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Guzzlers Swimming Naked

Posted on: March 3rd, 2008 2 Comments

Let me tell you the tale of a good gatecrash.

One of the biggest bashes of the year was held in Dublin‘s Citywest Hotel on Thursday.

I was not invited. So I went.

Just short of a thousand people gathered for a gourmet’s guzzle, slap in the middle of Lent. The occasion: Ireland‘s pension fund managers’ annual gig. I headed there in hope of hearing a hint of humility; but knowing the characters and the industry, I hardly expected a craven apology.

An apology? Why not? The British government apologised to the Irish people for the famine. Today, Ireland‘s pensioners are being starved by their oppressors, the fund managers.Instead, the event was a celebration; pension fund managers, the champion money losers of 2007, scoffed at the trough. The evening cost €145 a head.

The revellers were celebrating 35 wonderful years for the pensions industry. Pension funds are in freefall; but pension fund managers are still coining it. No expense was spared. Tables of 10 cost €1,450. The venue was packed. Parasites from top financial institutions parted with a tiny portion of their pension fund fees, hosting the other pensions junkies who had given them such luscious business. Ultimately, Ireland‘s impoverished pensioners picked up the tab for Thursday’s binge.

Trustees, financial controllers, actuaries, brokers and bankers sampled a five-course banquet.The Irish Association of Pension Funds website offered a two-day package to the high -rolling guests. Overworked pension fund managers, their tame trustee clients and patrons could stay the night at the five-star hotel for another €115. A reduced price for a round of golf was on offer on Friday for just €80.The IAPF website added that the hotel offered Jacuzzi, sauna, steam room and a heated caldarium, whatever that is. Late-night beauty appointments were available.Obviously the pensions industry is awash with money. Everybody benefits — except for the pensioners.

Despite a brutal 2007 these guys were wining and dining as though they were still masters of the investment universe. Warren Buffett would have singled them out with his famous phrase. “It is only when the tide goes out that you find out who has been swimming naked.”

In 2007 the tide went out on Irish shares. Ireland‘s fund managers have been caught swimming naked. By night they swill fine wines, dressed in smart tuxedos. By day theirs are the naked bodies which lose our savings. Last year Irish fund managers were possibly the worst performers on the planet, losing nearly four per cent. Their UK rivals grew by 5.5 per cent, while US pensioners gained close to seven per cent. Who’s naked now?

If it was ever to happen, this was surely going to be the year when Ireland‘s pension fund managers held up their hands and confessed? They preferred to party. Back to the banquet: the gatecrash turned into a late invitation. The IAPF agreed to give me a place after I had asked if the press was invited. They were not, but the president kindly seated me at the Irish Life table.

Time to stun him with my ingratitude. Not surprisingly, the poor sods at Irish Life seemed hardly euphoric at the last-minute appearance of an uninvited guest; but they were good-humoured company. It was not the best of timing. A few weeks ago, Irish Life boss Denis Casey phoned, gave me a bollocking about a piece penned on these pages and then went off on his merry way! What a happy evening beckoned.

As I sat down beside the Irish Life gurus I pondered their investment performance.It is pitiful. Although their main pension fund was not the worst in Ireland, it still lost three percent last year. And it has already had a disastrous January, tanking by another seven per cent.

Yet Irish Life’s so-called ‘multi-manager’ pension fund lost 60 per cent more than the main fund in 2007. And, according to Mercer’s Actuaries, the multi-manager fund underperformed the main pension fund over the last five years. Which might persuade a sceptic to conclude that the more fund managers are involved, the more money a fund loses.

Not a bad rule of thumb. Such a rule is reinforced by the performance of the Irish Life Consensus fund. This fund has no manager. It simply copies the average investment of all the other pension funds. A computer makes the decisions. There is no stock picking; there is a lesser, but still outrageous, fee. And the result: the mindless Consensus Fund defeated the gurus over the last 10 years. In a consensus fund the computer is king. The Irish Life computer should have been invited to the dinner.

A pattern is beginning to emerge. No fund managers good; one fund manager bad; lots of fund managers awful. I wondered aloud: what would happen if there was no pension fund manager, human or computer, milking the pensioners’ pot? If these guys are really charging fortunes for dubious expertise; if they are turning over pension funds too often and incurring vast brokers fees, surely a fund could be more profitably served by common-sense, less trigger-happy laymen, who charged nothing for their services?

Heresy. Surely, no such fund exists? But it does. Enter the Arnotts pension fund, a star performer in the Irish market; a source of irritation to all the professionals. Arnotts has always pluckily refused to be seduced into the pension junkies’ gluepot. It took no table at Thursday’s dinner. It never employed professional fund managers. For years, its five trustees — company secretary John O’Sullivan, directors Ronald and Michael Nesbitt plus two staff members — managed the fund. They charged no fees. It showed. The returns were stellar. They bought stocks, intending to hold onto them for 20 years — not 20 minutes. They purchased shares on the basis of yield, not incestuous local loyalties.

Unlike most other fund managers, they were not conflicted — simply because they were not owned by a big bank; they never bought stock on a yield below the ruling inflation rate.Unlike well-paid managers with unspoken ties, they were not so compromised that they buried suspicious amounts of clients’ savings into obscure stocks on the tiny Irish market. Ireland‘s ‘professionals’ have paid the price for holding too many locally based shares. Their refusal to dilute their Irish holdings to proportionate levels is indefensible.

Arnotts had virtually no expenses. There was no churning, so tiny dealing costs. No inflated management fees. And the trustees’ personal pensions were in the Arnotts fund. They were managing their own money, while the guys at Thursday’s dinner were managing other peoples’. And they were frittering a good deal of it away on gourmet food and fine wines.

The outcome: the Arnotts pension fund was a rare creature: a pension fund in surplus. A few months ago, it distributed €60m to its members. Before that, they had enjoyed at least six years of pensions holiday, when neither employer nor employee needed to subscribe a cent.

I tested this theory on a fellow diner. No dice. The crippling investment performance of our fund managers was a taboo topic, the first elephant in the Citywest ballroom. I glanced longingly up at the top table in search of the other elephant in the ballroom. The other elephant, Tiarnan O’Mahoney, was missing. Tiarnan, chairman of the Pensions Board, was listed as a top table guest. He is in the news this week as his company, ISTC, lost €820m of clients’ money in the recent credit crunch. With that record, if he ever needs a job, he would make a great fund manager.

Elsewhere at the top table, I spotted the man who has eaten more business dinners than anyone in Ireland. Vincent Sheridan, head of the troubled VHI, guzzled away. The VHI had taken a €1,450 table. No wonder premiums are so high. What a semi-State health insurer is doing with a full table at a pensions fund dinner is hard to fathom. Elsewhere on the top table was a faceless guzzler from Ibec; Rosheen Callender from Siptu was tucking in; Frank O’Dwyer of the Irish Association of Investment Managers was probably fascinating his fellow diners with tales of corporate governance.

How grateful I was to be at an Irish Life table. Irish Life took seven tables, which must have cost them ten grand.The usual suspects were entertaining pensions fellow travellers elsewhere. AIB and Bank of Ireland’s investment arms took a couple each. Eagle Star, Standard Life et al weighed in.

The highlight of the evening was the speech by Micheal O Muircheartaigh. And he does not come cheap. It was a tour de force. He made one mistake. In an aside he referred to his disinterest in statistics. Tactfully, he admitted that he leaves the interpretation of statistics “to the analysts”. The audience adored his deference to their expertise. Micheal would analyse the statistics far better himself.

The analysts are well-fed, but naked.

Hardly the most pretty combination.