Wednesday 7 December 2016

Star Irish fund managers are thin on the ground

Stock market volatility has seen investors take a bath, writes Barbara McCarthy

Published 11/09/2011 | 05:00

The pond of Irish fund managers is small and getting increasingly smaller, so the days of the Georgie Best-style leader have disappeared -- along with lengthy, liquid lunches.

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Turmoil in the financial markets over the last three years has meant that global equities went down by 12 per cent, according to Zurich Investments, while the global financial crisis -- coupled with concerns about government borrowing in the US and Europe -- has meant that equity and bonds markets have seen more ups and downs than a seesaw in a children's playground.

A lot has been going on. Bank of Ireland Asset Management, which was considered a basket case by industry experts for years, was taken over by State Street, Pioneer moved from Dublin to other locations, while Standard Life moved its investment offices back to its headquarters in Edinburgh.

This has meant that many Irish investors will no longer be dealing with Irish fund managers and are instead being managed by massive global fund management companies outside of Ireland, says Kevin Coghlan, managing director of TierOne Prudential.

"The Irish fund management industry is estimated to run at a total of €250bn under management. While that is a big number, it pales into insignificance when you compare it to the likes of Franklin Templeton and Legg Mason, who each have funds under management in excess of $700bn (€500bn)," he says.

"Companies like these have enormous capacity to invest in people, systems and research, and our experience tells us that that is what drives performance," he adds.

So where does that leave the fund manager?

"In our estimation, if investment managers want to be successful, they have to operate at scale and invest heavily in research or else become niche managers, developing real expertise in a very specific asset class, sector and location, which looks to attract investment for a specific position," he says.

UK fund manager Anthony Bolton, who ran the Special Situations Fund at Fidelity in London for 28 years, would be an example of this kind of management. If you were lucky enough to invest €1,100 when he started, you would see returns of almost €170,000. Not bad for a little nest egg.

"In his case you would get people investing in him and not his funds," says Nick Bullman, managing partner of CheckRisk, which is based in the UK.

"This is more likely to happen in the US, but most definitely not in Ireland, where people look at the funds themselves and not the fund manager," he adds.

Fund manager Harry Nimmo from Standard Life, who has been managing the UK Equity Smaller (quoted) Company Fund since 1997, equally proves how knowledge and meticulous planning means that investors reap huge benefits, says Graham O'Neill, director of investment policy at TierOne.

"Nimmo has been successful, simply because he prepares to look outside the box by including the likes of popular retailer ASOS to his holdings."

"In the UK you have fund managers looking after specific asset classes as well as specific geographic areas so you get one person looking after American assets, another looking after emerging markets, someone else looking after Asia and small companies and so on," says Justin O'Gorman, CEO of Financial Planning & Solutions.

"This means experts can concentrate on their one area, thus making for more informed investment decisions which should benefit their clients. This kind of investment is becoming more available in Ireland, but is still considered a niche offering rather than a mainstream fund option.

"Just look at the Standard Life Synergy GARS fund, which has returned 23.9 per cent since launching in September 2008. It has 30 different investment strategies running at any one time.

"There are dedicated teams looking after these strategies and this is possible because of the global size of Standard Life Investments. A strategy like this gives clients the potential to achieve positive investment returns in a variety of market conditions."

So who are the movers and shakers in Ireland? According to Mercer, the outsourcing and investment services group's pension funds table from July 31, 2011, shows that Zurich Life Group managed pension fund is leading with a 2.9 per cent return over 10 years. The companies funds under management stand at around €11bn (as at June 30, 2011). Led by chief investment officer David Warren, Zurich still manages money out of Ireland, where others have moved outside.

Its funds range from concentrated equities to

strategy funds. The €1bn Zurich Life Fund has seen a 10.1 per cent increase on 20 years in July 2011, the Irish Equity Zurich Life stands at -13.3 per cent after five years. "Zurich is great at interpreting business cycles," says Mr O'Neill.

As a smaller team, it doesn't have the same stockpiling skills simply because the people power isn't there, but it is good at sector positioning.

"So when there is a global slowdown they get consumer staples like tobacco stocks and when things are good they get global demand companies like engineering companies."

Alder Capital Ltd's Insight Currency Fund for Friends First has been doing well with fund manager John Caslan. It was founded in 2000. "We only invest in the most liquid currencies like the dollar, yen, Swedish krona and Canadian dollar. We have had positive returns in the last nine out of 10 years, making money when a lot of people haven't."

The fund, he says, is ranked second out of 234 funds in the Irish market, according to MoneyMate -- making seven per cent return a year. "We use a systematic fund, which is based on maths and stats, not speculation," he says

According to the Mercer table, Standard Life Investments is second for the month ending July with a 2.1 per cent increase over 10 years for its group pension funds, while KBC/NT Managed (Multimanager) is third with a 1.8 per cent increase and Acorn is in fourth place with 1.7 per cent.

Canada Life/Setanta is in joint fifth place with 1.4 per cent with Irish Life, while Friends First is in eighth with 0.9 per cent. Aviva only produced a return of 0.4 per cent.

Merrion Investment, which manages about €1bn in funds with Joe O'Dwyer at the helm, has recently been publishing good results, while Bloxham has also been delivering. Its fund manager Pramit Ghose looks after funds of almost €900m. "Our style is to invest in safe defensive companies like Johnson & Johnson and Unilever. Always going with the steady Eddies means you get dividend-paying stocks, which at this point is more profitable than trying to find the next Google or Microsoft."

Because of the recession new business has dried up as people are not investing long term. The stock market has been extremely volatile and the main source of business is the large pension schemes.

"The credit crisis has seen legislative change and become tighter and harder. In the long run, Ireland will benefit because it has been better regulated. This in effect attracts fund management groups to Ireland, so it's not really worthwhile setting yourself up in Cayman anymore," says Mr O'Neill.

There will be more front-office activity in Ireland, which will up accessibility to funds for Irish investors in the long term.

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