US private equity group puts faith in underlying economy

When William McMorrow, chief executive and chairman of Kennedy Wilson, a US private equity group, first flew to Ireland in the winter of 2010 he found a country in chaos.

Dublin had just been forced to accept a € 67.5 billion bail out from the European Union and International Monetary Fund after a property crash that pushed its banks towards insolvency. The government was on the brink of collapse and investors were pulling their money out of the country at a rapid rate.

"I had 25 meetings that week in Dublin and in every one of them people told me it was the end of the world here in Ireland," says Mr McMorrow. "But I was encouraged because the underlying economy in Ireland was actually OK."

Within months Kennedy Wilson - which up to then had specialised in property investment in the US and Japan - had bought Bank of Ireland's Real Estate Investment Management unit, its first significant purchase in Europe.

So far it has spent € 600 million buying commercial and residential properties and loan portfolios in Ireland, and has also expanded into the UK and Spain.

Peter Collins, managing director of Kennedy Wilson Europe, says the company generally co-invests in properties with one or two other partners.

As well as stimulating the Irish property sector, Kennedy Wilson played a crucial role in stabilising the banking sector. The group is one of several international investors that bought a 35 percent stake in Bank of Ireland in July 2011 for € 1.1 billion. This transaction enabled the bank to escape 100 percent state ownership and probably saved the job of Richie Boucher, BOI's chief executive.

"I went to thank Richie for letting me acquire the asset management division of BOI. I instantly liked him and we started talking and that is how it happened," says Mr McMorrow.

The next day Mr McMorrow called Pram Watsa, chief executive of Fairfax Financial Holdings, a Canadian insurer. Within weeks they had pieced together a consortium that included US billionaire Wilbur Ross, Capital Research and Fidelity Investments.

Dublin is due to leave its international bail out programme in December and its economy and property markets are showing signs of recovery. Bank of Ireland is likely to return to profit next year.

"Some people thought we were dumb. But when this group of sophisticated investors was willing to make a huge bet on the biggest bank in Ireland, other people began saying maybe this country is not as bad off as everyone thinks," says Mr McMorrow.