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3 rd PUBLIC PENSION FUND MANAGEMENT CONFERENCE. Transparency and Accountability: The Case for Ireland. Anne Maher September 20-22, 2004 Chief Executive Washington DC The Pensions Board Ireland. AGENDA. Background to Irish Fund - PowerPoint PPT Presentation
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Transparency and Transparency and Accountability: The Case for Accountability: The Case for
IrelandIreland
3rd PUBLIC PENSION FUND MANAGEMENT CONFERENCE
Anne Maher September 20-22, 2004Chief Executive Washington DCThe Pensions BoardIreland
2
AGENDA
Background to Irish Fund
Progress of Irish Fund
Transparency and Accountability
Importance
Key Components
Transparency and Accountability in Irish Fund
3
BACKGROUND TO IRISH FUND
Fund Establishment
Fund recommended by Reports of:
Commission on Public Service Pensions
National Pensions Policy Initiative
Department of Finance Budget Strategy for Ageing Group
July 1999: Minister for Finance announced Government decision
December 1999: Temporary Holding Fund for Superannuation Liabilities Act, 1999 set up
February 2000: National Pensions Reserve Fund Act, 2000 passed into law
April 2000: Establishment Day and National Pensions Reserve Fund Commission appointed
4
BACKGROUND TO IRISH FUND
National Pensions Reserve Fund Act, 2000
Fund to be controlled, managed and invested by National Pensions Reserve Fund Commission
Independent of Government
Fund to receive annual Exchequer contribution of 1% GNP
Commission mandate: to generate commercial return
National Treasury Management Agency (NTMA) to be Manager for 10 years
Payments from Fund to Exchequer from 2025
5
PROGRESS OF IRISH FUND
Started with clear objective and agreed Mission Statement
Decision on investment strategy and portfolio construction
Appointment of service providers
Competition
Selection process
Decision on market entry strategy
Market entry and subsequent performance
6
PROGRESS OF IRISH FUND
Mission Statement
“To meet as much as possible, within prudent risk parameters to be agreed by the Commission, of the cost to the Exchequer of social welfare and public service pensions to be paid from the year 2025 until the year 2055 as provided for in the National Pensions Reserve Fund Act, 2000.”
7
PROGRESS OF IRISH FUND
Investment Strategy
Eurozone Equities
Non-Eurozone Equities
Eurozone Bonds
20%40%
40%
50% hedged
8
IRISH FUND
Commission decided on heavy equity investmentstrategy for four reasons
Very long-term view given Fund’s drawdown profile
The Fund’s strong cash flow
The nature of the pensions to be partly prefunded
An assumed average equity risk premium of 3% p.a.
9
PROGRESS OF IRISH FUND
Competition for Service Providers
Restricted Procedure under Public Services Directive 92/50/EEC
Phase I: Notice published in the Official Journal of the EU inviting service providers to submit request to
participate in tendering process
Phase II: Limited number of applicants invited to reply to request proposal (‘RFP’) within 40 days; site visits by Agency; presentations (‘beauty parade’) by further
short list.
Award Criteria: The most economically advantageous tender.
10
PROGRESS OF IRISH FUND
Market Entry Strategy
Average-in (spread market risk over time)or
Fully invest (increased risk – Fund retains upside)
or
A hybrid insurance (options based) approach
Commission decision = average-in
11
PROGRESS OF IRISH FUND
Asset Allocation
End 2002 End 2003 End June 2004 Benchmark
Cash*
Bonds
Equities
26.1%
17.3%
56.6%
14.5%14.0%
71.5%
20.0%
80.0%
*Includes other net current assets
13.0%12.8%
74.2%
12
PROGRESS OF IRISH FUND
Fund’s Appetite for Alternative Assets
Commission recently decided to allocate 10% of Fund in 5 new asset classes
Small cap equities – 2%
Corporate bonds – 2%
Property – 4%
PPPs - €200m. initially
Private Equity – not determined
Why?Potential for improved risk adjusted returns
Fund has no medium term liquidity needs
Can live with J curve effect
To be decided - Hedge/Absolute Return Funds/Emerging Market Equities
13
PROGRESS OF IRISH FUND
Tactical Asset Allocation (TAA)
Fund has made TAA decisions
Market entry – averaging-in: effectively TAA
Currently underweight bonds
12.8% compared with 20% benchmark
Fund’s strong cashflow would facilitate TAA
But does TAA skill exist so as to add meaningful value?
14
PROGRESS OF IRISH FUND
Overall Performance Summary
2003 2002 Since Inception
(cumulative)
Since Inception
(annualised)
Irish Fund 12.8% -16.1% -2.2% -0.8%
Benchmark 16.6% -21.6% -11.8% -4.5%
Relative Return
-3.8% 5.5% 9.6% 3.7%
2004 Fund Performance
1 January to 30 June 2004 4.5%
15
TRANSPARENCY & ACCOUNTABILITY
Importance
Greatly increased focus arising from corporate and accounting scandals, for example Enron
New legislation and regulation affecting accounting and corporate disclosure and governance, for example, Sarbanes-Oxley Act 2002 in US and Higgs and Smith reports together with new accountancy regulation in UK
OECD guidelines for Pension Fund Governance, EU Pensions Directive, national pensions regulators and supervisors all have disclosure and accountability requirements for private pension funds
General climate change also affects public funds
16
TRANSPARENCY & ACCOUNTABILITY
IMPORTANCE
Accountability is essential part of good governance
Public awareness and understanding is best discipline
Some evidence that good mechanisms to understand and communicate with plan stakeholders is a driver of organisational performance
17
TRANSPARENCY & ACCOUNTABILITY
KEY COMPONENTS
Focus of liability on a governing body or person accountable to someone
Good governance of governing body/person
Effective accounts and audit requirements
Effective custody requirements
Public transparency and reporting to all stakeholders
Independent oversight
18
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Responsible party
Commission consisting of Chairperson and 6 Commissioners
Commission is body corporate who can sue and be sued
Eligibility requirements
Disclosure of interest requirements
Commission control, manage and invest Fund
Commission accountable to Parliament
19
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
The National Pensions Reserve Fund Act, 2000provides for:
Preparation of accounts and audit by the Comptroller & Auditor General (senior auditor in State) of the accounts
The publication by the Commission of an annual report of its activities and of the audited accounts of the Fund
The chairperson of the Commission to appear before and give evidence to the Committee of Public Accounts on the policies of the Commission in relation to the Fund
The Chief Executive Officer of the Fund Manager to give evidence to the Committee of Public Accounts on the regularity and propriety of all transactions on the Fund and on the economy and efficiency of the Commission and the Manager in regard to the expenses of operation of the Fund
20
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Accounts and Audit
Must keep all proper and usual accounts of moneys and other assets
Must include separate account of administration fees and expenses incurred by Commission
Audited Accounts of NTMA (the Fund Manger) must note record of expenses incurred by NTMA as Fund Manager
Accounts signed by CEO of Fund Manger and a Commissioner must be formally adopted by the Commission and submitted to the Comptroller & Auditor General for audit not later than 4 months from end of financial year
Copy of audited account must go to Minister and be laid before each House of Parliament
21
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Report and Information to Minister
Not later than 6 months after end of financial year Commission must make report to Minister of its activities for the year
This report must be laid before each House of Parliament
Each report must include:
Information on investment strategy
Report on investment return
Valuation of net assets and detailed list of assets
Information about investment management and custodianship
Information on fees, commission and other expenses incurred by Commission and Fund Manager
Report shall also include any other information the Minister may direct
22
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Chairperson of Commission to appear beforeCommittee of Public Accounts (PAC)
PAC is parliamentary committee responsible for examining and reporting on departmental expenditure
PAC holds public hearings and conducts tough examinations
Chairperson of Commission must appear before and give evidence to PAC at such times as PAC reasonably request
Evidence given relates to policies of Commission, subject to confidentiality of commercially sensitive information
23
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
CEO of Fund Manager to appear before Committee ofPublic Accounts (PAC)
CEO must give evidence to PAC on
Regularity and propriety of transactions recorded in any record subject to audit
Economy and efficiency of Commission and Fund Manager
Systems, procedures and practices employed by Commission to evaluate its effectiveness
Any matter affecting the Commission referred to in any report of Comptroller & Auditor General
CEO must not question or express opinions on policy of Commission
24
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Other Requirements for Accountability
Minister may appoint person to examine any aspect of Fund and Commission – Fund Manager must assist this and give access to all records
Independent valuations of assets
Independent assessment of investment performance
Public Procurement procedures must be used for appointment of all service providers including EU Procedures under Public Services Directive 92/50/EEC
Appointment of custodians
Commitment to open and transparent reporting subject to preserving confidentiality on commercially sensitive information
25
TRANSPARENCY & ACCOUNTABILITY IN IRISH FUND
Other ways of accounting to public
Fund Manager website www.ntma.ie
Press briefings
Conference presentations
New Additions
National Pensions Reserve Fund Review (between year end and publication of statutory Annual Report)
Quarterly performance statements
26
CONCLUSION
Transparency and Accountability
Are part of good governance
Are strong features of funds which work well
Growing in importance globally
No one ideal model as it must be country specific based on:
Capacity to regulate
Standards of accounting
Trust law
General governance quality
Must be there in legislation and in practice
27
CONCLUSION
In the case of Ireland
We have good legislative requirements
We need to work harder at making them be ‘seen’ to work in practice