Ireland needs a debate on investment infrastructure and wealth management

There likely needs to be a bigger debate on the role of Ireland’s investment infrastructure as the basis to support our domestic economic growth, according to international investment expert and strategic adviser to Unio, Mike O’Sullivan.

Ireland is returning to normal following the historic visit of US President Joe Biden two weeks ago, he said. “One of the important contributions of the visit came from the Ceann Comhairle Séan Ó Fearghaíl who hailed Ireland ‘as a multicultural, progressive nation benefiting enormously from an inflow of immigrants who have arrived on our shores from across the world’.”

“Doubtless Donald Trump will also take note of this on his coming visit, but the statement underlies the dramatic way Ireland has changed since the rise of globalisation in the 1990s.”

O’Sullivan said that very few other countries have changed as much as Ireland has, apart from the Asian ‘Tigers’, select Baltic states, Chile and the Gulf States.

“While some of these have relatively large, powerful financial centres, Ireland has not and there is a sense that the change in our economy and society has not been matched by a growth in infrastructure across a range of areas – security and defence is a notable one, as is housing and the way we welcome migrants. Wealth and asset management is another example,” O’Sullivan said.

According to the most recent Credit Suisse Wealth Report, Ireland now has roughly the same wealth per adult as Germany, Austria and Japan, and just below that of the UK (calculated as property, investments less debt).

O’Sullivan said that compared to peer countries Ireland has far fewer private equity firms, venture capital houses and wealth and asset managers.

“In general, its investment infrastructure is not yet well developed. This matters because these investment firms effectively form the pipelines that transmit savings into productive investments and in particular should make capital available to fuel a vibrant domestic economy,” he said.

“It is well known that our economy remains overly reliant on investment by multinationals, and that there is over-investment in property, and, arguably, cash deposits are also very high. Ideally, there should be more Irish wealth invested in international, diversified portfolios.

“The lack of wealth infrastructure contributes to an imbalanced economy: the domestic industrial sector is not yet big enough and of course overallocation to housing is causing a national crisis.”

He said that this is effectively the first generation of ‘wealthy’ Irish people – those who have built wealth from creating business and through their careers. Notably, women are a big part of this.

“Specifically, the Credit Suisse Wealth report estimates that there are over 176,000 adults in Ireland with net wealth over $1 million. This is a relatively large number of people, the majority of whom may not regard themselves as ‘wealthy’, but when the value of pensions, property, business interests and investments is added together this leads to a significant amount in many cases.

“As such, there are many Irish people who are ‘under-advised’ in terms of their wealth, and this points to a growing need for a more developed investment infrastructure in Ireland. What is also needed is a new way of thinking about and discussing wealth. There are perhaps two points to emphasise here.”

O’Sullivan said that investment is an odd area where normally clever and well-informed people ‘freeze’. “For example, in 2018 a study undertaken for Bank of America found that 61 per cent of women would rather talk about their own death than money. And, when it comes to money, women are more honest and open than men.

“In that context, there is a great challenge for asset and wealth managers to on one hand be rigorous in investing people’s capital, but very importantly to ‘demystify’ markets and be very clear in telling clients what they are doing with their money.”

He said that the way we talk about wealth needs to change. “We need to become more open, and there likely needs to be a bigger debate on the role of wealth in Ireland as the basis for domestic economic growth and the way it influences the society we want. Wealth inequality, and investment into more sustainable ‘new economy’ sectors, are just two emerging facets of this debate.

“Joining the two of these topics is the idea of wealth continuity – or the passing of wealth from the current to the next generation, which is a passage that can cross different types of investment strategy (from property to impact-led investment) and very different levels of investment literacy.”

Looming over the trend of emerging wealth in Ireland, and over our economy, is the very big picture issue of the end of globalisation. “As one of the most globalised economies in the world, the fact that high inflation, rising interest rates and war in Europe have ruptured globalisation should be a profound worry,” he said.

“In the asset and wealth management industries, these elements are playing out in a volatile way – witness the near collapse of the UK pension system last autumn and the way in which persistently high rates are stressing the banking sector.

“This kind of investment climate requires careful navigation and will likely continue to disrupt pockets of the financial sector globally and corners of the world economy. It heightens the need for good investment advice.”

O’Sullivan said that, given the likelihood that this uncertainty proves enduring – for example, that high interest rates are here to stay and that the technology sector is disrupted and complicated by geo-politics – in the context of a still very underdeveloped investment sector in Ireland, we must think carefully about the investment infrastructure the country needs and then map this out.