November has been "a terrible month"  for many Irish pension funds, with the average Pension Managed Fund falling by approximately 7% so far in the month.

As a consequence, the average Irish Pension Managed Fund is now down about 5% this year, having been up over 4% at mid-year.  This represents a swing factor of in the region of €9bn in terms of the overall Irish pension assets.  Global stock markets have suffered due to fears of economic slowdown and the potential global impact of the US subprime mortgage crisis.

The Irish stockmarket has been particularly badly affected, being a relatively small market concentrated in financial and housing-related stocks. 

It has lost 15% of its value this month alone, and is down an alarming 28% year-to-date. 

"In our view, these recent events highlight two key factors", according to Noel Collins, Senior Consultant with Mercer.  "Firstly, it is important to have as diversified a portfolio as possible. Equities do give good long-term returns, but they can be very volatile, as we are seeing. Other asset classes can offer protection in such an environment, such as bonds and cash. 

Additionally, non-traditional asset classes, for example commodities and infrastructure, can give returns which are not so affected by falling equity markets." 

Collins went on to note that "recent returns also show the impact of currency movements.  The weak US dollar alone would have knocked about 2% off the value of a pension fund this year, which is why we advise our clients to have strategic currency hedging policies in place".      

These performance numbers will be very unwelcome news for all stakeholders in pension plans, and particularly for companies beginning to think about preparing year-end accounts, who face the possibility of falling asset values and rising liability values causing a sharp drop in pension funding levels.