Back in 1991, there were two investment managers at Friends First, Pramit Ghose and Ruth O’Briain. Ghose hired O’ Briain from Hibernian to work on fixed income investments. Nine years later this May, when Ghose left Friends for the merged CGU/Hibernian, it was natural that O’Briain should have stepped into Ghose’s shoes as head of investments at Friends First Asset Management.
There is now a team of 11 investment managers at Friends, says O’Briain, still a relatively small team. ‘But considering that international equities are managed by group member Friends Ivory & Sime, the ratio of investment managers to assets is quite normal’.
After a B.Comm, MBS in Finance and a stint as a research assistant at UCD, O’Briain’s early influences in investment management were Eddie Shaw, Tony Joyce and Kieran Bristow at Hibernian, where she spent two years before joining Friends. ‘Joining Friends and Pramit was a major influence, a big learning experience for me’, she said, ‘along with Howard Carter from Friends Provident in the UK.’
‘Although my background was in fixed income, I picked up a lot on the equity side from them. We all did various parts of Ireland then, discussing issues together, applying an analytical framework to all equities.’
Does she miss the heady days of the Irish bond market in the early 1990s? ‘The days or European spreads of 100 or more over Irish bonds? Of course you miss interesting times gone by. We did quite well at the time of the devaluation of the Irish pound - we took French bonds on board over the devaluation period. It’s much more international now of course, and much more analytical.’
‘Over the nine years, we took people on before we needed them and built a strong consensus approach to our investment management.’
In the early 90s, Friends was not a major player in the institutional pensions market, and actually lost some mandates. ‘Our Irish side was OK, but the international performance wasn’t. So in 1994, we took a major decision to adopt a growth-based approach to investing across all equities.
Investment style
Friends First comes out near the top of Mercer’s pension funds performance tables in recent years, but looking at asset allocations, there doesn’t seem to be any big difference from the average. Does this mean it’s all down to stock selection within asset classes?
‘Absolutely. We have never made big asset allocation bets. You’d see with some managers that their funds’ performance can go positive and negative because of asset allocation decisions which are away from the norm. The smaller managers tend to take bigger asset allocation bets. We’ve stayed in around our peers.’
‘We’ve studied this quite a bit and came to the conclusion that no fund manager has added value through big asset allocation decisions.’
So what does the Friends team look for in equities? ‘We’d be skewed towards growth stocks. Above average earnings growth; growth over entire cycles; and positive earnings surprises - definitely no negative earnings surprises. We’ll dump stocks with negative earnings surprises very quickly - within days.’
What are they making of technology, media and telecommunications? ‘Technology stocks that are providing IT hardware fit in with our growth criteria. In the last quarter of last year, though, we trimmed out technology holdings quite a bit. That’s why our performance for Q1 2000 mightn’t look as good as others. We like technology stocks at current valuations. However, we’ve been nervous about telecomms for some time now and aren’t keen on them.’
Away from markets, the relationships with local stockbrokers have changed with the times. ‘The brokers have a lot more international clients now. That has meant they have to produce a lot more research, and we do use it, and engage in questioning discussions with the brokers.’
Are there significant differences between the culture and style of the stockbroker firms? O’Briain pauses. ‘Not really, I’d say - but maybe we’d better ask Gerry or some of my colleagues who work closely with the equity analysts.’ So how do the analysts compare?
‘I’d see considerable differences between those who have excellent analytical ability and those who are excellent at making calls. Often an excellent analyst of stocks won’t be the best at making the calls.’
Instititional client relationships are developing too. Pension fund clients are growing in sophistication; Friends are keen to emphasise the growth in their pension funds under management from ?1.5 billion in 1997 to ?3.5 billion now. ‘Pension funds are not changing mandates after one quarter’s or one year’s bad performance, but they do look at things after three years.’ Are they beginning to diversify across managers? ‘I can think of a few who have split their mandates among two fund managers, but no examples of three or more come to mind’.
Are pension fund managers beginning to look for performance related fees? ‘No, not for us. We don’t receive any performance related fees, and I haven’t heard of any pension funds really raising this.’
People management
Clearly, O’Briain’s elevation to the top position brings a people management role that wasn’t there before. How does she manage investment managers? ‘First, I’d say, respect. They are intelligent people who have done very well. Obviously, there’s a learning process for me to move from a colleague-type role to a senior. At the same time, we operate very much on a consensus basis.’
But aren’t there sometimes strong opinions about investment decisions? ‘Yes, there are robust and energetic debates at our asset allocation meetings, but Pramit’s style was basically consensual and that is the way we try to achieve things. If a tough decision, a final call, has to be made, I’m very prepared to do that. I intend to continue the consensus style, but I do see some changes in processes.’
What’s her view of the best way to motivate investment managers? There is no hesitation. ‘Pay them well, first of all. They have to be financially rewarded. You can talk about enjoying work and all the good things, but they must still have financial incentives. We pay individual bonuses too.’ Doesn’t that conflict with the consensual style of decision making? ‘Well, each manager is responsible for different sectors. The consensus comes in at the asset allocation, overall decisions.’
What do Friends investment managers do for team-building - any offsites, adventure courses, bungee jumping? ‘None of that really’, O’Briain laughs. ‘The traditional night out is our regular thing.’
Have the attractions of going it alone, in dot.coms or otherwise, impinged on investment managers at Friends or in Dublin generally? ‘I don’t think so! Obviously, there are entrepreneurial types in investment management too, and by having a real culture of ownership of the business, I think some of that inclination is directed towards Friends First Asset Management, or the life side, or the lending side.’
What about trends in London or New York for star investment managers to set up their own boutique funds? ‘Dublin is small, so there aren’t many people in that category, but it is always a possibility, since we tend to follow the trends.’
Alternative investments
As for hedge funds - which many of these solo managers run - they don’t figure on the radar screen at all. ‘Friends First doesn’t short stock at all, and we wouldn’t think our pension mandates would allow us invest in hedge funds. Anyway, you pay a lot for the gain. Hedge fund managers are taking a lot of the upside themselves with around 20 per cent performance fees and flat fees of one and a half or even two per cent.’
The lure of absolute, market neutral returns don’t attract? O’Briain smiles, ‘Maybe I’d put something in personally, but not for our pension funds.’
‘We don’t invest in private equity funds at present, but we have invested in some venture capital funds’.
Women and men
And finally, that media comment she made about women being more strategic investment decision makers - unlike men who are inclined to trade more - was it based on observations of Friends investment managers at work? ‘Not particularly! But I do believe it’s true. I’m not saying it’s based on any scientific evidence or anything, just my belief’, she quips.
You wouldn’t want an investment manager who didn’t know her own mind, and you don’t have one now heading Friends First. |
