“Constant vigilance”, while a slightly wearing prospect, was the take-away from the Irish Funds Industry Association, where the city of Dublin played host to fund managers and service providers alike over the course of the two-day conference.
“Constant vigilance”, while a slightly wearing prospect, was the take-away from the Irish Funds Industry Association, where the city of Dublin played host to fund managers and service providers alike over the course of the two-day conference.
Patrick Brady of Ireland’s central bank kicked things off, noting key statistics of net inflows into UCITS for Q1 this year at €1.5 billion. In Ireland, NAV assets for UCITS broke through €100 billion for the first time.
Brady spoke of constant and complex development as imperative to the funds industry, warning that the industry must be continuously aware of regulatory matters in responding to emerging risks. He added that Ireland’s central bank welcomes the EU single market’s stance in regulatory development. It has also showed great commitment to the European Securities and Markets Authority (ESMA), with the bank’s policy and risk departments having increased their allegiance to both the International Organization of Securities Commissions’s (IOSCO’s) and ESMA’s committees.
Though Ireland is at the end of its EU Presidency, it was hoped by all in the room that the subsequent Lithuanian presidency that will take forward UCITS V.
As for compliance with regulation, Brady made it clear that complaining about change was not an option.
“We all need to accept that for the FSB, the IOSCO boards, etc.-the funds industry is on their agenda ... We need not just not to accept that, but to get on board.”
Of particular interest was Brady singling out money market funds and loan funds as ones to watch.
Loan funds involve seeking different forms of lending for corporate and small- and medium-sized businesses rather than banks, and Brady suggested that perhaps a collective investment type of fund such as UCITS could be used for loans, with the promise that the central bank will be putting out a publication soon on the matter.
A panel on distribution saw players from PricewaterhouseCoopers, Citi and more discuss the relative success of funds.
Angela Bilick of Nuveen Investments said that over the last 10 years, the firm has acquired mutual funds generally, and has seen opportunity for smaller asset managers.
Nora O’Mahony of GAM stated that she has seen a big emphasis on absolute return funds, and in the US institutional space, funds of hedge funds have played an important role. She added that her firm has seen movement into long-equity books.
Paul Holmes of Bank of America Merrill Lynch commented that assets in the hedge fund industry fell significantly post-crisis, with funds of hedge funds proving very important. He said: “Here’s a demand for risk/return profiles that alternatives can provide. But in Europe, raising assets has been very difficult; if you look at the last two or three years, the majority of raising has been going on in the US.”
“In the US, ‘40 Act for alternatives have taken off, and we look across enviously at the growth there. But I am seeing possible developments in Europe. From a product perspective, we want to have as wide a range as possible.”
Alwyn Li of Deacons brought a Hong Kong perspective. Li advises on the establishment of offshore funds for retail distribution and private offering and preparation of fund documentation, and assists clients in establishing and seeking the Securities & Futures Commission’s authorisation of collective investment schemes in Hong Kong. When asked if the mutual recognition agreement between Hong Kong and mainland China would affect a more internationalised UCITS brand, Li admitted that it would have some effect, but that UCITS would continue to survive.
“In Hong Kong right now, if you set up a Hong Kong-domiciled unit trust with a Hong Kong manager, eventually you will be able to bring that product into mainstream China and sell it. Having said that, I think there will always be room for UCITS.”
“To be honest, I think it is quite unfair to Ireland. The whole recognition was based on the Hong Kong government going to China and asking them for favours. Hong Kong managers are being asked what kind of products they can offer to China and initially, the fact that it’s all Hong Kong managers means that you won’t have that global view. At least from a UCITS perspective, you have a wide range of products globally.”
The conversation turned to collateral, and Fergus Pery of Citi Transaction Services said that the recent arrival of Category 2 of the US Dodd-Frank Act will be felt by the industry for several years.
“One of the impacts of central clearing will be higher costs of swaps trading, so fund managers need to be ready to assess pricing differences between cleared and uncleared swaps. Additionally, additional collateral will be required: for long only managers, we’re not used to posting additional collateral upfront on long duration swaps. Funds who are used to posting securities as collateral will have to post cash.”
“This all points to additional operational costs. For funds trading OTC derivatives, economies of scale will become a critical factor.”
