Over the year to 31 March 2024, the Fund’s overall return on the total assets was 9.87% (gross of asset manager fees). NILGOSC’s overall investment objective is to exceed the Consumer Price Index (CPI) by 3.0% per annum, to be measured over three and five year periods. As NILGOSC’s objective is to achieve the maximum return on Fund investments over the longer term, having due regard to the liabilities of the Fund and an acceptable level of investment risk, it is important that undue attention is not given to the returns for a single year in isolation.
The Fund underperformed its target by -7.6% on a three year basis and by -2.3% on a five year basis for the period ended 31 March 2024. The comparable statistics for the three and five year periods to 31 March 2024 on an annualised basis are set out in the table below:
| Statistic | Three Years % p.a. | Five Years % p.a. |
|---|---|---|
| Return of Fund | 2.24 | 5.41 |
| CPI + 3.0% | 9.86 | 7.73 |
CPI has been chosen as an overall benchmark as it offers an absolute measure which reflects the relative value of money in the real world, which is essential when the goal is ultimately to pay inflation-linked pensions into the future. It is however less meaningful over shorter periods, particularly when inflation moves significantly from historic averages and central bank target ranges, as seen in recent times. It is not possible to invest directly in inflation and therefore asset returns will always be more volatile relative to a CPI benchmark, particularly during times of high inflation, and will result in significant over or underperformance over shorter, volatile periods of time.
The performance of the individual managers is monitored against the corresponding benchmarks and performance target where applicable. These targets are set to allow NILGOSC to meet its overall investment objective, taking into account expected returns and market cycles. In the case of real assets such as the Fund’s infrastructure investments, the returns are measured against the overall fund target of CPI+3.0% for consolidated reporting purposes.