Comment: Industry could lose in high-stakes game of life

27 Jul 2005

‘Wall Street is a window into the soul of America and a battleground for a clash of the nation’s values,” writes Steve Fraser, author of Every Man a Speculator. The truism that every man, woman and child anywhere in the world is a speculator in every sense from religion to money, property and morals could be read in the significant cultural impact the 1929 stock crash on Wall Street had on the US at the time with the onset of the Great Depression. Joseph P Kennedy, father of the late US president, sold before the 1929 stock market crash and kept millions in profit. Kennedy decided to sell, the story goes, because he overheard shoeshine boys and other novices speculating on stocks.

Ireland is not America, but if you read into IDA Ireland’s latest annual report, our country is fast becoming one of the most globalised countries on the planet. Therefore it is fair to suggest that we are far from immune to global trends, ranging from the highs and lows of places such as Wall Street to plunging markets caused by terrorist attacks.

Ireland has no Wall Street, but recent images of the Taoiseach promoting a new up-to-date version of Monopoly that attempted to keep up with spiralling property prices was a very telling indication that property, it appears, is the only game in town when it comes to investment. The fact that every second person you meet in Ireland, from the barber to the taxi man, is telling you to join “the game of life” and get on the ladder “because the prices aren’t going to fall” sounds a cautionary alarm bell in my mind.

It is not my job to predict whether the property market will rise or fall, but as a journalist I can report there is concern among venture capitalists because of the over-emphasis on property speculation, less money is going into the very funds that will be needed to fund the industry of the future.

Joe Tynan, Irish partner at PricewaterhouseCoopers (PwC) at the launch of the company’s annual Money for Growth report on funding in Ireland and Europe, said: “Billions of euro are going out of the country to invest in overseas property but only a few million is going into Irish industries of the future.”

PwC’s research indicated that having raised €1bn in the past 10 years from a factor of zero in 1995, the Irish venture capital (VC) industry is at a crossroads. Despite the advent of greater international activity in the Irish VC scene, there are serious concerns about the ability of indigenous VC players to continue investing in young Irish companies as well as their ability to raise funds.

Shay Garvey, outgoing chairman of the Irish Venture Capital Association, said the level of investment in 2004 by Irish venture capitalists into Irish companies was €61m, compared with a whopping €255m in 2003. The need for Irish-based venture capitalists to create a larger funding pool was also highlighted, with the amount raised in 2004 being €47m compared with €60m in 2003. All of this is a pale reflection on the last major funding raising in 2001/2002 when some €411m was raised.

An example of how the finance sector is focusing more on property rather than private equity can be seen from how 10 Irish investors, advised by the private clients division of Davy Stockbrokers in Dublin, took a quarter share in a €1.75bn property scheme on New York’s Upper West Side. Not only is the property game the only game in town but the stakes are incredible.

We have something of a conundrum here: if there’s no money going into funding future SMEs, especially if the future of the Irish economy rests on the performance of SMEs, where do people with expensive mortgages think their future salaries are going to come from? Among this future workforce are about 500,000 or so people who do not have pensions and believe their property investments will fund their retirement. I’m not so convinced. People will end up working longer and guaranteeing a retirement income should be something workers in their 20s should be thinking about — rather than hitting 40 and being told to put aside a quarter of your salary.

Ultimately it should not be forgotten that we as a nation need to provide for our industrial future, our personal future and the future good of the nation. Instead, money that could be put to good productive use and may yield solid investments from which the nation can benefit appears to be flooding overseas for fixed assets. Only time will tell if this is the right thing to do.

If Wall Street was a window into the soul of America, is a For Sale sign a window into the soul of the Ireland of today?

Pictured launching PricewaterhouseCoopers’ (PwC) Money for Growth report were (from left): Shay Garvey, outgoing chairman of the Irish Venture Capital Association; Joe Tynan, Irish partner of PwC Global Technology Industry Group; and Camilla Beglan, director of PwC Strategy Group

By John Kennedy