A hedge funds centre
14 Sep 2022
Brexit has pushed the boundaries hard, but market participants predict a buoyant outlook for the Irish funds industry. Brian Bollen reports
Image: oleksandr_moroz/stock.adobe.com
“I wouldn’t start from here.” So says the long-running joke about a stranger asking for directions. It was with some trepidation that I awaited the first replies when asking about the Irish investment funds industry, its past, its present, and its short-, medium-, and
long-term future.
Mike Hughes, UK-based global head of service lines at Ocorian, a specialist in corporate and fiduciary services, fund administration, and capital markets, has more than 30 years of experience in the transaction services business — most recently with JP Morgan, where he ran the global custody business for four years.
According to Hughes, Ireland has a good long runway ahead of it, with at least 20 years of credible track record and with material growth in prospect. “Many locations have run out of steam in terms of attracting talent, but Ireland continues to do a great job in terms of building its talent pool,” he says.
Hughes affirms that Brexit has pushed the boundaries hard, but Ireland’s emphasis on flexibility is enabling it to lead the way in helping asset managers and other investment industry service
providers to meet regulatory and other requirements, and to enable these service providers to focus on their core business.
“When I am talking to clients and potential clients in key buying centres, everyone is sticking to their own swim lane and buying in experience in the areas that are not their core,” says Hughes. “This is what led us to apply for what I believe is a unique batch of licences to support clients.”
“Talking specifically about the asset management industry, we have had a lot more asset managers talk to us about closed-end fund structures in the past year than in the previous five years.Especially in alternatives, and particularly in hedge funds.”
Hughes anticipates further consolidation, particularly in the independent service provider space, where the key will be value creation. Ireland, he says, will play an important role in helping to fill operational gaps.
Meliosa O’Caoimh, head of Northern Trust in Ireland, indicates that the future looks bright for the Irish funds industry, as it develops a funds framework and a bedrock of professional expertise that continues to be attractive to the global investment community.
She says: “The composition of the industry has changed significantly – we now, for example, have a record number of managers in the location – there is a suggestion that managers are now the largest cohort of the Irish Funds membership.”
Post-Brexit, many UK investment houses have created Irish-based ManCos, and many others have partnered with local ManCo providers to get an EU footprint. O’Caoimh notes that asset managers from around the world continue to work with the Irish funds industry to manufacture fund products, package them into Irish fund vehicles, and distribute them internationally. This has been the case for more than 20 years — through steady periods of economic growth, as well as the more challenging backdrops such as that confronting the industry currently.
Funds centre
Until the creation of the International Financial Services Centre (IFSC) in 1987, established in Dublin by the Irish government with European Union Approval, Ireland had a reputation for waving goodbye to a sizable share of its talent, which tended to migrate upon graduating from university.
With the creation of the IFSC, Ireland has established a position as a leading location for a range of internationally-traded financial services. Publicising its virtues, the IFSC claims that it has become one of the leading hedge fund service centres in Europe, and that many of the world’s most important financial institutions have a presence here.
These include 20 of the world’s top 25 financial services companies, 17 of the top 20 global banking institutions, 14 of the top 15 global aircraft lessors, and 11 of the top 15 insurance companies. There have been dramatic changes in the composition of the international financial services industry (IFS), with a shift in employment patterns and losses in banking jobs, but gains in fund administration, insurance, aircraft leasing, and payments.
The IFSC notes that Ireland is the only English-speaking, common-law country in both the EU and the eurozone offering a highly skilled, flexible, internationally diverse, and multilingual workforce. Employment growth has been driven by technology-focused roles, and has reflected Ireland’s ability to combine financial services and information and communications technology (ICT) strengths.
Northern Trust indicates that its role in delivering asset servicing solutions, such as global custody and fund administration, is critical for the efficient operation of its clients’ businesses — and, as a service provider, it remains focused on providing this client base with the foundational accurate data, reporting, and safekeeping they require to communicate with investors and operate day-to-day functions smoothly.
More broadly, Northern Trust continues to extend and diversify its service portfolio, including an extensive range of fund administration solutions and, more recently, outsourced services such as data management and trading. “We support our clients through a ‘whole office’ approach – providing access to new technologies and capabilities, while supporting their trading, investment operations, data, digital, and analytics requirements,” says O’Caoimh.
Two recent regulatory developments from the Central Bank of Ireland are important in defining standards across these service areas. Firstly, the regulator published new guidance on operational resilience at the end of 2021, designed to lead the industry in how to prepare, respond to, and learn from an operational disruption that affects the delivery of critical or important business services.
Also, the Central Bank has issued recent guidance on managing outsourcing risk across asset management, again with the view to promote higher standards of operational resilience in regulated financial service providers. “We are working closely with clients as they review and adjust their operating models in response to both the evolving environment and expectations of the regulator,” says O’Caoimh.
In conclusion, O’Caoimh predicts that the pace of technology and infrastructure development will continue to accelerate. “At Northern Trust, we are focused on delivering positive change for our clients through the use of innovative practices and the application of technology to benefit our clients wherever we can,” she says. “For example, in Limerick we have created our innovation laboratory, which is a focal point for exploring the application of new technologies and methodologies across our asset servicing business.”
Notwithstanding the market turbulence of recent months, Ireland has seen significant growth throughout 2021 across both traditional and alternative asset classes, but particularly in private capital. “Asset managers, especially the larger ones, that have historically been active, mainly in the traditional space, are now looking at launching private equity products at some scale, and at adding access to these funds for their clients to enhance the diversity of their offering,” says O’Caoimh.
long-term future.
Mike Hughes, UK-based global head of service lines at Ocorian, a specialist in corporate and fiduciary services, fund administration, and capital markets, has more than 30 years of experience in the transaction services business — most recently with JP Morgan, where he ran the global custody business for four years.
According to Hughes, Ireland has a good long runway ahead of it, with at least 20 years of credible track record and with material growth in prospect. “Many locations have run out of steam in terms of attracting talent, but Ireland continues to do a great job in terms of building its talent pool,” he says.
Hughes affirms that Brexit has pushed the boundaries hard, but Ireland’s emphasis on flexibility is enabling it to lead the way in helping asset managers and other investment industry service
providers to meet regulatory and other requirements, and to enable these service providers to focus on their core business.
“When I am talking to clients and potential clients in key buying centres, everyone is sticking to their own swim lane and buying in experience in the areas that are not their core,” says Hughes. “This is what led us to apply for what I believe is a unique batch of licences to support clients.”
“Talking specifically about the asset management industry, we have had a lot more asset managers talk to us about closed-end fund structures in the past year than in the previous five years.Especially in alternatives, and particularly in hedge funds.”
Hughes anticipates further consolidation, particularly in the independent service provider space, where the key will be value creation. Ireland, he says, will play an important role in helping to fill operational gaps.
Meliosa O’Caoimh, head of Northern Trust in Ireland, indicates that the future looks bright for the Irish funds industry, as it develops a funds framework and a bedrock of professional expertise that continues to be attractive to the global investment community.
She says: “The composition of the industry has changed significantly – we now, for example, have a record number of managers in the location – there is a suggestion that managers are now the largest cohort of the Irish Funds membership.”
Post-Brexit, many UK investment houses have created Irish-based ManCos, and many others have partnered with local ManCo providers to get an EU footprint. O’Caoimh notes that asset managers from around the world continue to work with the Irish funds industry to manufacture fund products, package them into Irish fund vehicles, and distribute them internationally. This has been the case for more than 20 years — through steady periods of economic growth, as well as the more challenging backdrops such as that confronting the industry currently.
Funds centre
Until the creation of the International Financial Services Centre (IFSC) in 1987, established in Dublin by the Irish government with European Union Approval, Ireland had a reputation for waving goodbye to a sizable share of its talent, which tended to migrate upon graduating from university.
With the creation of the IFSC, Ireland has established a position as a leading location for a range of internationally-traded financial services. Publicising its virtues, the IFSC claims that it has become one of the leading hedge fund service centres in Europe, and that many of the world’s most important financial institutions have a presence here.
These include 20 of the world’s top 25 financial services companies, 17 of the top 20 global banking institutions, 14 of the top 15 global aircraft lessors, and 11 of the top 15 insurance companies. There have been dramatic changes in the composition of the international financial services industry (IFS), with a shift in employment patterns and losses in banking jobs, but gains in fund administration, insurance, aircraft leasing, and payments.
The IFSC notes that Ireland is the only English-speaking, common-law country in both the EU and the eurozone offering a highly skilled, flexible, internationally diverse, and multilingual workforce. Employment growth has been driven by technology-focused roles, and has reflected Ireland’s ability to combine financial services and information and communications technology (ICT) strengths.
Northern Trust indicates that its role in delivering asset servicing solutions, such as global custody and fund administration, is critical for the efficient operation of its clients’ businesses — and, as a service provider, it remains focused on providing this client base with the foundational accurate data, reporting, and safekeeping they require to communicate with investors and operate day-to-day functions smoothly.
More broadly, Northern Trust continues to extend and diversify its service portfolio, including an extensive range of fund administration solutions and, more recently, outsourced services such as data management and trading. “We support our clients through a ‘whole office’ approach – providing access to new technologies and capabilities, while supporting their trading, investment operations, data, digital, and analytics requirements,” says O’Caoimh.
Two recent regulatory developments from the Central Bank of Ireland are important in defining standards across these service areas. Firstly, the regulator published new guidance on operational resilience at the end of 2021, designed to lead the industry in how to prepare, respond to, and learn from an operational disruption that affects the delivery of critical or important business services.
Also, the Central Bank has issued recent guidance on managing outsourcing risk across asset management, again with the view to promote higher standards of operational resilience in regulated financial service providers. “We are working closely with clients as they review and adjust their operating models in response to both the evolving environment and expectations of the regulator,” says O’Caoimh.
In conclusion, O’Caoimh predicts that the pace of technology and infrastructure development will continue to accelerate. “At Northern Trust, we are focused on delivering positive change for our clients through the use of innovative practices and the application of technology to benefit our clients wherever we can,” she says. “For example, in Limerick we have created our innovation laboratory, which is a focal point for exploring the application of new technologies and methodologies across our asset servicing business.”
Notwithstanding the market turbulence of recent months, Ireland has seen significant growth throughout 2021 across both traditional and alternative asset classes, but particularly in private capital. “Asset managers, especially the larger ones, that have historically been active, mainly in the traditional space, are now looking at launching private equity products at some scale, and at adding access to these funds for their clients to enhance the diversity of their offering,” says O’Caoimh.
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