Since the establishment of the International Financial Services Centre in Dublin in 1987, Ireland has attracted more than 880 fund managers from more than 50 countries to administer assets here. Furthermore, 17 of the top 20 global asset managers have Irish-domiciled funds.
The Irish funds industry now employs more than 14,000 people, services more than 40 per cent of hedge funds globally and more than half of all European exchange-traded funds. This success is based on a number of factors, including Ireland’s ability to offer managers access to the EU-wide marketing passport for UCITS (Undertakings for Collective Investment in Transferable Securities) which can be sold throughout the EU under a harmonised regulatory regime and alternative investment funds (AIFs).
Almost 80 per cent of the assets of Irish-domiciled funds are held in UCITS at present. This is due to the fact that Ireland has become a European domicile of choice for such funds as a result of this country’s regulatory and tax regime as well as depositary and client-service offerings.
Ireland is also the fastest growing major cross-border UCITS domicile with the level of funds under administration set to top €4.7 trillion by the end of the decade, according to a study carried out by PwC in 2017. That would represent almost 15 per cent growth from the record €4.1 trillion level of assets administered in Ireland at the end of 2016. This is split almost equally between international funds that are domiciled in Ireland and those that are not.
“For more than 30 years, Ireland has been a leading domicile for internationally distributed investment funds,” notes Ian Dillon of the Arthur Cox asset management and investment funds group. “This trend has seen the assets under management within Irish-domiciled funds grow from €66 billion in 2002 to €506 billion by the end of 2016. Irish-domiciled exchange traded funds [ETFs] now represent approximately 50 per cent of the total European ETF market.”
He believes this trend, along with Ireland’s market-leading position in areas such as money market funds, means this country has a very strong base to work from for future growth. “Ireland’s commitment to membership of the EU, the consistent support of the financial services industry by Government, as well as our transparent tax regime and robust regulatory framework, will continue to attract managers to Ireland,” he says.
“Brexit may also offer opportunities in the asset-management and investment-funds sector,” Dillon continues. “Ireland offers certainty to managers and distributors who wish to be able to continue to market their products and services across the EU, using the passports available under the AIFM, UCITS and MiFID directives without having to contend with additional restrictions that apply to funds and managers domiciled outside of the EU. While Brexit may result in restricted market access to the EU for UK funds and managers or distributors, the close economic, cultural and physical connections between the UK and Ireland makes Ireland an obvious choice for firms seeking to establish products or operations within an EU jurisdiction. Fintech and other areas of technological innovation are also likely to drive growth in the industry.”
Brexit
Brexit won’t be the only source of growth, of course. “Brexit aside, initiatives to position Ireland as a global location of choice for private-equity and real-asset funds and their managers, represent the largest opportunity for Ireland’s investment funds industry in the near-term,” says Kerill O’Shaughnessy, investment funds partner at Walkers in Ireland.
"The creation of many thousands of new jobs within the Irish funds industry should follow the enactment of the updated Investment Limited Partnership legislation, and the implementation of a number of other initiatives currently being engaged upon by the Irish funds industry with Government, the Central Bank of Ireland and other key stakeholders," he adds. "The opportunity is huge, and Ireland is currently missing out."
“We don’t have much private equity in Ireland,” Brian Clavin, KPMG’s asset management practice leader, agrees. “The question is if we can we address this and grow it. We need to look at what that industry needs and provide it. Because we are asset servicers, it doesn’t matter whether it’s an Irish fund or not. The work will be moved to where it’s most efficient to do it and Ireland is in a strong position to compete for it.”
Nicholas Blake-Knox, who heads up the Walkers’ investment funds team, explains that Ireland’s relatively poor track record in private equity is as much to do with tradition as anything else, although it has been exacerbated by shortcomings within the existing Irish partnership legislation, which is currently tabled for a substantial overhaul. “Ireland has traditionally had a bias towards open-ended funds and liquid funds. Private-equity and real-asset funds are typically closed-ended with a pre-determined timescale. The assets in them are not liquid. They invest in assets like companies, properties, loans being repaid over fixed period. Investors are required to hold assets for five-, seven- or 10-year periods. Investors need to be happy to sign up for that period. This represents the biggest opportunity for Ireland in the coming years.”
Kerill O’Shaughnessy also points out that the European passports for Irish UCITS and AIFs offer Ireland an opportunity to form part of a global distribution strategy. “Global managers are increasingly seeking global-fund distribution solutions, and we see increasing use of Irish funds which benefit from the EU marketing passport being used to attract EU capital, and invest alongside or in parallel with funds from other jurisdictions such as Cayman which may gather investment from other non-EU jurisdictions. These parallel fund structures allow managers to market fund products which investors in each target distribution market are accustomed to, with those funds investing in parallel in the same opportunities.”