Ireland continues to be an attractive fund domicile for global funds and this year is no exception with predictions of even further growth
Known as the Emerald Isle due to its lush green lands, Ireland continues to be an attractive fund domicile for global funds as well as an international fund distribution location. Partly due to a robust regulatory regime, multi-skilled workforce and unique status as an English first-language location within the EU, with extensive financial and cultural ties to the US, Ireland’s fund industry is continuing to grow.
Over the years, Ireland has gained a reputation for having a well-established European centre of excellence for both domiciled and non-domiciled funds and is at the forefront of preparing for and reacting to regulatory developments.
The total assets of Irish domiciled alternative investment funds (AIFs) stood at €758 billion as of September 2020 and Ireland administers 40 percent of the world’s alternative investment funds.
2020’s February Monetary Insight research revealed that fund assets serviced in Ireland grew by 6 percent at the end of June 2019.
The latest data shows that overall Irish domiciled funds have increased by 1 percent from the beginning of 2020 until the end of September 2020.
“By contrast assets in aggregate in all European funds have decreased by about 1 percent over the same period,” says Pat Lardner, CEO of Irish Funds.
Lardner adds: “The total net assets in the 7,800 Irish domiciled funds stands at €3.08 trillion, up from €3.05 trillion in January. This figure is split with about 75 percent of asset (€2,319 billion) in UCITS and 25 percent (€759 billion) in AIFs.”
Ireland’s financial services industry as a whole is focused on developing its skills base to best support client demands and remain competitive on the global stage, according to experts.
As the impact of the pandemic is felt across the industry, a focus for many companies is on how they may enable employees to work smarter using innovative technologies such as machine learning and artificial intelligence (AI).
Pandemic impacts
Like many industries across the world, the funds industry has been affected by the pandemic. The pandemic especially created challenges for the industry during the peak volatility in March and April 2020, which put business resiliency plans to the test. According to Méliosa O’Caoimh, country head, Ireland, Northern Trust, it has also accelerated trends that were already underway, such as embracing new ways of working propelled by digitalisation.
“We can expect some of the processes in fund administration to continue to be the new normal, post pandemic. For example, the widespread use of electronic rather than postal methods for routine investor communications,” she says.
The pandemic has indeed been a catalyst for change and it means the industry has become better prepared for the unexpected and overall the industry coped remarkably well.
“As an industry, we have proven to be extremely resilient and have continued to meet not just our daily deliverables for clients but also to support their change management and product development programmes,” says Paul Kilcullen, Ireland country executive for BNY Mellon.
COVID-19 has been the second ‘black swan’ event in a little over a decade and unsurprisingly that volatility has brought increased regulatory oversight, not least in areas such as liquidity and money market funds.
Tadhg Young, country head of Ireland at State Street, comments: “The industry and its regulators will seek to learn lessons from this period, and we are likely to see a new wave of regulatory requirements requiring increasingly specialised support from service providers of scale.”
Trends in Ireland
Prominent trends in Ireland currently include movement towards further increasing efficiency, and reducing costs. There has been a constant upward trajectory from the perspective of both assets under management and funds over the last ten years. The industry in Ireland has also noticed strides towards preparing for and reacting to regulatory developments.
Delving deeper into the trend of why fund managers continue to seek ways to increase efficiency and reduce costs, experts suggest this was an existing trend, driven by the competitive pressures of the industry, but has been given impetus by the financial strain created by the COVID-19 pandemic.
O’Caoimh comments: “We see the trend for providers of all sizes to consider outsourcing functions that were previously seen as core to business activity. Previously, outsourcing tended to be limited to larger managers, but at Northern Trust we are seeing this trend across the spectrum of asset managers who are outsourcing functions such as currency management and drawing on our outsourced trading service, integrated trading solutions.”
Meanwhile, Chitra Baskar, chief operating officer and global head of funds and product at Intertrust Group, says: “For our Intertrust Group Ireland office, we anticipate growth in the alternative investment fund (AIF) market and the strengthening of our fund administration and third party AIFM management company service offering. We’re seeing new managers and existing clients require customised reporting and a greater focus on achieving standardised regulatory reporting.”
In addition to an increase in appetite in AIFs, Ireland also saw a strong interest in environmental, social and governance (ESG) products and sustainable finance during the course of 2020. Experts expect this trend to continue to grow and become more prominent.
Elsewhere, exchange-traded funds (ETFs) have continued strongly despite outflows in March. According to Lardner, ETFs now stand at €553 billion, which represents an increase of about 2.5 percent year to date (end of September), and they have attracted net sales for the same period of €38.5 billion. Ireland accounts for 65 percent of all European ETF assets.
There has been a strong recovery in net sales and growth in Irish domiciled fund assets following the sharp downturn in March.
Lardner says: “Net sales into Irish funds for the year to end September stands at €127 billion. This represents about 38 percent of the net sales into all European funds during this time.”
A time of tremendous growth
Amid tremendous growth within Ireland’s fund administration business, Ireland has experienced an increase in Irish companies expanding their workforces as well as a rise in funds processing figures, especially over the last 10 years.
It has been suggested that many of the entities that have been set up in Ireland over the past years have been increasingly adding to their headcount and increasing the substance they have in Ireland.
While there is currently no quantitative data to support this just yet, experts do believe this to be the case and a survey is on its way this year to see how employment numbers have changed in this space over the years.
However, there is evidence to suggest that Ireland has been one of the fastest growing fund locations in Europe over recent years. Assets in Irish domiciled funds have increased by 62 percent since the end of 2015.
The increase has been across all funds types, with ETFs showing some of the strongest growth.
“Ireland has been able to further develop centres of excellence in ETFs, money market funds, and alternative investments.”
“This is built on many years of leading industry experience and expertise alongside continuous product developments such as the launch of the ICAV fund structure in March 2015,” Lardner comments.
Over at Intertrust Group, Baskar says: “We’ve grown both our fund administration and AIFM ManCo teams, hiring experienced individuals, improving efficiencies in reporting, and increasing regulatory oversight functions on our AIFM.”
As well as this, State Street’s Young identifies the key drivers of growth to be the depth of Ireland’s talent pool and experience over more than three decades and a ‘can do’ attitude and work ethic that has seen Ireland’s funds industry continuously move up the value chain. “That’s also been supported by our open, transparent and stable regulatory and policy environment,” says Young.
Low hanging fruit
By being well placed to continue the strong growth seen over recent years, Ireland has many opportunities that it can take advantage of.
One such opportunity is Ireland’s broadening appeal as a home for alternative assets, and particularly for infrastructure and private equity, experts say.
Northern Trust’s O’Caoimh highlights that key to this will be forthcoming reform of Irish investment limited partnerships to align them more closely with other fund jurisdictions and drive their attractiveness as vehicles for alternative investment funds.
Over at BNY Mellon, Kilcullen says: “Innovation, client focus, active engagement with emerging technologies and motivated talent will ensure our industry’s long-term success in Ireland.”
Environmental, social and governance and green finance are other areas where experts expect to see opportunities.
In fact, a recent study found that two thirds of the world’s largest pension schemes expect to increase their allocations to climate-related index funds over the next three years.
State Street’s Young explains: “On the asset management side of our business this is already giving rise to new reporting solutions designed to help clients better understand how their strategies perform against investment objectives, including climate focussed objectives.”
“New solutions will be required to help clients to meet their regulatory obligations to beneficiaries, trustees and other stakeholders,” Young conclud
