Pensions industry eyes a gamble on Irish bonds

[BottomsUp]

**Pensions industry eyes a gamble on Irish bonds
**

If you see your pension fund sinking like the Titanic, it must be very tempting to try to save the ship by stuffing your portfolio with high-yielding Greek, Irish, Portuguese and Spanish government bonds.

That’s according to Neils Jensen, chief executive of Absolute Return Partners, a British firm with $300 million in funds under management.

‘‘It is one heck of a gamble, but then desperate people do desperate things," he said.

The Irish pensions industry is so tempted that it is currently lobbying the government to be allowed invest in high-risk Irish government bonds in a last-ditch gamble to plug the €13 billion hole in the country’s defined benefit pension schemes.

A defined benefit pension promises its members a certain pension in retirement, usually equivalent to two-thirds of their final salary.

Many pension schemes provide income to pensioners by investing a pot of money accumulated over their working lives to buy what is known as an ‘‘annuity," effectively an annual income.

But employers are finding it difficult to deliver on their promises, as the pot of money available to buy the annuities has shrunk due to the stock market crash and other factors.

This happened at the very time when it takes a bigger pot to buy an income because interest rates are at historic lows and people are living longer.

The result is that 75 per cent of the country’s defined benefit pension schemes are in deficit, according to the Pensions Board.

The schemes had liabilities of €45 billion at the end of 2008 but assets of just €32 billion - leaving a €13 billion hole.

There is more

[ncallanan]

We had a similar story on Sunday

Pensions nearly bankrupt due to low bond returns
Jon Ihle
Irish pension schemes are being pushed closer to bankruptcy because of the historically low returns on bonds issued by top-rated countries such as the US, Germany and the UK.

Unusually low yields, driven by heavy demand for the safe-haven securities, are seriously limiting pension-fund performance and making it harder
for schemes to close their deficits.

Investors have piled into AAA-rated sovereign bonds throughout the financial crisis to shelter from the volatility of other asset classes, such as stocks.

This has driven up prices in the secondary market, pushing yields down.

…

Up to 90% of Irish companies’ defined-benefit pension schemes are running major deficits and are being threatened with closure if they can’t plug the gap between payments to members and the value of their investments.

[John_Grace]

Pension funds can take the long term view on Ireland, and they are correct that things wont always be as dire as they are today.

[bilbot79]

The Irish pensions industry is so tempted that it is currently lobbying the government to be allowed invest in high-risk Irish government bonds in a last-ditch gamble to plug the €13 billion hole in the country’s defined benefit pension schemes.

And if the government is happy too sell bonds to foreign investors but not the Irish pensions industry, would that suggest a sly intention to default?

[jcsmith]

Let me get this straight. The cost of credit indicates an estimate 5% pa risk of default and Irish pension funds want in? Madness.

[What_Goes_Up]

@bilbot79

The Irish pensions industry is so tempted that it is currently lobbying the government to be allowed invest in high-risk Irish government bonds in a last-ditch gamble to plug the €13 billion hole in the country’s defined benefit pension schemes.

And if the government is happy too sell bonds to foreign investors but not the Irish pensions industry, would that suggest a sly intention to default?

From my understanding of it, pension funds are specifically mandated to only consider AAA or AAA+ rated investments.

Because Ireland went mad “for de ould property”, it’s banks blew up, the economy blew up and it’s ratings has been downgraded.

Because the pension funds went mad “for de ould property and de banks”, they have a massive hole in their fund.

They now want to invest in lower rated investments to try and get a higher return in an effort to fill the hole.

What could go wrong?

[yoganmahew]

@What Goes Up...

What could go wrong?

Course the best way to do this would be leverage up in synthetic junk sovereigns… LTCM had a very successful model that many like to follow. Scholes-Black for beginners is, I believe now shipping from Amazon…

[Open_Window]

@What Goes Up...

@bilbot79

The Irish pensions industry is so tempted that it is currently lobbying the government to be allowed invest in high-risk Irish government bonds in a last-ditch gamble to plug the €13 billion hole in the country’s defined benefit pension schemes.

And if the government is happy too sell bonds to foreign investors but not the Irish pensions industry, would that suggest a sly intention to default?

From my understanding of it, pension funds are specifically mandated to only consider AAA or AAA+ rated investments.

Because Ireland went mad “for de ould property”, it’s banks blew up, the economy blew up and it’s ratings has been downgraded.

Because the pension funds went mad “for de ould property and de banks”, they have a massive hole in their fund.

They now want to invest in lower rated investments to try and get a higher return in an effort to fill the hole.

What could go wrong?