The UCITS funds industry in Ireland continues to grow, and presently stands at €1.29 trillion, having enjoyed 16 per cent growth in assets under administration this year alone. The COO Guide to Ireland asked Declan O’Sullivan, a partner at Dechert in Dublin, how Ireland can best maintain that rate of growth.
COO: What are the biggest opportunities for UCITS to continue growing in Ireland?
O’Sullivan: The biggest opportunities remain in the distribution capability of the UCITS brand, not only in Ireland, but also globally, and notably in Asia and South America. A positive resolution to the question of money market fund reform will boost this asset class while Exchange Traded Funds (RTFs) are also a marquee product for Ireland. The forthcoming introduction of the ICAV product will also add to the Irish product toolkit.
COO: What are the biggest obstacles to continued growth of UCITS in Ireland?
O’Sullivan: The biggest challenge is undoubtedly money market fund reform, and the associated battle between the proponents of Variable NAV Funds and those that wish to maintain Constant NAV Funds. Money market funds represent a very large proportion of Irish UCITS assets.
COO: How is UCITS V going to impact the Irish funds industry?
O’Sullivan: I would hope that the impact of UCITS V is going to be minimal. We have seen the hard work in terms of the depositary changes already implemented for the Alternative Investment Fund Managers Directive (AIFMD) and, despite concerns from many quarters - most notably about escalating costs - the implementation has gone quite smoothly. The jury is still out on how the remuneration changes will impact. In that regard, we are watching AIFMD developments very closely.
COO: And what about UCITS VI?
O’Sullivan: With all of the focus on AIFMD implementation, UCITS V and Money Market Fund reform, not much has been heard of UCITS VI. With the new European Commission in place, it will be interesting to see if there is a political appetite to bring the proposal forward. Again, the Irish funds industry will be watching how the AIFMD “performs” and, in particular, whether the passport provisions are used in order to bring sophisticated investment strategies to investors. The Irish industry would be concerned about any curtailment of investment flexibility for UCITS.
COO: To what extent has the AIFMD had an impact on the UCITS funds industry in Ireland?
O’Sullivan: Initially, at least, the uncertainty and generally degree of difficulty associated with AIFMD has driven managers to the relative safe haven and certainty of UCITS. Ultimately, we hope that the AIFMD will do for alternative funds what UCITS has done for retail mutual funds in terms of creating a scalable, marketable and widely distributed fund product. However, for the present, while managers have to deal with the difficulties of putting in place new depositary relationships, wondering how the remuneration provisions will apply, and how to implement the reporting requirements and general compliance, looking to see if a fund can be structured as a UCITS is an option that many managers are considering.
Partner, Dechert LLP
T: +353 1 436 8510