Fund manager makes most of tough market

Market difficulty is Montgomery Oppenheim's opportunity, according to the managing director and founder of Ireland's leading independent fund management company, Mr Paul Montgomery.

Mr Montgomery views the tough market climate of the past three years as a chance to expand as others seek to rationalise.

"The industry needs to re-establish confidence in itself," he says. "The challenge is going to be to provide superior returns in the future for clients, and that requires acquiring different expertise, acquiring different resources."

To prove the point, Montgomery Oppenheim recently bought a slice of an American IFSC neighbour's international corporate funds business.

The deal with GE Re Management Services, which saw two of its fixed-interest specialists move to Montgomery Oppenheim, places the company in the Irish top 10 in terms of size, not just performance - not that worrying about the competition is something Mr Montgomery says the firm spends too much time doing.

"We look to manage market risk rather than looking over our shoulders at the competition all the time," he says.

"If you manage to beat markets, you will manage to beat the competition and that is something that we have consistently done."

Montgomery Oppenheim is the best performing manager of group pension funds in Ireland over the last seven years and the second-best over the past five years.

The deal with GE Re Management ensures the company has the resources to win further substantial investment mandates and compete for larger funds, Mr Montgomery says. In another sign of the firm's current momentum, it has just added another €50 million pension fund to its total of €1.6 billion in funds under management.

The firm's performance history helps. But Montgomery Oppenheim recently lost its director of investment, Mr Brian Gray, and is currently recruiting to replace him.

"It is the process that drives the performance," Mr Montgomery insists.

Mr Montgomery worked for Investment Bank of Ireland (now Bank of Ireland Asset Management) before founding Montgomery Govett in 1986.

In 1997, the German bank Sal Oppenheim acquired the shareholding of international group John Govett & Co. Oppenheim currently holds 60 per cent, with the balance held by senior management.

Independence allows Montgomery Oppenheim to do its own thing without corporate interference or competing internal interests. "Part of the problem with larger organisations is that they get themselves involved in a definition of style which becomes rigid," Mr Montgomery believes.

They become tied to their "value manager" or "growth manager" tag. Montgomery Oppenheim is an active manager, he continues, responding to the dynamics that change "the underlying emotion of markets, if you will" without "getting fixated on analysing historic ratios".

During his 30 years' experience in the industry, Mr Montgomery says investment managers have become increasing prone to "benchmark-hugging" their way through the challenging times.

"The last three years were not dissimilar to the three years almost immediately after I entered the market - 1972, 1973, 1974," he notes.

This time around, solutions to ease the hurt were a bit standard issue for his liking.

"What has changed is that the market tends to go in big lurches, because everyone's trying to do the same thing.

"Investment managers are pushed more and more toward acting in a passive way. They're rather afraid of stepping away from a structure of an index or a structure of a particular benchmark," he says.

Industry confidence can only be rebuilt by achieving adequate rates of return in the short term, he adds. So what does Mr Montgomery define as adequate for managed pension funds?

"Not low single digits, but low double digits," he says.

As fixed interest experts, the two transfers from GE Re Management Services, Mr Pearse MacManus and Mr Des Lawrence, will have a significant role to play in Montgomery Oppenheim's pension fund business.

In the aftermath of the assumption-shaking past three years, it is an area that will be of increasing importance for the pension fund industry.

"A lot of the larger defined-contribution schemes in Ireland are getting to a maturity where they may be looking at dividing their liabilities up, specifically putting assets into bonds," says Mr Montgomery.

But simply becoming more conservative won't work, he says. "With very low rates of interest and low bond yields, people are going to have to reach for returns in various ways."

The third leg of Montgomery Oppenheim's business is the retail funds it manages in conjunction with EBS Building Society.

After a slow burn during the early and mid-1990s, the Summit funds it manages on EBS's behalf finally started to emit some rewarding heat at the end of the century. Now the partners hope to repeat the process with EBS's Personal Retirement Savings Account (PRSA).

It is not a market expected to be particularly explosive.

"The problem with the PRSA business as it is at the moment is that it is low-margin. A lot of providers have come in with non-standard products to try and improve the margin. EBS has not done that.

"I think it recognises that our business takes time to grow and they demonstrated with the Summit funds that they have the patience to stay with it," Mr Montgomery says.

The company was "very pleased" that EBS used its relationship with Montgomery Oppenheim in its advertisements for PRSAs as one of its key selling points.

EBS's motive for stressing the link seems clear. When people think of EBS, they think mortgages, not pensions.

When people - well, industry people - think of Montgomery Oppenheim, they think of a small but reputable pension fund manager, a performer during both bull and bear market runs.

With such a reputation to defend, expansion under way and personnel changes afoot, it is not a time for complacency at Montgomery Oppenheim. But then as the market recovery tentatively takes shape, nor is it anywhere else.