Ireland to Establish $9.3 Billion Rainy Day Fund

To keep Ireland’s economy and public finances in check during a downturn, its government has approved the drafting of a rainy day fund bill.

Paschal Donohue, the Ireland’s minister for finance and public expenditure and reform, had initially laid out his plans for the rainy day fund in last summer’s economic statement, and again in the nation’s 2018 budget.

“The Rainy Day Fund is an important element of this government’s strategy to strengthen public finances and improve the Irish economy’s resilience to external economic shocks,” Donohue said in a release.

The fund, which will shield Ireland from severe economic shocks, will receive an initial deposit of €1.5 billion ($1.76 billion) from the country’s sovereign wealth fund, the Ireland Strategic Investment Fund. Afterward, annual payments to the fund thereafter may come from the Irish Exchequer. The new proposals will also allow that €500 million to be held as an “in-year contingency reserve” so that a sudden disaster (natural or otherwise) can be dealt with swiftly.

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The rainy day fund is projected to be at €3 billion ($3.5 billion) by the end of 2021. Donohue told the Newstalk radio station that his medium-term plan sees the fund holding up to $9.3 billion. He did not mention the long-term goals.

The drawdown criteria for the fund will be based on an assessment by the department of finance. According to the release, ministers can ask the government to justify the drawdown, based on those standards. If the government feels it is justified, the minister will then need the Dáil Éireann, Ireland’s lower house, to authorize the drawdown of funds to the treasury, who will have full involvement in any future drawdown decisions.

“We have seen in our recent history just how vulnerable Ireland is to external economic shocks,” said Donohue, who noted that it was “vital” to making sure the framework to prevent those shocks is expanded upon. He said that he intends to advance the rainy day fund plan “as soon as possible to achieve this goal.”

Tags: Ireland, Paschal Donohue, Rainy Day Fund

The highest alpha driver in the past decade for US public pension funds has been private equity, a new study from the American Investment Council revealed.

Over the past 10 years, private equity has averaged returns of 8.6%. This is followed by public equity, fixed income, and real estate; which have seen median returns of 6.1%, 5.3%, and 4.7%, respectively. The total fund returns over the past decade averaged 5.3%, according to the report.

Public equities and fixed income generally receive the most dedication of assets from public pension plans, at 49.3% and 23.8%, respectively.

The highest private equity returns came from the $71.6 billion Massachusetts Pension Reserves Investment Trust, which brought in an average 13.37% over 10 years. This was followed by the Ohio School Employees Retirement System ($13.7 billion) at 13.10%, and Utah Retirement Systems ($31.9 billion) with 12.05%.

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“We are in this asset class for the long term, which has given us greater flexibility to partner with industry-leading investment managers to drive performance higher,” said Michael Bailey, director of private equity at the Massachusetts Board, which has topped the list three times since the study’s 2012 inception.

In terms of funds with the highest private equity allocations, the $326 billion California Public Employees’ Retirement System (CalPERS) has $26 billion invested in the space, followed by the Washington State Investment Board ($129.1 billion) and the Teacher Retirement System of Texas ($145 billion), which allocated $19.03 billion and $18.48 billion, respectively.

The study looked at returns from 163 US public pension funds with data ranging from Sept. 30, 2016, to Nov. 30, 2017, with most dates ending on June 30, 2017.

Tags: American Investment Council, Massachusetts Pension Reserves Investment Trust, Pension, Private Equity