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Archive for June 8th, 2010

The National Pension Reserve Fund (NPRF) is a good example of a small organisation with substantial funds under management (€22.3bn latest) and which uses a large number of external service providers and provides limited updates, mostly on an annual basis to the general public. The fund lost 30% of its value in the last year reported (2008) and records an overall 0.5% (yes half of one percent!) compound growth rate since 2000 so you might have expected a national uproar but no, the public response was muted.

The NPRF’s parent is the National Treasury Management Agency (NTMA) which also gave birth to NAMA. This entry examines whether there is a demand by the general public for better information from NAMA and whether NAMA’s performance is impaired by restricting its public communication?

It is difficult to accurately gauge the public expectation for information from NAMA but I think the following would generally be accepted as being true – NAMA is controversial, NAMA deals with the finances of organisations and individuals who are not generally popular with the public and in some cases are blamed for the economic crisis and widespread public pain (income levy, unemployment, pension levy, wage cuts, new taxes), NAMA deals in bricks and mortar which is conspicuous to the general public (65% of it will be in the State and from the half-constructed Anglo HQ to the Irish Glass Bottle site to the Ghost Estates that dot the landscape, NAMA’s stock in trade is visible to all), NAMA  gives employment to organisations and individuals associated with the economic crisis, NAMA only deals in one asset class and that asset class is continuing to generally perceived to be still falling in value, NAMA is excluded from the provisions of the Freedom of Information Act, NAMA has a convoluted formula for valuing loans which has defied public understanding even by the professionals, NAMA is seen as having front-loaded risk because it is buying today and there is concern that it will over-pay for assets and lastly NAMA has a maximum exposure of about €50bn which may need to be realised in a decade. So with all of this in mind, I would say the public have a desire to receive hard information regularly.

I think it is difficult to predict if NAMA’s performance will be impaired by restricting the information it provides to the general public. The economic crisis has seen few public demonstrations, the larger ones being organised by the unions and protesting cuts to public services. None have been directed solely at NAMA. There have been some guerrilla protests such as the Grand Theft NAMA posters. There are 3 Facebook groups (Stop NAMA, membership 204, No to NAMA, membership 11,440, No 2 NAMA, membership 1,022) and a Twitter campaign with 180 followers (No2NAMA), a protest march on 12th September 2009 which apparently attracted less than 600 marchers and included a mish-mash of causes including the Lisbon referendum, a demonstration outside the Dail on 16th September, 2009 which attracted “several hundred” demonstrators, a march on 19th September, 2009 which attracted 2,000 marchers and again there seemed to be a mish-mash of grievances, a march on 11th May, 2010 which attracted 500 marchers and had NAMA and the bank bailouts as their cause, former banker Peter Mathews held an event at the RDS in October, 2009 which attracted “over 200”, an objection which was dismissed and  led by FG Senator Eugene Regan lodged with the EU protesting against the operation of NAMA,  potential legal challenges to NAMA in the courts which did not materialise, an open letter by 46 economists expressing concern at NAMA, some anti-NAMA opinion pieces in the press, some economists using the internet to criticise NAMA eg here , celebrity economist David McWilliams will take to the planks in June 2010 with his self-penned work “The Outsiders”, opposition politicians criticising the concept but in general being relatively mute with the implementation. In contrast yesterdays mini-marathon in Dublin attracted 40,000 fundraisers. Overall you would have to say that public reaction to NAMA has been muted despite the lack of transparency.

And the public have a very limited role in NAMA’s operation. NAMA’s business will be conducted with big banks, big developers, big investors and in all likelihood big buyers under the auspices of inaccessible government departments here and at EU level. The public may protest over uncompleted buildings or planning consents but that is likely to be on a local level and given the national reaction so far, I don’t think NAMA will be very concerned at any risks that public action will impair its operations.

Is that likely to change in the future? Probably not. A general election is not scheduled for another 2 years, at which point NAMA will have bought the assets, examined the business plans and is likely to have nearly completed its transition from the loan agency it is today to being an asset agency. So any incoming administration would be presented with a fait accompli. Of course NAMA could find its remit or operation modified in an unwelcome manner but given the reality of where NAMA will be on its expected timeline, I would have said that very little could be done to change its approach in a material manner. Also in this context, who is NAMA? The employees and in particular the senior employees who might find their skills and experience gained from this global guinea pig (in terms of scale and narrow remit) in demand from other jurisdictions dealing with unravelling asset bubbles – these employees at a senior level are unlikely to be too concerned with a new administration because their skills will be in demand elsehwere. So will NAMA be concerned with a possible new administration in a couple of years? No I would have said.

So in terms of priorities, the chart at the start is a personal and highly subjective view of NAMA’s stakeholders and their current status (the status of a stakeholder, either in terms of their information requirements and importance, may change over time) and the view that the public have a low priority to NAMA and if the NPRF is anything to go by, a low demand for information. A couple of notes – the Financial Regulator has a role with agreeing valuations of loans on behalf of the EU, investors are those who NAMA hope to marry up with distressed developers and the DoF priority is so high because of recent injection of €250m which was described as an advance.

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Whilst NAMA has been at pains to point out that it will neither hoard nor have firesales (particularly made public in its briefings in the North), the RICS senior economist John Gilmartin is reported by Britain’s Telegraph today as holding a different view and feels that NAMA will lead to a rise in distressed sales, with the consequence of depressing the market (and so the reference to th “thunderous cloud”).

The views of the RICS can’t be so easily dismissed despite NAMA’s pronouncements.  Interestingly the RICS also see the United Arab Emirates as another location where there will be a glut of distressed sales so perhaps any future forecast has less to do with NAMA than the fact we have seen an enormous bubble bursting. Like so much with NAMA, time will tell.

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