Supplements » Irish Report 2013

TALKING HEADS: Fund switching

Will the arrival of new regulations see Ucits funds switch to the new alternatives regime? Funds Europe gauged what some industry participants feel.


Do you expect sophisticated Ucits managers to convert to AIFMD-regulated status, and why?
Deloitte’s 2012 AIFMD survey suggested that this would not be something that managers would seek to do, with 80% of managers surveyed suggesting that they would continue to maintain their existing sophisticated Ucits in parallel to any alternative investment funds.  

Which changes to the regulatory regime to accommodate AIFMD are most notable and how do they differentiate Ireland from other fund centres?
The Central Bank of Ireland has engaged with the local industry in a very meaningful way.  The recent Q&A document is one example of how the wider industry can benefit from this level of engagement.

What impact will the AIFMD have on the investment management industry, once implemented?
The AIFMD will have a notable impact on the choice of fund domicile with significant demand expected for AIFMD-compliant funds from July 2013 and accelerating once the non-EU passport becomes available in 2015, and private placement options are closed post 2018. However, the fund domicile decision will depend on the distribution strategy of the fund and therefore we expect that managers will still favour off-shore domiciles where the EU is not a core part of the distribution strategy.


There are over 11,000 funds serviced in Ireland with nearly €3 trillion of assets under administration. Should more be done to rationalise funds, some of which may be sub-scale, in order to gain efficiencies? Or can the industry live with these figures?
Managing a fund with scale brings obvious benefits and should be the goal of any industry participant. But equally important is innovation – the creation of new products, providing investor choice and future growth opportunities.

The 11,000 funds that are serviced from Ireland have been created in multiple product structures, targeted to a crossborder investor base and need to meet the local buying behaviour requests that they demand. As a result, you have managers utilising various fund features to create delta and differentiators for their products selling to investors in multiple locations.

This is not comparable with local domestic markets like the UK or US where building scale to one defined target investor base is more straightforward.

The creation of some of the most sophisticated distribution models occurs from Ireland's funds industry and this has led to a proliferation of fund products. But with increased focus on costs, there is little doubt that larger funds would benefit investors and have a positive impact.

Obtaining scale is the result of achieving the success of getting a fund product and its distribution strategy right but we should always facilitate the innovation needed to allow for future winners. Achieving the right balance to encourage new products and solutions into the marketplace whilst looking to obtain scale in each instance is the challenge and should be the focus for the continued success of Ireland’s funds industry.



Do you expect sophisticated Ucits managers to convert to AIFMD-regulated status, and why?
AIFMD-compliance for sophisticated Ucits managers is less of a step change for them than for previously unregulated managers in areas such as private equity and real estate so it is a realistic strategic option for Ucits managers to consider. Their appetite to convert will be driven by investor demand. Current indications are that future changes in Ucits regulations are likely to reduce the ability of Ucits managers to engage in sophisticated strategies and remain Ucits-compliant. This may lead such managers to find a more natural home as regulated alternative managers.    

Which changes to the regulatory regime to accommodate the AIFMD are most notable and how do they differentiate Ireland from other fund centres?
The production of the AIF Rulebook by the central bank – which brings together updated requirements for alternative fund products, replacing the non-Ucits notices, as well as setting out the requirements for alternative managers and related service providers – has been the most notable development. The level of engagement by the regulator with the industry has been welcome and is ongoing with the production of Q&A materials around implementation of the directive.

In addition, Ireland’s AIFMD readiness is evidenced by the invitation to managers to enter into discussions with the regulator about applications for authorisation, and this marks Ireland out as being AIFMD-ready for those who wish to be authorised as soon as possible.  

What impact will the AIFMD have on the investment management industry, once implemented?
The AIFMD is the most significant change in the investment management industry since the introduction of Ucits regulations.

It will increase the cost of managing alternative funds but in the medium term should make marketing to European investors more efficient.

If the management passport is successfully extended to non-EU managers in 2015, it is likely that by the end of the decade the investment management industry will be made up entirely of regulated products and managers under either the Ucits or AIFMD banners.


Do you expect sophisticated Ucits managers to convert to AIFMD-regulated status, and why?
I believe the drive to convert will depend on investor appetite.  Some managers may look for a move to an AIFMD structure with less onerous investment restrictions in comparison to a Ucits structure.  

Which changes to the regulatory regime to accommodate the AIFMD are most notable and how do they differentiate Ireland from other fund centres?
Relative to other fund domiciles, Ireland is home to a large range of service providers specialising in servicing alternative investment funds. I believe one of the more significant requirements of the AIFMD is that each EU alternative fund appoints a depositary to safe-keep assets and oversee fund activities.  Irish depositaries have been servicing both Ucits and non-Ucits funds for nearly two decades and have extensive expertise to assist managers through the implementation of the depositary requirements.  

What impact will the AIFMD have on the investment management industry, once implemented?
A more robust governance structure will be a positive outcome following the implementation of the AIFMD.  The cost of compliance may see further consolidation within the industry and may detract fresh talent from launching new products in Europe due to the cost and operational burdens of the AIFMD.

©2013 funds euriope

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