Ireland is home to a number of different fund structures. It is also endowed with an abundant and diverse community of service providers. The COO Guide to Ireland spoke to Pete Townsend, head of hedge fund solutions at BNP Paribas Securities Services in Dublin, about the opportunities and challenges that lie ahead for the Irish funds industry.
COO: Can you give us an overview of the funds industry in Ireland?
Townsend: There are three main areas to the funds industry in Ireland. There is the historical component consisting of US and UK managers which set up UCITS funds structures in Ireland offering daily, weekly or monthly liquidity. These UCITS structures were established so as to take advantage of the enormous distribution benefits that UCITS offers. This continues to grow, as we see a rising number of US managers increasingly embrace UCITS. The second area of the Irish funds industry is geared towards hedge funds. The time-zone in Ireland is five hours ahead of New York, and this means hedge fund administrators can provide daily profit and loss statements by 7.00 a.m. in New York. The investor servicing for these funds is also done out of Ireland. Furthermore, Ireland has a historical relationship with managers in London, and this continues to grow. Going forward, loan origination funds are being discussed. We also believe the Irish Collective Asset-management Vehicle (ICAV), which will complement the PLC corporate structure, will give more flexibility to fund managers in Ireland. That is a welcome development.
COO: How are US and other non-EU managers responding to the Alternative Investment Fund Managers Directive (AIFMD) regime?
Townsend: There is a big “wait and see” in regard to AIFMD by non-EU fund managers. I expect non-EU managers are waiting to see what their peers do. If we see two or three high profile managers embracing the Directive, they might follow suit. I also expect the near-term trend will be that non-EU managers set up a fund structure in Ireland through a management company, as opposed to a self-managed AIF. A lot of managers are also waiting to see if the pan-EU passport is embraced or not, once the European Securities and Markets Authority (ESMA) conducts its wholesale review of AIFMD, and the national private placement regimes in particular. One pressing concern is that managers were surprised to discover that they were prohibited from marketing to high net worth individuals (HNWIs) in Europe, the historic early-stage backers of hedge funds. This is because some HNWIs do not meet the accredited investor threshold, as laid down by the Markets in Financial Instruments Directive (MiFID).
COO: How are service providers in Ireland adapting to the challenges of AIFMD?
Townsend: Service providers must adapt to a post-AIFMD landscape, both for themselves and their clients. Perhaps the most significant overhaul surrounds the introduction of the depositary and the strict liability for loss of assets that comes with it. The depositary is a very big opportunity for service providers like BNP Paribas Securities Services and it is something institutional investors like, particularly conservative pension plans and insurers. Ireland has a strong history of being involved in the trustee business, so adapting to the depositary landscape has been relatively simple. On the emergence of “depositary-lite,” again Ireland is well-prepared. “Depositary lites” are required to provide cash flow monitoring and oversight while another party, typically a prime broker, provides safekeeping of assets. We have a long history of fund administration and cash reconciliation, so cash flow monitoring is a logical progression.
COO: What competitive advantage does Ireland have over its rival fund domiciles, both offshore and onshore?
Townsend: The Central Bank of Ireland (CBI) is flexible and pragmatic, yet subjects financial institutions and those offering financial and fiduciary services to thorough oversight. There is a good balance of regulation. In bygone years, we did see a number of employees of service providers such as administrators and auditors move to offshore locations. However, many of these individuals have now returned to Ireland with strong hedge fund servicing capabilities to complement the experience of those who built the Irish fund servicing foundations locally. As well as favourable market conditions for fund managers, Ireland has a strong record in servicing alternative investment strategies. It administers roughly 40 per cent of the world’s hedge funds - something you will not find in Luxembourg. However, I believe that Luxembourg and Ireland are neck and neck when it comes to servicing private equity, real estate and UCITS funds.
COO: Ireland was traditionally regarded as a jurisdiction where it is simple to establish a fund. Is this still true?
Townsend: Ireland is very efficient at approving funds. The CBI can usually approve a fund within 24 hours of receiving a submission. Ireland has revamped its re-domiciliation process, which makes it far easier now for an offshore company to move into the country. Firms can retain their track record, which they could not before, so the transition has become easier and less costly. Furthermore, many of the offshore law firms, auditors and administrators have a presence in Ireland, so porting business is seamless.
COO: What does the future hold for the Irish funds industry?
Townsend: The ICAV product will be very interesting for the Irish funds industry, in that it will modernise the corporate fund structure, and provide a more effective structure for property and private equity funds. We are seeing a growing number of loan origination funds coming to market as European banks de-leverage and reduce their lending operations because of capital requirements and Basel III. We are also witnessing a surge in alternative lending, either through credit funds or peer-to-peer lenders, and this is a development we are monitoring closely. Going forward, Ireland will have to remain competitive and I believe administrators, particularly those offering middle office and risk management services, will continue to grow.
Head of Fund Services Operations
Tel: + 353 1 612 53 46