In the fund administration industry, the Emerald Isle seems to be everywhere you look. Monterey Insight’s 2014 data reported a 19 percent rise in the total fund asset services in Ireland, with funds and sub-funds on the increase, too. Irish companies are expanding their workforces and funds processing figures are rising.
It’s been working away in the background for some time, but over the last few years Ireland has stood up and demanded to be noticed. Now, with a bumper 2014 under its belt, it seems that all of that hard work has paid off.
Kieran Fox, director of the Irish Funds Industry Association, says that the number of Ireland-domiciled funds in 2013 was significantly increased, even compared to the pre-crisis figures of 2008.
“The biggest thing that jumps out is the difference in the total level of assets in Irish-domiciled funds. Between December 2008 and November 2013, that has jumped 150 percent,” he says.
These figures were even more improved for 2014, even though the data released only reaches as far as the end of November. According to Fox, the first 11 months of the year saw a 20 percent increase in assets over the same time period of 2013, a total increase of €286 billion. About €128 billion of this, or 9.5 percent, came from net inflows.
Fox says: “The number of net inflows for the first 11 months of 2014 was at least as high as, or higher than, any full 12-month period in the last three or four years, and these were spread over equities, bonds, UCITS, non-UCITS, exchange-trade funds (ETFs)—everything has seen an uptick.”
Although these numbers are impressive, the numbers of Ireland-domiciled assets are less significant, perhaps, than those domiciled elsewhere.
The total figure of funds serviced by administrators in Ireland is thought to be nearing €3.3 trillion, and this is split almost fifty-fifty between Ireland-domiciled funds and non-Ireland-domiciled funds, with approximately €1.6 trillion domiciled offshore but administered out of Dublin.
Melvin Jayawardana, European market manager at Confluence, believes that this is, at least in part, down to a skilful weathering of the financial storm that followed the market crash.
He says: “Because of huge outflows at the time, asset managers were trying to rebuild and regain their economies of scale. They did this through fund consolidations and rationalisation and by strategically looking at next new distribution markets. They had to ready themselves for when the market started to recover.”
This forward-thinking attitude led managers to consolidate their funds into one, while banks rid themselves of their asset management divisions. As the market struggled, bonds funds, which could offer more security, became more popular and their managers looked to administrators for support.
Jayawardana says: “Administrators have been growing their services to become the go-to point for asset managers. It’s not just about the traditional fund administration services anymore; it’s not all about striking the net asset value. It’s about supporting the distribution of funds and readiness for the next piece of regulation. That is exactly what fund managers are looking for – a partner to sustain them.”
As the post-crisis market has evolved, Confluence in Ireland has moved in to the asset management sphere.
“As the alternative sector has come under more regulation and legislation, we have diversified to make sure we can help them tackle solutions,” says Jayawardana.
While the administration firms themselves have worked hard to protect their future, the IFIA has also been working to make Ireland an attractive place to set up funds.
“On the distribution side, subscriptions and net inflows are something that IFIA has focused on over the last year or two,” said Fox.
“We can’t go out and sell any particular fund, and we can’t go and speak to investors, but what we can do is make sure that Irish funds are as easy and as efficient to distribute
Jayawardana elaborates on this, attributing a great deal of Ireland’s recent success to IFIA CEO Pat Lardner, who took over in 2012, and his team.
He said: “With Pat in charge, the IFIA has done an incredible job at putting Ireland out there in the industry. Pat has been getting out there and travelling a lot, taking a lot of information and literature.”
“The IFIA has made investment in the Irish fund industry easier to understand and has promoted the need to introduce special vehicles and access that allow managers to set up very quickly.”
In parallel, Ireland has stretched its technological offerings to accommodate the modern market, and the regulatory requirements that have come with it.
As the market recovers, investors are more concerned about knowing exactly where their money is, and what exactly it is that they’re investing in.
“We are going to see a rise in data and risk analytics. Information will be at the core of this,” says Jayawardana.
At the same time, regulatory requirements such as the Alternative Investment Fund Managers Directive (AIFMD) and the European Market Infrastructure Regulation (EMIR) feature strict reporting obligations that have pushed firms throughout Europe to renovate their entire systems, implementing new systems and processes to satisfy the regulators.
Again, Ireland has found itself at somewhat of an advantage.
Fox says: “We are at the forefront of developments, and we try to remain an innovative jurisdiction. We constantly rank highly on things like automation surveys, where we have straight-through processing and access to platforms.”
It is clear that Ireland can compete on a global scale—it services 40 percent of the world’s hedge funds—but it has one final ace up its sleeve when it comes to administration. Its position within the EU means that asset managers setting up a fund range in Europe will have access to marketing passports under UCITS and AIFMD.
“We would emphasise the benefits of being able to distribute funds freely in Europe versus the perceived costs and additional regulatory compliance issues,” says Fox.
“There is at least a possibility that, at some stage, alternative investment funds or AIFMD-compliant bonds might have an additional regulatory badge that managers will want, even if they’re distributing funds outside of Europe.”
Jayawardana, however, points out that these benefits apply to the EU as a whole, stretching to offshore jurisdictions such as Guernsey, and Malta.
“Managers outside Europe are looking for that special vehicle to make their investments and to get in to Europe. Even though they fall outside of Europe, they will still have strict regulatory requirements.”
While the shared currency of the Eurozone has its obvious advantages of stability and a lack of devaluation, Jayawardana believes that the weaker euro against the dollar can only attract investment to the European industry as a whole, so Ireland must stand out for its own reasons, too.
He praises Dublin’s funds infrastructure, pillared by the Central Bank of Ireland and the IFIA. Alongside an efficient tax system and the recovery of the market, it’s the strong system that makes Dublin such an appealing jurisdiction.
“The essence of attracting markets over there is the fund structures, the access to the regulators, and the ability to launch funds speedily. The IFIA has worked with the regulators to cut down the approval process significantly, and the central bank has helped as well, readily sharing information and making sure that the process is smooth.”
Fox expresses a similar sentiment, offering up some praise for its central bank.
“We do have a very highly regarded regulator. We don’t always agree with them 100 percent, but I think that’s healthy, and it’s probably always going to be the case.”
“Either way, it is highly regarded and accessible, and it does facilitate access and speed to market, which is essential.”
He adds: “The other thing that is very favourable to Ireland is our reputation, and we’re very mindful of that, too.”
Fox goes a step further still, attributing a large part of Dublin’s success to the calibre of its people and the enthusiasm of the Irish.
“It’s because of the experience and the expertise of the staff. We have a highly skilled workforce, who are business-friendly and keen to get new business for a full range of different fund types.”
“I certainly think we have the full package.”
Having resurfaced so successfully, post-crisis, there are high hopes for the future of Irish funds, even if the levels of growth cannot remain quite as steep.
Jayawardana puts Dublin on a competitive par with the likes of Luxembourg, and predicts even more growth in the near future.
Fox, on the other hand is cautiously optimistic, and acutely aware of the damage that can be inflicted by external market factors, often without warning. These issues, he says, can play a huge part in the numbers involved, and he accepts that, by definition, it’s a risky business.
“Notwithstanding outside factors, market changes and shocks that we don’t have any control over, from our point of view the distribution of net inflows in Irish funds is absolutely sustainable.”
“We compete well and we compete successfully, and if you look at the most recent numbers they certainly illustrate that.”
Ireland has played the long game so far, and it seems to be paying off. Now that it’s getting into its stride, this little jurisdiction is firmly cementing itself among the big players.