Chief executive is preparing Irish Life Investment Managers to compete globally as flagship funds attract international attention, writes Laura Slattery

It has gone from being a millstone around Irish Life & Permanent's neck to a core component of its sales success, group chief executive David Went said this week.

He was talking about Irish Life Investment Managers (ILIM), the division of the group that is competing for the title of MoneyMate Pension Fund Manager of the Year at an industry awards ceremony this afternoon.

Gerry Keenan, ILIM's chief executive since last summer, has more than one reason to celebrate at the moment. The group's fund management team has steadily built up a track record that is attracting attention outside Ireland.

ILIM has just been appointed as the new manager of the European Central Bank's pension fund, bumping up the value of the assets under management at the company by a significant sum more or less overnight.

Investment in its global equity business and an approach to stock-picking that is "a mix of traditional and quantitative", according to Keenan, has seen Irish Life rise to rank second among the major European fund managers in global equities fund performance over three years.

"The performance of the flagship funds is important for the group as a whole," says Keenan. If they are not performing well, the investment products Irish Life offers through its retail and bank assurance networks become a harder sell.

And ILIM's fortunes, as Went's comment makes clear, have not always been so great.

"We went through our bad period. We were lucky in some ways because our bad period was from 1990 to 1995. We were the first to go through it - everyone else has had theirs far more recently," says Keenan (52), from Dublin.

Keenan first joined Irish Life as an economist in 1984 and worked as a bond trader before setting up the segregated investment management business. In 1994, he took charge of ILIM's sales and product development.

It's how you handle the bad times that is important, he says. "We structured ourselves to be more focused at a time when some other people gave up."

ILIM now employs about 130 people - "we're fairly lean compared to some of the organisations around town" - and has taken in new business over the past few years at a rate of €2 billion a year.

"I think we can do that or more in the next few years and grow organically," says Keenan. "Our philosophy has not been to make acquisitions."

Total assets under management have almost doubled since 2002 - from €14 million to €26 million - and Keenan hopes to see that figure double again over the next 10 years. He is confident that the Irish market will look very different by then.

"Eventually there will only be two or three managers located here. I don't see any more than that and each of them will have to be able to compete globally," says Keenan. "I think it will make sense that it will be us and the banks left. I think we're pretty close to that."

As well as closing deals to sell its funds internationally, ILIM has linked up with fund manager Henderson to open a European property fund with an initial injection of €100 million. It will also offer institutional clients access to hedge funds managed by Grosvenor while, on the retail side of the business, there are links with Fidelity Investment Managers and Pramit Ghose at Bloxham Stockbrokers.

This "open architecture" structure is going to become increasingly important for clients, Keenan believes.

Hedge funds, European property, private equity and some specialist high-risk funds will be available under a new alternative investments umbrella to be launched this year, and pensions clients will be advised to invest about 30 per cent of their assets in them.

At the moment, however, the big story for Irish Life is the growth of its less exciting but quietly consistent Consensus Fund.

This year marks the 10th anniversary of the fund, which was the first in the Republic to passively track an index, rather than trying to beat the market.

Launched in the midst of Irish Life's bare years, its success to date - it is only beaten by one active pension fund manager, New Ireland, over the 10-year period - is based on the rather alarming philosophy that most fund managers cannot help getting it wrong a lot of the time.

Thankfully, for ILIM's active managers, Keenan does not include his own team in his dismissal of fund managers' long-term stock-picking ability, but only about 10-15 per cent of fund managers have a consistently good track record, he points out, or at least one that is sufficiently reassuring to pensions investors nearing retirement.

Some €6 billion is now invested in the Consensus Fund, making it the biggest single fund in the State by far.

The amount of money being directed into the fund has been helped by the fact that members of defined contribution pensions schemes have to take responsibility for where their pension fund is invested - there are no company guarantees based on salary and length of service as with defined benefit schemes.

Typically this responsibility begins and ends with a ticking of the box marked default investment option. In about 60 per cent of cases, this is the Irish Life Consensus Fund, says Keenan.

The market has now reached a turning point, he says. Companies with defined benefit pension schemes are struggling to keep them solvent and may soon give up the fight.

The UK pattern of closures of schemes to new entrants has yet to emerge here in quite the same numbers, but it is only a matter of time, says Keenan.

In the private sector, there is already a greater number of employees in defined contribution schemes than there are in defined benefit schemes. Many schemes are now in the process of closing, he says.

"I have no doubt that defined benefit schemes have been regulated out of business. It'll be a long wake, because pensions are long-term by their nature, but it has happened, " says Keenan.

"We believe that defined contribution schemes will account for about 50 per cent of total pension fund assets within the next 10 years, compared to 17-18 per cent today."

The growth of defined contribution means more people will wind up with some control over what may be the single biggest asset they accrue.

But the inadequacy of pensions contributions remains a concern. Only about 10 per cent of people's salaries typically goes into defined contribution schemes, compared to an average of almost 20 per cent into defined benefit schemes.

"I don't think it's a disaster for the industry," says Keenan. "But I think people do need to be careful that they are putting in enough."

Fund manager fees and charges also do their bit to diminish pensions savers' retirement income.

Group pension charges here are not high by international standards, Keenan says. On standard Personal Retirement Savings Accounts (PRSAs), the charges are capped, but Keenan admits that it is definitely "preferable" to be in a group scheme.

The Government must try to fix the problem, but mandatory pensions with a fixed minimum contribution are not the answer.

"There would be a chase to a very low contribution level and people will assume they have a good pension. Unfortunately it will be 20 or 30 years before they realise they don't."

However, an opt-out system, where people are automatically entered into a pension scheme unless they take active steps to de-list, would certainly be good for the industry, he says.

Either way, it seems a growing number of people will be monitoring the company's record.

"People don't get excited about good performance, but they get very upset about bad performance," he concludes.