-as-you-go contributions.
The fund was originally endowed with part of the proceeds of sale of the Irish state telecoms company. This is now being boosted by the Irish government, which allocates 1% of the GNP, currently worth e1.3bn – to the fund each year until 2024.
The fund, at present worth around e12bn, is targeted to grow to e25bn. The NPRF is being managed by an independent commission, the National Treasury Management Agency, for the first 10 years of its existence. The fund’s long-term benchmark asset allocation is 40% in Euro-zone equities, 40% in non-Euro-zone equities and 20% in Euro-zone bonds. However, at present the fund is underweight in bonds, holding around 13%. This is a tactical position based on the current stage of the interest rate cycle. The fund’s total investment return last year
was 9.2%.
In September last year, the NPRF’s Commissioners decided to allocate a percentage of the fund to private equity. “We decided to do this for two reasons,” says Ronan O’Connor, head of risk and asset allocation, NPRF. “We wanted to increase portfolio diversification. We also believe that a properly-managed private equity portfolio can produce superior returns.”
The NTMA is currently working on the methodology of the process for investing in private equity. The fund is expected to make its first private equity investments later this year.
Between 5 and 10% of the portfolio will finally be held in private equity, within a five-year horizon. The most likely route for the fund to use is a mixture of straight funds, and funds of funds, because, according to O’Connor, the managers do not have the capacity with which to evaluate funds themselves. “We intend to hold a global portfolio diversified by vintage year and type of investment,” he says. “It will probably be split 50:50 between the US and elsewhere. The likelihood is that the bias will be towards funds of funds in the US venture capital area, plus funds of funds in the Euro-zone.”
O’Connor says however that no special emphasis will be given to Ireland. “We’ll invest in Ireland to the extent that opportunities arise,” he says. “But we will only evaluate them in the same way as anything else.
“We are not planning to invest a specific percentage in Ireland. Many funds were raised here in 1999 and 2000, and are not yet fully committed, so there is an overhang of capital, and too few opportunities.”
Although some consultants think that the NPRF’s decision might kick-start an interest in private equity from other pension funds, O’Connor plays down the prospect. “We benchmark ourselves against public funds such as the US state pension funds and the AP Fonden in Sweden,” he says. “But we don’t see ourselves as trendsetters.”

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