| A look back over 15 years in the investment business |
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| Willie Cotter examines the highs and lows of the past 15 years from the stock market crash in October 1997 to how BIAM refused to bow to the ‘dot.com’ pressure in the late 1990s and emerged all the better for it, and says that their recent acquisition of US company Iridian is the beginning of a new era for BIAM. |
One of the things that is most striking about the last 15 years is the degree to which the Irish investment market has developed and flourished. 15 years ago, who would have envisaged the huge growth in investing both personal and institutional, the full employment economy, the high level of returns enjoyed by investors, or indeed just how ‘global’ the investment management industry would become.
The last 15 years, however, have not been without their ‘ups and downs’. In 1987, I was just a year at the helm of the investment business. Within 10 months we faced the now infamous ‘Black Monday’ and the ensuing fallout in markets. This had far reaching implications, particularly for retail investors who took fright, even though markets recovered quickly. It was many years before they had any real confidence to return to markets. Whilst we have had a number of market corrections over the 15 years, I think it was the suddenness that shocked investors and that’s perhaps why it has stayed in folk memory. A by-product of the ’87 crash was the growth in demand for guaranteed products, and for many investors they have remained the preferred option to this day.
There have been many developments at an industry and regulatory level over the period that have had a significant impact, including:
• The development of the IFSC
• The introduction of specific regulation for the investment management industry
• The elimination of commission on the purchase and sale of gilts
• The establishment of the NTMA and the Pensions Board
• And, of course, the introduction of monetary union and the euro.
Another major development during the period was the establishment of a stand-alone investment administration business in the IFSC. Bank of Ireland Securities Services started out as our administration department, but as the need to provide administration services to IFSC based fund managers became evident, we began to offer our capability to other investment management firms.
Today, BOISS is a leading provider of custody and fund administration in the IFSC. The business employs 350 people, provides services to some of the most sophisticated institutional investors globally and at the end of March 2002 had in excess of E137 billion in funds under custody and administration. The transformation from a small administration department to a successful internationally competitive business is most pleasing.
In ’87, we had 40 staff in the business. We now have over 675 people employed in the investment management and fund administration businesses, many of them in overseas offices.
In BIAM, we’ve had a busy and exciting 15 years. Back in 1987, our client base was almost entirely Irish. Before the end of that decade, we were trying to grow the business overseas particularly in the US.
At that time, US pension funds had begun investing a portion of their assets outside the US. While US investment managers had a depth of expertise in the management of US equities, they had little or no experience of international markets. We decided that we had an expertise we could offer them, so in 1987 we set up an office in the US to source clients. At that time, our main competitors in the US were UK firms - it is interesting to see how the tables have turned, with US managers now competing with UK managers on their home ground!
As I think back over the last 15 years, there have been a number of times when our investment beliefs have been severely tested. I am thinking of times when our portfolios looked quite different from our competitors. The most memorable of these is probably the dot.com bubble in ’98/’99. This was one of the most challenging periods in our business. We were under a lot of pressure to follow the momentum in markets and invest in so- called ‘new economy’ companies. Refusing to suspend our fundamental beliefs under pressure was one of those big calls we made.
While our move into the US has been hugely successful, it was a high-risk strategy at the time. To put it in context, the first year cost of setting up in the US represented 10 per cent of our profits at that time and we knew we had little or no chance of seeing a return on this investment for years. We faced lots of hurdles in those early years. US funds liked the way we managed money, but wouldn’t hire us because we didn’t have other US clients. I am always grateful to the City of Brockton, who took that first initial leap of faith. They were the first to hire us in the US and have remained with us to this day.
Today, we manage funds for more than 230 clients right across North America and we rank as the 4th largest active manager of international equities for US tax-exempt investors.
We’ve learnt a great deal from operating in the US that we’ve been able to carry with us to new markets in Canada, Europe, Australia, the Far East and back here in Ireland. The consultants we deal with communicate with each other globally which can be very helpful when you are trying to establish in new markets. If you have a good reputation, it travels ahead of you. The challenge to articulate our investment style and philosophy in a way that is universally understood has been another one of the benefits of the experience.
Today, we have over E57 billion in assets under management and we operate from 10 locations around the globe and employ over 300 people.
In the future, I think we will see more specialisation and more global providers in the home market. We are also likely to see the growth of ‘mega’ firms with any number of specialist capabilities This will, however, continue to be a talent business, where size does not equate with quality and where superior skill will always be in demand.
Finally, we announced our intention to acquire Iridian Asset Management in mid May. This is a major move for us, our first acquisition, as all growth to date has been organic. A new chapter in our story begins… |
Willie Cotter is chief executive of asset & wealth management, Bank of Ireland Group.
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| Article appeared in the June 2002 issue.
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