Irish fund managers are star performers, reports Diane Hallock
The Irish economy has displayed dynamic growth in recent years, and the same holds true for the country's fund management business. Irish money managers have had a stellar run, racking up impressive returns. In the process, they have impressed not just their Irish clients, but also institutional investors overseas.
The big players include the investment subsidiaries of Ireland's large commercial banks, like Bank of Ireland Asset Management (BIAM), Allied Irish Bank Investment Managers (AIBIM) and Ulster Bank Investment Managers (UBIM), part of the NatWest Group. Also active are insurers like Irish Life; the Irish subsidiary of Scotland's Standard Life, and New Ireland, owned by France's UAP, which manage funds mainly through pooled investment vehicles. At the end of 1996, the Irish pension fund market was about I£19bn ($30bn), small by European standards but growing by 5-10% annually, points out Patrick Woods, economist at Standard Life.
The elimination of exchange controls in 1989, says Eoin Fahy, UBIM senior economist, prompted Irish fund managers to escape the narrow local market, where four or five stocks represent almost half the Dublin stock exchange's total capitalisation, and invest overseas. Domestic managers have quickly had to develop global competence. Roughly 40% of the average portfolio is in international bonds or equity, up from about 20% in the early 1980s. Dublin-based teams of portfolio managers regularly outperform their UK counterparts in all parts of the world.
With Ireland almost certain to join the EMU in 1999, the concentration of overseas assets is likely to increase even more, predicts Fahy. A recent study by the Combined Performance Measurement Service (CPMS), jointly owned by Ireland's two largest consultants, Irish Pensions Trust (part of the Sedgwick Group) and Mercer, shows that the average return for Irish managed pension funds over the five years to the end of 1996 was 13.4%. 1996 average returns were 15.4%, consolidating the average 17.6% achieved in 1995, and comparing favourably with the CAPS median of 10.8% achieved in the UK in 1996.
Success in the home market has led some of the largest players to look overseas. UBIM's Fahy estimates that Irish money managers have accumulated about £6bn-7bn ($10bn) in foreign funds under management overseas (including Northern Ireland). BIAM, Ireland's pre-eminent manager, with £13.1bn ($20.3bn) in assets under management globally, is a case in point. Overseas marketing efforts, claims Tom Finlay, head of investment services-Ireland, have been extremely successful, with non-Irish clientele now making up almost 45% of the total. Most of the overseas business, about £4.8bn ($7.4bn) worth, is concentrated in the US, where BIAM's international equities expertise has won it a roster of clients in the state retirement funds and corporate sectors. Mandates have also come from the UK and from Australia, where an office was opened in January 1996. What makes BIAM attractive to these clients," says Finlay, "is our extremely strong performance record." That was highlighted by a recent InterSec survey conducted in the US which placed BIAM in the top 1% of managers over the past seven years. Irish Life has also, since last year, looked to the US for clients.
As the Irish pension market evolves, with by far the most significant trend being the shift to defined contribution (DC) plans, domestic managers are hoping to maintain their edge over overseas competition by focusing on product redevelopment. Of new schemes starting up, "99.9% are DC plans," says one consultant. This has meant a move away from balanced, single-manager mandates. BIAM, for one, is beefing up its capabilities in the area of specialised briefs, says Finlay. Gerry Keenan, director of investment development at Irish Life, adds that plan trustees are looking to "provide different risk choices to members". Irish Life has responded by offering two new products, both with DC plans in mind. One is a "consensus fund", which tracks the performance of the top 15 managers. The other is a guaranteed investment product.
Foreign fund managers have viewed the Irish market with interest, but their penetration has been minimal. Their market share is, in Keenan's words, no more than "a dot on the map". The main impediment, suggests Joe Byrne at Dublin-based consultant Coyle Hamilton, is the market's small size. Another consultant says a lack of perceived commitment - in other words, a presence on the ground - has been a factor, as has the feeling that foreign names lack expertise in the Irish market itself.
Another drawback is the low fee structure, the product of fierce competition. In the pension fund area, says Pramit Ghose, investment director at insurer Friends Provident, fees average 0.5% of funds under management, compared to a rough average of 0.7% in the UK. Last, but certainly not least, the "clannish" nature of the Irish means that the larger funds in particular tend to support Irish managers, asserts Standard Life's Woods.
The names that have had limited success tend to be UK houses. One consultant confirms that Mercury Asset Management recently won a mandate, while Edinburgh-based fund manager Baillie Gifford counts one large Irish name on its roster of pension clients, and is actively seeking more business from Ireland, says partner Ross Lidstone. The handful of multinationals that have hired foreign managers have usually done so for historical reasons, says Watson Wyatt's Gerry O'Carroll, although with the growing prevalence of split mandates a number of pension funds could realistically be expected to embrace overseas names in the next year or two.
Everyone agrees that the market will continue to expand. "There is room for strong growth not only in investment returns but also in the size of the market, the result of net inflows to pension_plans due to the young age profile," says Finlay. This leaves plenty of opportunity for some of the smaller, top-rated domestic managers to boost market share. Friends Provident and Montgomery Govett, with £1.1bn ($1.7bn) and I£200m-300m (about $400m) under management respectively, are seen by industry observers as among the up-and-coming names. Both have been star performers in asset classes ranging from Irish equities to fixed interest. Montgomery Govett is the market's sole independent fund manager (although AIB has a minority stake through its recent acquisition of John Govett in the UK). The firm's Paul Montgomery says expansion plans include designs on overseas business. It hopes to package its particularly strong record in European markets for a broader audience. Friends Provident has a reputation for strong research, and has invested a lot in this area, confirms Ghose. Diane Hallock is a freelance journalist"