Size not major factor to success of managing funds

The recent arrival of the global investment powerhouse, Morgan Stanley Dean Witter, to the UK savings market further illustrates the global integration of the fund management industry. The expert view seems to be that the big global fund managers will get bigger, particularly in the international stock market arena. An example was Merrill Lynch buying Mercury Asset Management last year.

Can domestic, and therefore relatively small, fund managers compete in this new environment?

The recent W.M. Company's "UK Pension Fund Annual Review 1997" measures the performance of most of the major UK pension funds. The management of these funds is dominated by a handful of large global asset managers, such as Mercury Asset Management, Schroders, PDFM, Gartmore and Morgan Grenfell.

Many of these large funds manage more assets than the entire Dublin asset management community, and have fund management locations around the globe. Conventional wisdom would suggest that Irish managers cannot compete against these large, sophisticated, well-known names in international markets.

The W.M. survey breaks down performance by stock markets. With the aid of Irish pound/sterling exchange rates, and CPMS, I have been able to complete comparable performance statistics for Irish and UK fund managers for the major international stock markets (CPMS, the Combined Performance Measurement Survey, measures the performance of the major Irish Fund Managers.)

These are shown in the tables below. Some key points are evident.

Irish fund managers are in no way inferior to their larger, more glamorous UK counterparts. In fact, the most important measure, that of total international ex-UK performance, is decidedly superior, suggesting superior asset allocation skills.

This category looks at performance in non-UK international markets and measures both asset allocation and stock selection skills. Irish managers in general kept a higher US weighting and lower Pacific Rim weighting than their UK counterparts.

In the larger, better researched stock markets of the UK, US and Japan, there is no discernible difference in returns achieved by either set of fund managers. However, it could be argued that Irish fund managers are better at managing UK equities than UK managers.

In the more fragmented markets of Europe and the Pacific Rim, the benefits of larger, and more localised operations, seems to come through in favour of UK fund managers. However, the arrival of the euro and the integration of European markets could well eliminate the apparent advantage in Europe.

In short, if one looks good against one's Irish counterparts, one looks good in an international context.

In summary, both personal investors and trustees of Irish pension funds should not believe all the hype about needing large, global fund managers to look after their assets - Irish fund managers' record at managing international assets is at least as good.

Pramit Ghose is Investment Director at Friends First Asset Management