Funds Europe talks to Pat Lardner, chief executive of Irish Funds about how the association is maintaining Ireland’s ‘brand’ as a funds domicile at a time of sweeping changes to the international regulatory landscape.
How would you describe Ireland’s ‘brand’ within the global funds industry?
Ireland enjoys a reputation as one of the leading global funds centres, renowned for both the administration and domiciling of investment funds. The figures bear out this claim. We have more than €3,760 billion of assets under administration and more than 6,200 of Irish domiciled funds worth close to €2,000 billion in assets. We have 18 of the top 20 managers here as well as the major custodians, administrators and asset servicers.
One of the important parts of Ireland’s brand is the breadth of capability – we have onshore and offshore funds, liquid and illiquid funds, mainstream and alternative funds. We have 40% of the world’s alternative investment funds administered in Ireland, over 50% of all European ETFs are domiciled here as well as having a significant money market fund sector.
Ireland also has a broad reach geographically with the various service providers able to cater for 30 languages and 28 currencies, thereby supporting its status as a bridge for investors and managers around the world. And the regulatory environment in Ireland is designed to be conducive for investment managers to get their products out to market. It is about the expertise, and the ability to move and change with the times.
Ireland’s reputation as a global funds centre has been helped by two external factors – the globalisation of the funds industry and the passporting of funds, as typified by the birth and growth of Ucits. But there have been some important internal factors which have fed Ireland’s success – namely a determination to get first-mover advantage wherever possible. If you go back to 1990, we were the first European domicile to offer a regulated alternative investment fund product with the Irish Qualifying Investor Fund (QIF). And we launched our first money market funds as far back as 1991. We launched the first European ETF product in 2000, long before the ETF market really developed. And in 2003 we launched our tax-transparent pooling structure, the Common Contractual Fund (CCF). The Irish funds industry has continued to claim firsts, such as the first China A-shares ETF, done under the RQFII regime in 2014.
Has the brand changed over the 25 years?
At the beginning, the brand was about a strong belief and determination that we could build a successful industry. Now it’s a well-developed brand in that we backed those aspirations up with delivery over several years and we are no longer the new kid on the block. We are well established and in the front of people’s minds when it comes to the deciding on a domicile or servicing location, both globally as well as in Europe. We have longevity, scale and breadth, but also expertise, and this equips us with views and insights which are sought by regulators and policymakers like the European Commission.
What are some of the challenges involved in maintaining this brand and what is the association doing to help meet these challenges?
The environment continues to change and we have to ensure that we continue to provide choice, value and support to the industry. At Irish Funds, we have made a number of changes to ensure that we are representative of all the different players and members in the Irish market. When the association was first formed, it was the custodians and administrators that were the initial driving force. As our industry has grown, we have added to this with more fund promoters and investment managers as well as the advisory community.
We have looked to mirror this development in the way that we organise ourselves. For example, our working groups were previously very focused on a few specific areas, but we have reinvigorated the structure to cover the full range of interests in the industry. We now have 38 working groups that include 81 member firms and 600 people looking at topics as varied as regulation, distribution, investment risk, legal developments, operations and technology. It gives us a much better capability to keep up to speed, but also to look ahead.
The working groups helped with the development of the Icav and on the continuing development of our skills and educational agenda – in this regards there are more than 4,500 people that have gone through our various courses. And we make sure that we work closely with the Irish government and its various initiatives around the development of the financial services sector.
How is Ireland’s funds industry dealing with the challenge of regulation?
I think we are at an interesting juncture with regulation. We seem to be moving from an environment of very tight regulation to restrict activity to one where regulation will also help to get markets and economies moving again and allow global flows of capital to continue.
The position that we have always maintained is that regulation should be balanced between rigour and practicality so that we are still able to get products out there that meet the needs of investors.
Has the Icav been a success and if so, why?
The Icav has been a great success. Investment managers have for a long time used different corporate structures for their investment vehicles. The Icav creates a more streamlined structure where a company set up as an investment fund does not have to cross-reference everything that would apply to trading companies.
It also simplifies a range of things including shareholder votes and AGMs. It allows for a speedy but sensible environment for setting up, modifying or redomiciling funds.
As to why it has been a success – it was built for purpose, it fitted into the existing toolkit and it meets clear demand.
It also helped that early adopters of the Icav like Permal and UBS have come out and publicly supported it.
Do you anticipate the Irish funds industry benefiting from Brexit by way of more funds being domiciled in Ireland, more service providers being based in Ireland and even more portfolio managers moving from the UK to Ireland?
It is a complex question as there is still much to be understood about the actual destination and how long it will take. Clearly there will be opportunities, but I would make the point that prior to the vote, Ireland provided solutions for managers to access multiple markets and post-vote we still do, so in one sense, little has changed. Given the ongoing uncertainty, we are focusing on two things; communicating with all our stakeholders to ensure they know we will help in whatever way we can to help them find solutions – given that we already do this for UK and non-EU managers, it is a natural conversation for us to have. We are also ensuring our authorities are up to speed with market developments which allows them to be supportive.
Secondly, managers are looking at their structures, their clients, their investors, their operating structures and their target markets. That process will uncover gaps that they will look to fill. So we are looking at that through our working groups and looking at possible fund structures, process innovations or other supports and information which will help.
The pace has upped in recent months and with recent announcements made by UK ministers including the prime minister, Theresa May, and the chancellor of the exchequer, Philip Hammond. We now have the start of a timetable but not a roadmap, and we will continue to consult with our members about the best way forward.
One potential development is a migration of portfolio managers from London to Dublin. There have been questions as to whether Ireland has the capacity for such a move. There are already a number of firms running portfolio management activities here and we already have the infrastructure, and I think any migration of managers from the UK would only enhance our industry.
We have seen the benefit of having different parts of the industry working closer together, and the same could occur with the impact from Brexit. For those looking at Ireland, any change brings disruption in the short term, but in the long term this will be outweighed by the sense of familiarity we provide, key transport links, the same language and common law, and important cultural and other links between Ireland and the UK, which people know make it easy to do business successfully.
What other areas are the association focusing on at present and in the near-future?
Fintech is an area of increasing interest for us. The growth of the fintech industry here bears a lot of similarities with the beginning of the funds industry 25 years ago. There are research labs, collaborations between local universities and international firms around areas such as cyber security, distributed ledger, digital services and artificial intelligence.
At Irish Funds, we are also working to enhance the legal framework for limited partnerships which will support private equity firms to look at new vehicles and structures.
We are engaged in debates around the CMU, asset segregation, reform of money market funds as well as loan origination.
It is our responsibility to ensure the industry meets the needs of our members in terms of governance and oversight as well as performance and returns.
In a very low yield environment, investors are looking for new ways to generate returns and we have to make sure Ireland is able to meet those demands and expectations and create an environment in which they are able to achieve those objectives through providing an appropriate range of structures and services in a business-friendly way – just like we’ve always done.
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