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Impact Investing

IPE special report May 2018

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Irish managers bouyant

Irish fund managers should be been toasting themselves following two reports which showed them to be not only the most successful in Europe, but also to have substantially increased the assets under their management.
The first report commissioned by the EU Commission in Brussels, showed Irish fund managers topping an international performance league table over the 14 years to 1998, with a real return on pension fund investment of 12.54% per annum, substantially above other countries including the US and the UK.
Kevin Murphy, chairman of the Irish Association of Investment Managers (IAIM) said: “These results demonstrate the expertise and quality of Irish investment managers, who have built up an enviable track record of investing successfully worldwide. This international outlook is beneficial to both Irish and overseas clients.”
The relevance of overseas investors was highlighted in figures produced by the IAIM which showed a growth in assets invested on behalf of this group increasing by 70% over 1999 to IR£84bn (E107bn). The rate of increase of assets managed on behalf of Irish residents over the same period was 20% over the same period rising to IR£58bn. Pension funds made up 64% of the latter figure, up to IR£37bn from IR£29bn in 1998.
The significant increase in assets under management is due to a number of factors as well as the increasing number of international clients, including the buoyant Irish economy.
Murphy points out that Irish fund managers have become experts at exporting their skills, particularly into the North American market. “The emergence of this pool of talent has also had the effect of encouraging overseas companies to move their equity operations to Ireland.”
He adds that the international expertise is a result of Irish fund managers being forced to modify their outlook. “Typically, a UK fund may have 25% of its equity portfolio overseas, but an Irish fund may have as much as two thirds invested abroad. This is simply because the Irish stock exchange is too small for the larger funds to spread their investment.”
The Irish economy has also played its part. “As a result of the Tiger economy of recent years, we have seen a move into assets. Although this is a world-wide trend, it has been exacerbated in Ireland by membership of the Euro. This has caused a dramatic fall in interest rates from previous high levels, forcing money off deposit, and into alternative investment.”
Not only are the IAIM members managing more funds, they are also producing outstanding returns, according to a report from the Mercer-run independent Combined Performance Management Service (CPMS), which surveys larger employer sponsored pension schemes in the country. The survey shows the average return on segregated pension funds for 1999 was 20.2%, based on an analysis of 200 Irish pension funds with an asset base of over IR£20bn.
Jennifer Richards, performance investment manager at Mercer in Dublin, said: “1999 was another year for investors with strong stomachs, with the markets very segmented. Sector selection was extremely important, with almost all the growth over the year coming from technology, media and telecommunications. There are a multitude of interesting examples of market segmentation in 1999, one of which is that one eighth of all the growth in S&P’s 500 was produced by just one stock– Microsoft.”
Asset allocation was an important factor, particularly in relation to the weightings in the Irish market. Funds with an above average exposure to the stagnant Irish equity market would have performed relatively poorly. In contrast, the incredible returns seen in the Japanese market, coupled with the weakness of the euro meant that even small above average positions in this market had a significant effect on overall portfolio returns,” again highlighting the international expertise of Irish fund managers. Kevin Hall

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