One of the greatest challenges facing the Irish funds industry in 2013 is increased regulation at both a global and local level, says Rachel Turner, the head of offshore for BNY Mellon. How quickly the industry in Ireland adapts to these changes, she says, will be critical to maintaining the upward growth trajectory the industry has enjoyed in recent years.
One of the greatest challenges facing the Irish funds industry in 2013 is increased regulation at both a global and local level, says Rachel Turner, the head of offshore for BNY Mellon. How quickly the industry in Ireland adapts to these changes, she says, will be critical to maintaining the upward growth trajectory the industry has enjoyed in recent years.
At the top of the regulatory pile in the country is surely the Alternative Investment Fund Managers Directive (AIFMD), which will finally come into effect in July of this year. And while the changes have long been anticipated, a much tighter timetable following the completion of Level II measures at the end of last year will test the preparedness of both investment managers and service providers, says Turner.
“Whatever the pros and cons of AIFMD, there is no doubt it will represent a significant sea change for the funds industry in Ireland. It will transform how funds are managed, how we provide services, as well as the number of services a fund will require. As a result, the pressure in the new operating environment will be on service providers to offer the full A to Z of complimentary services to investors.”
She adds that a significant opportunity exists for Ireland to react and adapt quickly, and put in place a structure for continued growth. The Irish fund industry should look to leverage the implementation of AIFMD to expand its capabilities beyond core activities of fund administration and custody, by, for example, introducing new ancillary services such as risk management to the Irish funds landscape, she says.
“If the Irish funds industry can embrace AIFMD and expand its capabilities—providing a one-stop solution to investors—it will reap the rewards.”
A big acquisition for Ireland was Northern Trust’s purchase of Bank of Ireland Securities Services in May 2011. While 2012 was fairly quiet, Clive Bellows, the country head of Ireland at Northern Trust, states that this year’s sign-up sheet for new clients is looking full—and not just for his bank.
“We started this year with just over $300 billion of AUM, and roughly 185 clients. In the first half of 2013, we will have 10 new clients, which is in contrast to the market dynamics of the previous year. There has been a dramatic increase in not just new clients of Northern Trust, but clients who are launching Irish products for the first time. So I think both for Ireland as a domicile, things are looking very healthy, and at Northern Trust we continue to see an increasing demand for our services.”
He adds that there has definitely been a rush of clients looking to get fund launched pre-AIFMD, and then buying themselves some time—the grandfathering period before they decide to apply to become an alternative investment fund managers or not.
“But equally, I can see that there hasn’t been a blind rush into the country pre-AIFMD. Firms are coming because they trust the domicile, and it has a good reputation for multiple asset classes. We are seeing a lot of property funds, private equity and alternate-type structures. It has been very positive here.”
At the helm
Ireland Taoiseach Enda Kenny recently appealed to his counterparts in Paris, Berlin and London to address several critical challenges in the remaining days of the Irish presidency.
As well as urging European leaders to settle a negotiating mandate for talks on an EU-US trade agreement, and shake hands on new laws to “resolve” failing banking, it is hoped that the country’s temporary position as president—which rotates among the member states of the EU every six months—will aid the funds industry.
“Because financial services is so important to Ireland’s economy, the fund business has always had great support from the Irish government,” says Bellows. “And when you layer on the EU presidency on top of that, some of the things that our industry would like and want to influence, may come to the fore now. Ireland taking the lead in 2013 will be a huge help—especially considering how the country massively influenced the shape of AIFMD.”
“Ireland’s EU Presidency in 2013 presents Ireland with a unique opportunity to influence and shape future regulatory direction for the wider funds industry,” comments Turner. “No other EU country has the in-depth knowledge and experience of the funds industry built up over a number of decades and the inclusion of a number of key agenda items of consequence to the industry will give us a front row seat over the next six months.”
She adds that she expects Ireland to take a leading role with regard to shaping UCITS V and VI.
“Although we will no longer hold the presidency when UCITS VI comes into effect, the Irish Presidency will need to make significant progress in laying the groundwork for the next iteration of these directives. My hope would be that UCITS VI will see a greater drive towards harmonisation within the funds industry, taking on board the lessons learned from past directives and building it into this new legislation.”
Emerging distribution markets
There are two sides to consider when thinking about emerging distribution markets, says Bellows—where the fund manager is based, and where they’re looking to distribute. He indicates that currently, the bank has clients in its Irish business that are based in 17 different countries. The UK retains the biggest client cluster, followed by North America.
“But we also have a large number of clients now in Hong Kong, Singapore, Japan, Australia, and also Scandinavia. In terms of trends of distribution—not much has changed.”
The Irish funds industry is well known in the US and in the UK, and BNY Mellon will continue to attract new investors from these regions in 2013, says Turner. But to continue to grow, Tuner adds that the country must begin to target emerging distribution markets such as South America and the Middle East, in addition to continuing to raise its profile in Asia.
Assets serviced by the Irish funds industry reached an all-time high of €2 trillion in 2012, and the industry continues to hold steady when it comes to additional flows—with more than 40 percent of UCITS asset flows in Q1 2012 coming through Irish vehicles, and more than 10 percent growth in net assets of UCITS in the first half of last year.
“I firmly believe that this is down to the fact that Ireland is still seen as a good place to do business from a funds perspective, despite the financial crisis,” says Turner. “We are still seeing a huge appetite from investors to place money in Ireland, so I am optimistic that we will reach €2.5 trillion in assets serviced by the Irish funds industry by the end of 2013.”
The financial world has changed, and Ireland has been able to adapt quickly to a number of challenges over the years because it has had the intellectual capital at its disposal to cope with some of the more complex funds in the market—this has been the success story of the Irish funds industry, comments Turner.
“Increased regulation will further test our capability to be innovative, however, if we can continue to stay ahead of the curve and adapt quickly, and continue to work with a regulator that is cognisant of the complexities of the funds industry, I believe that we will continue to thrive.”
