TRADE TALK: A welcome recovery

CliffsThree industry heads covering Ireland consider the recovery in European and US equities and what it means for the Irish funds industry, such as an increased distribution needs.

RBC INVESTOR & TREASURY SERVICES
Sébastien Danloy, head, continental Europe and Offshore

What does the recovery in the US and European equity markets mean for the custody business in terms of revenues and profitability, or operational challenges?
Any market recovery is to be welcomed by the industry given the difficult operating environment of late. There are signs that the improvement to equity markets is being translated into an increase in US and EU equity funds and with it demand for custody, administration and distribution support for new structures in offshore centres like Dublin and Luxembourg, notably from US fund managers looking to broaden their distribution networks. Custodians and asset servicing providers though must continue to re-balance the past over-reliance on ancillary fees, propose reasonable and fair-price fee structures for core custody and examine their cost bases to be well positioned to drive future revenues.

 In the past year, what has been your experience of asset flows and have flows led to any particular demand for specific services?
2013 was labelled by some as the year of the “great rotation” and the asset allocation climate remains changeable. In Europe, the mutual fund market has generally seen assets increasingly flow out of money market funds and commodity funds and into equity funds as investor risk appetite appears to be recovering and comments on tapering caused a revaluation of fixed income allocations. Volatility has led to a rise in mixed asset funds and the greater cross-border fund structures they favour. Expertise in Ucits administration and transfer agency is increasingly sought after.

PWC IRELAND
Andrew O’Callaghan

What does the recovery in the US and European equity markets mean for the custody business in terms of revenues and profitability, or operational challenges?
The recovery in US and European equity markets has been hugely important to the long-only servicing industry in Ireland. Ireland is a very competitive location for fund servicing and the recovery in equity markets means that both passive and actively managed products that are domiciled in Ireland have grown, creating opportunities and improved margins for the industry in Ireland. However, margin compression arising from increased regulation and competitive pressures remains an issue for the market.

In the past year, what has been your experience of asset flows and have flows led to any particular demand for specific services?
Over the past 12-18 months we have seen a significant increase in demand for exhange-traded funds (ETFs) and have seen actively managed ETFs being launched in Europe for the first time. 

ETFs have traditionally been a passive product, so the launch of actively managed and smart beta ETFs in Europe is an important development. The huge growth in passive ETFs reflects the demand for index-tracking products, again reflecting the recovery of equity markets. On an overall basis, we see service providers growing in the ETF space, as well in the alternatives space, including real estate and private equity. 

ARTHUR COX
Kevin Murphy, partner

What does the recovery in the US and European equity markets mean for the custody business in terms of revenues and profitability, or operational challenges? 

The recovery in the US and European equity markets – and a corresponding shift of focus from emerging markets - has led to increases in the size of assets under management for the Irish custody businesses. However, the most significant operational challenge facing custodians in recent times is compliance with the Alternative Investment Fund Managers Directive (AIFMD) and the re-papering of the depositary agreements for many of the alternative investment funds. This has involved considerable management time and allocation of resources for custodians and has involved considerable discussion around both liability issues and fees.

In the past year, what has been your experience of asset flows and have flows led to any particular demand for specific services?
As mentioned, our experience has been an increased flow of assets in certain markets. Also, we have also seen considerable interest in Ireland in property funds, including real estate investment trusts, and client demands for AIFMD preparedness from the various service providers to funds.

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