Success of a sort as ILIM is back in lead

Irish Life Investment Managers' chief executive admits mistakes were made but is now concerned with restoring confidence, writes DOMINIC COYLE

WHEN IRISH Life Permanent reported its results recently, it brought mixed emotions for Gerry Keenan. On the one hand, the chief executive of Irish Life Investment Managers was celebrating the success of recapturing Irish Life’s traditional position as the largest investment manager in the State – a position it had ceded to Bank of Ireland Asset Management in the 1990s. On the other, the group was embroiled in the ongoing fallout from the collapse of the Irish banking sector.

Closer to home, many of those clients whose funds had boosted ILIM’s position were nursing significant losses on their portfolios.

“It is particularly pleasing to have regained top spot although one would like to achieve it in better times where clients were achieving better returns than they have been in the recent past.

“Our primary concern at this stage is the level of investment returns and the pain which all clients of investment managers globally are feeling.”

Keenan admits frankly that the investment management market badly misjudged the market in recent years – though he points to recent pronouncements by the Sage of Omaha Warren Buffett as evidence that even the brightest failed to see the coming storm.

Now, he is more concerned with the changes necessary to restore customer confidence. He sees the move towards passive investing, which began in the late 1990s, gathering steam in the current recessionary times. “Clients have an increasing lack of tolerance for underperforming active management . . . it’s bad enough that markets are bad, without underperforming those markets,” he says.

Some argue that while passive investing was fine in a rising market, the current collapse is tailor-made to active investors. Keenan demurs. “It becomes even harder for active managers to add value in the massive volatility that exists today,” he says.

“There are unprecedented things happening in the world and, at times, it is better to say we don’t know what is happening. We had better protect ourselves as best we can in that environment. I’m not convinced at all that now is the time to be brave. I think to be brave now would be foolish.”

On the pension side, Keenan says there is a major drive to “derisk”. “There has been a realisation for pension fund trustees and corporate treasurers that there is a level of risk that we cannot live with anymore, so if there is a bill to be paid, we will pay it.”

Irish Life, he says, has attracted significant funds into its super long bond offerings which more closely match liabilities with returns. Keenan says institutions can now access 30 or 40-year bonds from the European Investment Bank and suggests an opportunity is available for the Government here, which currently offers only a 10 or 11-year timeframe.

However, for those with money already in equities, he advises against abandoning positions. “We are where we are, and things may even get worse before they get better, but it would be a foolish call to actually get out of it [equities] at this stage.”

The market turmoil has raised questions about a number of industry mantras and Keenan says one of these, diversification, needs careful reappraisal. The notion of simply allocating funds within asset classes, like equities, by region, in the hope of improving or protecting returns has proved to be unfounded, he argues.

Diversification is still a valuable tool but there needs to be a greater diversification in asset classes, to include forestry, corporate bonds, exposure to commodities and even hedge funds, he argues, as well as a global rather than regional approach within an asset class.

On the retail side, Keenan believes it is going to be a very long time before investors get back into the equity market and take a full market exposure. The answer, he says, is to put in place a far greater range of guaranteed products.

“Never again can we have products which give such an unexpected outcome to customers . . . that they can be down 35 per cent in a year. The price we pay is limits on the upside. A big option for the retail market now is cash. So the challenge for the investment management industry is cash-plus products and the plus will not be naked exposure to equity markets. You will cap the upside and that allows you to cap the downside as well.”