Kylemore Abbey stands frozen in time in images on the walls of the office of KBC Asset Management's chief executive. But Seán Hawkshaw is not a man for sitting still.

The head of Ireland's fourth-largest asset manager is preaching a message of diversification to pension fund clients bruised by three years of poor equity returns and wary of trusting the stock market to provide for their needs.

The black-and-white photographs, which he took himself, hint at a patience that has been evident in the way he has gradually reworked the investment process at KBC following a disastrous performance in 2002, which still distorts its five-year performance relative to its peers.

KBC got caught on two fronts as the stock market tailspin deepened. First, it had a higher proportion of its funds in stocks than its competitors and, secondly, its traditional bias to growth stocks, which were the worst hit, exacerbated its under-performance.

Mr Hawkshaw sees 2002 as an aberration in an otherwise strong track record. He says the company has gradually refined its processes since then and last year matched the industry average.

"While we weren't dancing in the streets about it, it is a trend moving in the right direction," he says.

He anticipates changes in the make up of pension funds to address some of the concerns of fund trustees, advisers and sponsors.

"Understandably, trustee appetite for risk has been diminished, given the experience of the last few years. At the same time, the need for substantial real returns has never been greater. That's the conundrum we, and the industry as a whole, are faced with."

In response, he sees a growing role for property in pension funds and KBC has moved to capitalise on that with the acquisition of a €462 million UK property fund, together with its 13-strong management team.

The acquisition gives KBC exposure to a market where yields are higher and exposure to stamp duty considerably lighter.

Mr Hawkshaw says studies indicate that the recent experience of pensions funds, where property accounts for 5-10 per cent, needs to be adjusted, with property taking a share of 10-15 per cent of funds.

"Back in the 1970s, property accounted for up to 30 per cent of Irish pension funds," he notes.

"One advantage of property is that you are not going to get the dramatic swings in valuations that you have seen with equities in recent times."

He is also a strong proponent of more alternative types of investment, particularly hedge funds.

"Irish hedge fund investment is very low and I think it is, in large part, an education issue.

"When people think of hedge funds, they think of the LTCM [Long-Term Capital Management\] crisis a few years ago where investors lost a lot of money," says Mr Hawkshaw.

"But the truth is that there are hundreds of different types of hedge funds, ranging from those carrying an extremely high risk to ones that strive just to produce an absolute return every year."

He is much more cautious about a possible switch of pension funds into bonds, reflecting the concern of industry professional such as Mercer Investment Consulting.

"We would be telling people that this might not be the right time to do that because, if you had a bubble market in equities in the late-1990s and 2000, you have probably have a bubble in bond markets at the moment," he warns.

European and US 10-year gilt yields are at 40-year lows.

"If people swing their money from equities to bonds at this time, they are exposing themselves to potential capital losses."

While KBC, with €7.1 billion under management, is one of the four dominant players in the Irish market (with Irish Life, Bank of Ireland and AIB), its smaller size allows it greater flexibility in investment.

"While we would have a large-cap bias, we have the ability to move more into mid-size companies, which the very large players cannot do without the market moving against them."

On the other side, KBC sees itself benefiting from the brand recognition of being one of the big four. Founded in 1980 as Ulster Bank Investment Markets, (UBIM), the group was acquired by Belgian multinational KBC in 2000.

"What is also an increasingly important factor for us, and it is beginning to be recognised by the market, is being owned by a large European financial institution with a heavy focus on investment management," he says.

With Irish pension funds in recent years steadily reducing their exposure to domestic equities in favour of wider European equities, KBC sees its European roots as giving it an advantage.

"Europe is becoming more important and that is where we have depth and experience, especially in equity and economic research," says Mr Hawkshaw.

With the Irish market becoming increasingly competitive, that is an advantage he sees the asset manager drawing on increasingly to provide Irish customer with tailored solutions.

"These days, it is no longer a matter of competing for business with the domestic players. We have to compete with all the leading international fund managers who are coming in for every sizeable mandate that comes up here," he says.

As a keen triathlete, Mr Hawkshaw is not a man to spurn a challenge. "We cannot afford to be complacent. However, I am confident we have the right people and the and processes to produce the solid returns for which we were known in the past."