Funds Europe – How do you expect Ireland to be positioned in relation to UK investors and asset managers in the post-Brexit landscape?
Meehan – This is an ever-changing environment. Recently, the UK passed the Financial Services Act that is looking to put in place two regimes, one for money market funds and the other for retail funds, which will allow Irish structures access to the UK market following the end of the Temporary Permissions Regime. From our experience, the structure where we had asset managers with master-feeder funds and the master was in the UK and the feeder was in Ireland, these have now decoupled into standalone entities.
There is also the EU and UK Memorandum of Understanding (MoU). More detail will come out of that, but already, some practices are reformed, like where the UK entity is now categorised as an AIF rather than a Ucits, meaning the investment and borrowing restrictions have changed for fund-of-funds.
Callaly – Ireland is positioned well with geographical proximity, a common law regime, and historical proximity. There have been about 45 asset managers from the UK establishing presences here since 2016, which is good for the whole ecosystem. It’s increasing the talent pool, it’s also impacting existing players in the sense that there is greater competition for talent, but overall, I think that’s a good thing. All boats should rise!
Obviously, there are challenges. We see the UK looking to compete against the EU’s ELTIF structure with its recently proposed LTAF.
McEvoy – It remains to be seen where we end up in terms of equivalence arrangements, but Ireland is ticking all boxes from culture to language, location to law. There’s a natural attraction for Ireland to support UK managers.
I expect the topic of substance to continue. The delegation of AIFM functions like portfolio management will – not just from an Irish perspective but across Europe – continue to receive focus and potentially more regulatory structure around what that should look like.
To the extent managers need, say, an AIFM presence in Ireland, be it themselves or a third-party AIFM, the talent pool is here and able to support the market. In fact, we are investing in launching an AIFM product alongside fund administration, so we certainly see this as an opportunity.
Kealy – Ireland has done really well in terms of the product and governance skillsets while moving individuals and firms in. Getting portfolio management would be amazing, but there are challenges, particularly income tax levels.
The MoU is a bit of a challenge. Probably the reality is we’re not going to get equivalence – and divergence is already starting. We’ve seen the MoU agreed in March outlining the framework on how we cooperate, but it’s not going to dictate how the relationship is going to be. We need more certainty around that and close cooperation will be critical.
Meehan – Given the substance arising out of CP86 for ManCos, there is definitely a move towards Irish-based employees. In the past, some Irish structures have had some of their designated-person roles in the UK. There is undoubtedly now more substance required in Ireland.
Funds Europe – The aftermath of CP86 has seen a much greater focus on fund management effectiveness and governance by the Central Bank of Ireland. How is this causing the Irish fund management and asset servicing industry to change?
Kealy – This is driven by Europe, with Ireland reacting to it. It is clearly a European focus in a post-Brexit world where Europe is very conscious that a lot of the money management now resides outside the EU27 and, hence, the need to have oversight over outsourced activities. The Central Bank is re-looking at CP86 in this context to make sure the model is still fit for purpose – and they concluded that it is, but were also delving deeper into the fund managers that were set up in a pre-Brexit world.
It is partly about substance and making sure that we have the right people in the right place to give the right outcome for the end investor, but it’s also about wider roles and responsibilities, looking at the responsibility of the Irish board, looking at the responsibility of CEOs and designated persons (DPs), and also looking at processes, procedures and systems. Substance is probably not all of it.
Some specific roles need to be Irish-based, but then there is also an understanding that in certain instances, and let’s say portfolio management, the skill set predominantly resides in the UK and elsewhere and there is an acceptance of those skill sets continuing to reside in the UK.
McEvoy – CP86 has no doubt been a challenge for the industry, but I think when we look back at it, we’ll see CP86 and the resulting guidance as positive. It has set a higher bar, but fund managers can now get more clarity on if they want to establish an AIFM in Ireland and understand what the cost-benefit looks like compared to a third-party AIFM.
Meehan – We could argue the clarity allows clients and investors to understand the value that a ManCo model can provide. The CP86 deadline on March 31 was interpreted by some to decide what way a firm would go, including whether it would use a third-party ManCo or create its own internal entity and some self-managed companies are taking some time after that to actually implement plans.
The move towards the ManCo model could actually streamline the regulatory process if it means the regulator has to deal with fewer specific entities – again, perhaps another positive for Ireland.
The independence of the ManCo is important in these discussions, though. The ManCo must be able to review independent performance and risk reporting and challenge the investment manager where required. It is important for high standards in Ireland around this type of work.