June 2008 l Ireland Supplement
The voice of the alternative investment industry
Ireland: green light for success
overview setting up in ireland fund administration legal services Ireland’s competitive edge is growing Ireland is attracting increasing interest Established as a centre of excellence, A maturing hedge fund industry is as more funds as a domicile Ireland looks set calling on the and fund services for traditional to enjoy further wealth of expertise choose to settle in and innovative double digit in the Irish legal the country. products. expansion. sector. 04 10 16 23
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002-013.HFR_0608_Ireland.indd 2 5/6/08 16:01:38 ireland report Contents Editor 4–8 Overview of Ireland as a hedge fund jurisdiction Margie Lindsay +44 (0)20 7484 9889 Ireland is the fastest growing international fund domicile in the world with $1.8 trillion in assets under [email protected] management. It is recognised globally as a centre of excellence and is the leading European hub for global funds distribution to more than 60 countries. The country is well placed to continue its role in this expanding US Editor Phyllis Feinberg industry. +1 212 634 8507 [email protected] 8–12 Setting up in Ireland Production With alternative investments and hedge funds the fastest growth sectors in financial services, as a jurisdiction Amanda Allen Ireland has already attracted a great deal of interest. Dublin is emerging as the leading European domicile of Publisher choice for funds. Jonathan Greene +44 (0)20 7484 9867 [email protected] 14 Ucits III Advertising Speedy adoption by Ireland of the European Union’s Ucits III legislation has boosted the country’s role in the Luther Rahman regulated hedge fund market. As passporting of Ucits II products becomes more popular, Ireland is set to +44 (0)20 7968 4514 spearhead the growth in this type of fund product. [email protected]
Advertising production Melanie Law 16–22 Fund administration +44 (0)20 7484 Ireland has established itself as a centre of excellence in the administration of funds registered in the country [email protected] in other jurisdictions world-wide. This year the industry is set for further double digit expansion. Advertising/editorial fax +44 (0)20 7930 2238 23–24 Legal services Managing Director The importance of legal services for the hedge fund industry as it matures are undisputed. Ireland’s legal Matthew Crabbe community, with years of experience and expertise, is well placed to be at the forefront as more alternative +44 (0)20 7484 9814 [email protected] asset and hedge fund managers come to the country.
Head office Haymarket House, 28–29 Haymarket 26 Irish Funds Industry Association London SW1Y 4RX Ireland’s fund industry works closely together through the IFIA to keep the country at the cutting edge of Subscription and circulation development, to ensure competitive success for the future and to help give voice to issues and concerns enquiries relevant to the hedge fund sector. +44 (0)20 7484 9890 Subscription renewals 28–29 Audit and accountancy Sarah Golding +44 (0)20 7484 9896 With a vast majority of the world’s hedge funds audits conducted by the Ireland-based Big Four, the [email protected] accountancy firms in Ireland are poised to expand services as the industry grows. As Irish-domiciled funds, Printed by Heron Ucits III products and new hedge funds continue to grow, the accountancy profession in Ireland is set to enjoy further enlargement. All reports written by Margie Lindsay © 2008 Incisive Media Group 30 Irish Stock Exchange The Irish Stock Exchange is recognised globally as the leading centre for listing investment funds. It is the first or predominant choice for new fund listings and looks set to continue on a steady growth path.
32–33 What they say about Ireland Service providers, fund administrators, legal and accountancy firms explain why they think Ireland is the jurisdiction of choice for a number of hedge fund services and how it will keep its competitive advantage in the future.
34 Ireland facts page Key facts, figures and information about Ireland.
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002-013.HFR_0608_Ireland.indd 3 5/6/08 16:01:49 overview Ireland well prepared to meet hedge fund industry challenges
for service providers. It is rec- Heightened competition and increasingly sophisticated ognised as an experienced and established centre of excellence investors are driving hedge fund industry growth. Ireland for investment fund services, pro- viding a highly trained, skilled and is well placed to continue its role in growing this market multilingual workforce that is now accessible throughout Ireland. through a regulated environment coupled with an Many companies providing services to the funds industry experienced, strong and expanding services base have expanded operations outside Dublin to Cork, Galway, Kildare, Kilkenny, Limerick, Louth, Meath, Waterford and Wexford. Also, a deal with the UK government now Ireland’s success is undoubted. It is specialists in all fund categories. has slowed, and is expected to be opens Northern Ireland’s consid- the fastest-growing international Another plus point helping Ire- modest at best in 2008 given the erable employment pool to the fund domicile in the world. It is land to maintain its position is its considerable problems facing the industry. recognised globally as a centre of membership of the EU and the global financial services industry, Coupled with this are state of the excellence and is the leading Euro- eurozone. From humble economic Ireland still attracts new funds and art technology and a modern com- pean hub for global funds distri- beginnings, the country has pros- service providers keen on cashing munications system, as well as a bution to more than 60 countries. pered, becoming known as the in on the hedge fund business. strong fiscal, legal and regulatory Within Ireland there are industry ‘Celtic tiger’. Although growth Ireland is a competitive market environment.
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As an EU member, Ireland is part These funds are mostly pro- of the regulated European fund moted by international invest- industry. It is also at the crossroads ment managers, who use Ireland of the offshore funds industry as the domicile for their funds, between US markets and Europe. which are then sold in the inter- “Generally we have Ireland has been at the forefront national market. However, there is had a very good of the industry since the govern- a growing demand for these prod- ment’s bold decision to promote ucts in the domestic market, as reaction to the funds financial services in the country by Ireland’s growing private wealth setting up the International Finan- management sector looks to make regime. no doubt cial Services Centre in Dublin in greater use of these investment we will always 1987. This attracted a wide range vehicles. of international financial services The trend is for funds to be be looking at our and formed the basis for what has structured either according to the processes.” developed into an impressive and EU’s collective investment in trans- prosperous hedge fund services ferable securities (Ucits) directives, MICHAEL DEASY, FINANCIAL business. with their increasingly flexible ▼ Overall, the hedge fund industry rules regarding retail products, or REGULATOR has experienced phenomenal as qualifying investor funds (QIFs), growth, driven by Ireland’s favour- which can only be sold to profes- able legal and regulatory frame- sional or institutional investors (see work and wealth of expertise article, page 10). The drift towards and talent. This environment is these two types of structure has typified by innovation in product been caused by a number of regu- entrants and has an approach radical changes to the European offerings and a commitment by latory developments at European that is both flexible and strict. It alternative investment market. It the Financial Regulator (Rialtóir and domestic level. is highly regarded throughout the is possible to establish a variety of Airgeadais) and the government to Ireland was the first regulated hedge fund industry and Ireland hedge funds schemes, to use prime the continued growth and develop- jurisdiction to commit to alterna- itself is considered a reputable brokers, to use derivatives prod- ment of the industry. tive investment funds and has jurisdiction. ucts and other alternative invest- Ireland has industry special- been at forefront of implementing “Generally we have had a very ment strategies, and to establish ists in all fund categories, with a Ucits III. The country is also the good reaction to the funds regime,” funds of funds and feeder fund highly trained, skilled and multi- latest to become a European domi- confirms Michael Deasy, head of structures. lingual workforce, an extremely cile for money-market fund assets financial institutions and funds The market has also opened competitive market for service and is the largest European and authorisation at the Financial Reg- to retail investors, who may gain providers and a highly regarded global administration centre for ulator. “No doubt we will always exposure to hedge funds through and reputable financial regulator hedge funds. be looking at our processes. We funds of funds. Recent develop- that operates a principles-based Listing on the Irish Stock will listen to the industry and make ments include changes to expo- approach rather than a rigid rules- Exchange is the default setting changes and modifications when sure limits when using prime based system. for hedge funds. Adding to the necessary.” brokers and allowing a scheme to Ireland has radically improved country’s attractiveness for the Deasy confirms that the post excess collateral to counter- the speed to market for sophisti- hedge fund industry is the speed to authority has an ongoing super- parties to secure its obligations, cated investor funds, including market for sophisticated products, visory role. “There is mandatory rather than just posting collateral hedge funds by introducing a next- with immediate approval offered by reporting. We’re very strict in that up to the level of the scheme’s day approval process (see article, the regulator. respect. We don’t promote Ireland indebtedness. page 12). At the heart of Ireland’s hedge as a financial centre. We see our job While the regulator has been at A distinct trend has emerged in fund success is a respected financial as creating a regulatory regime, a the forefront of approving innova- the types of investment funds being regulator committed to maintaining regulatory environment that will tive Ucits III funds, equally, it has structured in Ireland and author- Ireland as a centre of excellence. attract people,” he says. been progressive for homegrown ised by the Financial Regulator. The regulator is accessible to new Ireland has pioneered some funds.
GrOWtH In DOMICILED ASSEtS UnDEr ADMInIStrAtIOn WOrLDWIDE/EUrOPEAn ALtErnAtIvE InvEStMEnt FUnDS SErvICED In IrELAnD
39 2000 10 Worldwide European 36 30% Ireland 55% Ireland 2001 1 7 2002 -7 19 2003 12 20 2004 11 34 2005 23 25 2006 15 Ireland 10 Europe Jun 07 5 70% Rest of World 45% Rest of World -10 -5 0 5 10 15 20 25 30 35 % Source: HFM 2005 Source: EFAMA and Irish Financial Regulator
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vibrant financial services sector centres on IFSC In 1987 the Irish government, with backing from the European Union, established the International Financial Services Centre (IFSC). Built in Dublin’s old dock area, the centre has grown from modest beginnings to dominate the financial services landscape in Dublin. It is now globally recognised as a leading location for a range of internationally traded financial services, including banking, asset financing, fund management, corporate treasury management, investment management, custody and administration and specialised insurance operations. The IFSC was one of the main initiatives outlined under legislation designed to boost activity and employment in the Irish economy. The Irish government in the late 1980s identified the growth potential of the international financial services sector. It believed Ireland had the capacity to develop this sector because of its well-established financial infrastructure, sophisticated internal and international communications system, and young, highly educated population. According to recent IFSC figures, an estimated 10,700 employees work in the centre and this figure is expected to grow by 1,000 in 2008. Over 430 international operations trade in the IFSC, with a further 700 approved to carry out business under the IFSC programme. Half of the world’s top 50 banks and top 20 insurance companies emerging,” confirms Deasy. are located in the centre. The centre contains a sophisticated support According to Tom Meade, network, including shared service centres, software development, deputy head of investment service telecommunications, and legal and accountancy companies. providers supervision at the Finan- The Finance Act 1986, which set up the IFSC, also introduced financial “Reputation is cial Regulator, Ucits III funds have incentives that encouraged urban renewal and investment by the given retail investors, including private sector. The Act established a special 10% corporation tax rate for tremendously institutional investors, the oppor- companies in the IFSC, rising on January 1, 2006 to the normal corporation important for us. tunity to invest in different types tax rate of 12.5%. This rate is still below the corporation tax rate of many of derivatives and structured prod- of Ireland’s European competitors. Sometimes what we ucts. He sees Ucits III products as The initial IFSC site was 11 hectares of land in the Custom House docks want the industry providing the stricter supervisory area of Dublin – one of the largest blocks of prime urban land in the city regime that some institutional designated for redevelopment. In 1997, the Dublin Docklands Development to do won’t be investors demand. Authority was established to develop the original Custom House docks Deasy confirms that the level of area (IFSC I), to develop IFSC II and to facilitate the development of the popular.” fund authorisation has risen on the Docklands North Lotts area. Ucits side. “People who were going A further 4.8 hectares of land has been redeveloped to provide IFSC MICHEAL DEASY, FINANCIAL for the qualified investor funds II, which includes 70,000 sq m [square metres] of office space. The overall REGULATOR before are now opting for the Ucits area is now 15.8 hectares and accommodates over 184,000 sq m of brand. We are seeing a change. office space, as well as hotels, bars and restaurants, a large residential Last year the level of assets under development, retail shops and the €100m National College of Ireland administration in respect of non- campus. Irish funds exceeded the level of The Irish government still sees the IFSC as a driving force behind the Irish-domiciled funds, predomi- physical rejuvenation of the north inner city, and a main driver of expansion For Irish-domiciled funds it has nately hedge funds. Irish-domiciled of the financial services sector. introduced a 24-hour self-certifying funds totalled around €800bn, system. while non-Irish administered funds, “The self-certification process which are predominantly hedge Growth in NAV and number of AIFs SERVICED IN IRELAND is working very well for quali- funds, totalled around €850bn fying investor funds. We do spot bringing the total to well over checks post-authorisation and €1.5trn,” says Deasy. Number of funds by and large we are very pleased. One of the biggest challenges for 2,113 NAV ($bn) Funds are doing the right things the future of the fund industry is Mar 2003 and there are no major difficulties valuation. Both auditors and fund 199
3,020 Custodians ranking by fund assets Jun 2005 Rank Company name Assets in $bn 474 1 State Street 239.6 4,725 2 JP Morgan 199.3 Jan 2007 3 Bank of New York Mellon 181.1 924
4 Northern Trust 125.3 0 1000 2000 3000 4000 % 5 PFPC 77.7 Source: Figures provided by the Financial Regulator and IFIA AIF Survey
Source: Eurekahedge. Custodians and fund administrators with the greatest market share by fund assets serviced in Dublin as at June 30, 2007.
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002-013.HFR_0608_Ireland.indd 7 5/6/08 16:02:23 overview
conditions for listing on the irish stock exchange Irish Stock Exchange (ISE) listing requirements must be met before a fund can be admitted to listing. These conditions include:
• Starting fund operations before applying for the listing application with unqualified audited reports available for the last financial year. • A fund cannot change its principal investment objectives and policies as detailed in the listing particular for at least three years from the date of listing. • A fund must confine the sale of units and shares in the fund to “sophisticated investors” if the fund is not domiciled in an EU member state, Hong Kong, the Isle of Man, Jersey, Guernsey or Bermuda. • At least two of the directors in a fund structured as a company must be independent of the investment manager. • Investment managers must have expertise and experience to manage the fund. • The net asset value of the units or shares must be calculated at least on a quarterly basis. • The fund cannot take legal or management control of the issuer of any of its underlying investments, although this does not apply to venture capital funds.
Funds must publish the listing particulars approved in advance by the ISE. These contain information on the people responsible for the listing, the auditors and other advisers, as well as information about the units or shares for which the application is made. The document must also outline the fund’s investment policy, name directors and service providers and give details of the fund’s assets, administrators will need to grapple here retain full responsibility liabilities and financial position. If it is an umbrella fund, information is not with this problem. and control for the overall work,” required for all the sub-funds, only for the sub-fund that is listing. “We have a set of guidelines, a set Meade says. The time from submission of an application to receipt of approval of the of procedures to cover the valua- Meade accepts that companies listing particularly is usually less than four weeks. tion process, and are now looking at will be looking outside Ireland Once listed, a fund has ongoing obligations including producing an annual enhancing these for illiquid instru- – not just to Belfast, but to Poland report and audited accounts for the ISE and shareholders within six months of the ments,” says Meade. The funds and further afield – for competi- fund’s year-end. An interim report covering the first six months of every financial need to put into place calculation tively priced services. But both he year must be sent to the ISE and published or sent to shareholders within four procedures, pricing commitments and Deasy maintain that Ireland’s months of the end of the period. This report does not need to be audited. and policies to cover valuation. financial regulator will insist on The ISE must be notified of the net asset value and must also tell the ISE Another issue that is attracting core functions remaining in Ireland about any major developments in its activities which are not in the public the regulator’s attention is offshoring if a company wants to retain its domain but which could lead of a substantial movement in the price or net or outsourcing of some services out- status in the jurisdiction. asset value of the fund. side Ireland. Meade confirms there “Reputation is tremendously is pressure on companies to find the important for us. Sometimes what lowest cost centres. we want the industry to do won’t be innovation and experience attract hedge funds business “There is a new model devel- popular. We try to seek consensus oping whereby certain low-level and will accommodate variations According to the Irish Funds Industry Association, Irish non-Ucits funds are processes are being done outside within the regulations. But compa- marketed predominantly in member states of the European Economic Area Ireland. Our concern is that a fair nies must keep the heart and mind (EEA), Switzerland, Hong Kong, Japan and Singapore, and to some extent in share of the work is completed in here if they want to be in a regulated South Africa, New Zealand, Israel and the US. Ireland and that companies based jurisdiction,” concludes Deasy. Hedge funds and funds of funds are the most common type of Irish non- Ucits funds and are predominantly marketed in the EEA, Switzerland, Hong Kong, Singapore and Japan. Feeder funds and property funds are the next Cayman Islands domicile still dominates most common types of non-Ucits fund. Within the EEA, the UK is the most popular jurisdiction for the distribution Most hedge funds continue to be domiciled in the Cayman Islands, with well of Irish non-Ucits funds, with hedge funds and funds of funds being the most over half of European hedge funds choosing to locate there. Ireland and common, followed by feeder funds and property funds. Bermuda are the next most popular locations, with the British Virgin Islands A 2004 survey by the IFIA of promoters of investment funds found that the coming fourth. regulatory environment is the most important factor in choosing a domicile to Among European hedge funds, about 60% are listed on an exchange. Due establish an investment fund, with 92% of respondents indicating that they to the ease of listing on the Irish Stock Exchange, it is the market leader, listing would choose Dublin/Ireland as a location again. 86% of the world’s qualifying funds. There is no meaningful second exchange The investment funds industry provides administration, custody and legal and that lists hedge funds. accounting services to Irish-domiciled funds. Innovation in product offerings has been a feature of Ireland’s success as top european hedge fund domiciles an investment fund domicile. Ireland was one of the first EU states to authorise money-market funds and is now the leading European domicile for these funds. Rank Company name Assets in $bn Ireland was also the first European country to authorise and approve the 1 Cayman Islands 55 exchange-traded fund, an investment fund whose shares are listed and traded on a stock exchange in the same manner as the shares of a listed company. 2 Ireland 11 Ireland is seeing a surge of interest in regulated property funds and liability 3 Bermuda 10 matching funds – funds aimed at meeting the future liabilities of pension schemes. Ongoing consultation with the Financial Regulator to develop these 4 British Virgin Islands 6 and other products, as well continued legislative changes, should ensure the continued success of Ireland as an attractive fund domicile. Source: Eurekahedge
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002-013.HFR_0608_Ireland.indd 9 5/6/08 16:02:45 setting up in ireland Irish regulations spur growth of alternative investment funds As a jurisdiction, Ireland has attracted a great deal of alternative investment interest. Dublin is emerging as the leading European domicile of choice for alternative investments and particularly for fund administrators
Alternative funds are one of the fastest-growing sectors in the funds industry. Following the subprime crisis, there appears to be a trend towards moving offshore funds onshore and a growing number of funds are opting for a regulated juris- diction. Both these trends are benefiting Ireland, which has already estab- lished itself as the domicile of choice for fund administrators and auditing services, as well as other services linked to the alternative fund industry. What is attracting funds to Ire- land is the combination of years of experience and expertise found within the industry and the Finan- cial Regulator. With around one- third of the world’s hedge funds administered from Dublin, the jurisdiction is one that is already known and established. With the emergence of Ucits III funds, Ire- land has also become the favoured location of these funds and others seeking a stock exchange listing. Ireland is also a global centre for interventional asset management. The combination of a pragmatic regulatory environment for invest- ment funds, low taxes for corpo- rations (and individuals), coupled with good infrastructure and sig- nificant government support for the industry has helped this part of able in Ireland. These initiatives able in terms of investment strate- tors and auditors. the financial services sector grow were accompanied by tax measures gies and investor base away from At the centre of Ireland’s repu- at a fast pace. Its progressive legis- that provided tax exemption for traditional offshore jurisdictions tation as a hedge fund domicile lation has also placed it on the road Irish funds. Ireland is now recog- such as the Cayman Islands, British is the Irish financial regulator. It to exponential expansion over the nised internationally as one of the Virgin Islands and Bermuda. is responsible for the authorisa- next few years. premier locations for the establish- Ireland’s strict approval and tion and ongoing regulation of all The development of the inter- ment and administration of invest- supervision process is seen as a investment business companies and national funds industry in Ireland ment funds. real plus point. Fund promoters are collective investment funds in Ire- began in 1989 with the implemen- In June 2007, the number of Irish attracted by the prospect of offering land. The regulator is considered to tation of the EU Ucits directive (see domiciled funds totalled 4,340, a regulated hedge fund product be one of more flexible in Europe, article, page 12). This was followed with assets under management of while fund managers, already estab- with its transparent process and by a number of other legislative €813bn. lished in Dublin, are familiar with willingness to meet prospective initiatives designed to ensure a full Given Ireland’s position as a the legislative framework and have fund managers. range of fund products familiar to highly regulated jurisdiction, it is good relationships with service pro- Hedge funds seeking to domicile international promoters was avail- attracting hedge funds that are suit- viders, including fund administra- in Ireland go through a two-stage
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needs to establish a separate vehicle least €25 million or its equivalent if the fund intends to list the units/ each time. in other currencies, or is a qualified shares of the hedge fund on the Irish Recently, legislation has been investor in its own right, can invest Stock Exchange. passed enabling an umbrella in a QIF. The fund will also require Irish Hedge funds are investment company structure to Several types of funds are per- lawyers. enjoy segregation of liability so mitted under the QIF structure. Documents needed to establish not a specifically the assets of each sub-fund can They include umbrella funds, a hedge fund include a prospectus, defined category of only be used to meet the liabilities closed-ended funds, venture capital memorandum and articles of asso- of that sub-fund. As a result most funds, money market schemes, ciation or partnership agreement fund under Irish law. new hedge funds are established as property schemes and capital pro- and agreements with the investment investment companies. tected schemes. manager, administrator, custodian, They are generally Non-Ucits funds also include prime brokerage and sub-custodian. those funds with Tax transparency property, venture capital, futures Any other agreements that affect Tax considerations at the investor and option funds, funds of funds, the fund’s operations also need to an alternative level might also affect the choice funds of regulated funds, feeder be given to the regulator. investment strategy of vehicle. While all structures are funds, hedge funds and funds of Typically the promoter’s Irish tax transparent from an Irish tax hedge funds. legal advisers draft the pro- that use leverage perspective, certain investors may, Funds structured as QIFs are able spectus, memorandum and other depending on their circumstances, to receive derogations or exemptions agreements. The relevant service and have appointed prefer a particular structure. The from some or all of the conditions provider usually drafts the admin- a prime broker. requirements, expectations and/ set out by the regulator. istration, custodian, sub-custodian or habits of the promoter’s target Hedge funds are not a specifically and prime brokerage agreements. investor market also dictate the defined category of fund under Irish Once documents have been drafted choice of vehicle for the promoter. law. They are generally those funds and are agreed they are given to Three main types of alternative with an alternative investment the regulator. funds can be set up in Ireland: strategy that use leverage and have The regulator has introduced a • retail funds, which may be appointed a prime broker. new regime for QIFs that allows the authorisation process. The pro- offered to the public. Subscrip- To establish itself in Ireland, a QIF to self-certify documentation, moter or investment manager first tion at any level is permitted; hedge fund in Ireland, a hedge fund so the regulator does not need to needs to receive authorisation from • professional investor funds typically uses a variety of service preview and approve the documen- the Irish financial regulator. Then (PIF), which have a minimum providers. The regulator requires tation. Once the documentation the fund needs authorisation. These subscription of €125,000; and a local custodian/trustee to be is agreed by all parties, finalised two processes can be carried out at • qualifying investor funds (QIF), appointed to take custody of the documentation can be filed with the the same time and usually take up to which have a minimum sub- hedge fund’s assets. financial regulator and the new QIF eight to 10 weeks. scription of €250,000. will be approved on the next day. Hedge funds are typically con- QIFs are by far the structure used Local input The time frame is the time parties stituted as a unit trust, a common by hedge funds. They are non-Ucits A local administrator must carry take to agree and execute the docu- contractual fund (CCF) or an products available as investment out certain administrative func- mentation, which in practice tends investment company with variable companies, unit trusts or common tions of the hedge fund in Ireland. to be between four to six weeks. share capital. It is also possible contractual funds. The prime broker, sub-custodian If the QIF is to be listed, the to establish an investment lim- A QIF can invest in whatever it and investment manager are not approval of documentation by the ited partnership, but this form of chooses and there are no limits to required to be local. Irish Stock Exchange is generally investment vehicle has rarely been the amount it can leverage. In addi- There must be two Irish resident obtained while the documentation used. It is possible to establish tion to the minimum subscription, directors on the fund company’s is being drafted and finalised. the unit trust, CCF or investment net-worth tests also apply. Any board. If the hedge fund is estab- To avoid delays it is advisable company as either a single fund person with a minimum net worth lished as a unit trust, they must to apply for financial regulatory or umbrella fund. The umbrella (excluding their main residence and sit on the board of directors of the approval for the promoter, man- structure typically makes it easier, household goods) above €1.25m, management company. ager, investment manager and other quicker and cheaper to launch or any institution that owns or Auditors must be appointed. Irish service providers or directors as future sub-funds, as it obviates the invests on a discretionary basis at sponsoring stockbrokers are needed early as possible in the process.
Fast-track approval increases fund numbers Just over a year ago, the Financial The pre-agreed parameters to the regulator. An application market for international fund Regulator announced a major are essentially a codification is complete if the regulator has promoters. revision of the authorisation of the existing parameters, but approved all the relevant parties Since the introduction of the process for Irish domiciled revised to allow for recent product to the QIF in advance and the fast-track approval process, the qualifying investor funds (QIFs). enhancements. A fund that requests QIF itself reflects the regulator’s regulator has approved over 200 This paved the way for a fast-track official approval before 3pm on one guidance notes, guidelines and QIFs. This response from the market authorisation process. day can be approved by the same notices. The regulator relies on is cited as evidence of demand QIFs are non-Ucits products time the following day. confirmations from legal counsel from international managers of available as investment companies, This change has effectively to the fund that cover compliance alternative assets for a product that unit trusts or common contractual increased the speed to market of the with the authorisation criteria. offers flexibility, speed to market and funds. Subject to compliance with product, from approximately eight The QIF fast-track approval credibility within a regulated market. the regulator (under the non-Ucits weeks to 24 hours. process is a significant development This change allows Ireland notices), it is possible to use a pre- To take advantage of the fast- for the Irish funds industry. It reflects to compete head-to-head with approval process. This enables QIFs to track approval procedure, a full and the financial regulator’s recognition established alternative domiciles, be authorised on a filing-only basis. complete application must be made of the importance of speed to such as the Cayman Islands.
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002-013.HFR_0608_Ireland.indd 13 5/6/08 16:03:03 uCits
Ucits funds continue to grow Ireland’s speedy adoption of the EU’s Ucits III legislation, which accommodates the use of some hedge fund strategies by EU funds, has boosted the country’s place in the regulated hedge fund market
The EU legislation known as Ucits is reported to have said in March strongly that there is a need for behalf are generally not allowed to III – the common name for the EC 2007. He remains firmly opposed to supervisors to focus closely on borrow but can leverage up to 10% product and management company proposals from within Europe for banks’ and prime brokers’ collater- of their net asset value (NAV) on a directives (undertakings for collective more hedge fund regulation and dis- alisation practices and margin calls. temporary basis. Non-Ucits retail investment in transferable securities) misses critics who say hedge funds In particular they need to focus on funds can borrow up to 25% of NAV. – expanded a Ucits fund’s investment were responsible for much of the whether the collateralisation safe- Ucits funds authorised in Ire- universe. Ucits products now include financial market turbulence sparked guards and margin calls that banks land can be sold anywhere in the a variety of additional investment by the US subprime mortgage crisis. and prime brokers employ to reduce EU without further authorisation. opportunities, including the ability to McCreevy’s comments are a the risk of loss in the event of hedge The only requirement is to notify directly invest in financial derivatives counterweight to French president fund default are sufficiently robust the local regulator of the intention instruments for the first time. Nicolas Sarkozy’s criticism of hedge to cope with a disorderly liquidation to market the fund in its jurisdic- The European Union has reluc- funds and speculators. Sarkozy on markets.” tion and to comply with any local tantly embraced the concept of wants greater hedge fund transpar- The financial regulator follows market rules. This could include, for hedge funds. EU finance ministers ency and could work with Germany EU directives that have been imple- example, a requirement to appoint a have given a qualified blessing to to push through measures at the EU mented by Irish law. The EU direc- local facilities or payment agent. hedge funds, but more vocal support level. Germany is keen for a hedge tives that established Ucits funds It is usual to include a country- has come from former Irish finance fund code of conduct. However, as have been modified and replaced specific section in the prospectus minister turned EU commissioner members of the G-8, the US, UK and by what is known as Ucits III, under detailing the relevant provisions, such for the internal market and services Canada stand by the idea of a lighter which Ucits funds can be marketed as the regulatory status of the fund in Charlie McCreevy. regulatory touch for hedge funds. throughout the EU. a jurisdiction and what tax and other “The evidence that hedge funds “Further intervention runs the In Ireland non-Ucits funds are laws or regulations might apply. have increased the efficiency of risk of causing more problems,” available in various forms, but are Although authorisation in other our capital markets and increased says McCreevy. also regulated by the financial regu- EU states is not required, a Ucits liquidity is indisputable,” McCreevy In one report he said: “I believe lator under Irish law. fund might need to wait for a limited There are no regulatory require- time after it notifies the local regu- ments dictating the minimum invest- lator before marketing the fund. IrIsh-domIcIled funds – ucITs V non-ucITs ment by investors into Ucits and retail funds. Investment limits can be Marketing funds 19% Non-Ucits applied and usually a minimum sub- It is possible to market an Irish fund scription is specified, and a minimum within the EU even if it is not a Ucits holding and subsequent investment fund. But it would have to follow the amounts detailed, in the prospectus. local offering rules. According to information from the Ucits III benefits Irish Funds Industry Association, The implementation of Ucits III in Irish Ucits funds distributed out- Ireland made it possible to create side the European Economic Area specialised funds, including equity, are mostly registered for sale in bond, money-market, multi-man- Switzerland, Hong Kong, Singapore ager, common contractual, index, and Taiwan. Japan, Chile and South exchange-traded, real estate invest- Africa are also popular jurisdictions. ment trust, securitised asset and Equity and bond funds are the 130/30 funds, and funds of funds. most common types of Irish Ucits, 81% Ucits Retail and Ucits funds are subject followed closely by emerging mar- Source: Irish Financial Regulator to extensive restrictions. A Ucits kets funds, funds of funds and fund or entities that act on the fund’s money-market funds.
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014-022_HFR_0608_Ireland.indd 15 5/6/08 16:04:26 fund administration
Ireland still favoured as top spot for hedge fund administration Ireland has established itself as a centre of excellence in the administration of Irish and non-Irish domiciled hedge funds, with 30% of all hedge funds globally administered in Ireland. Prospects for future expansion are good
Ireland is the largest hedge fund could top $2trn by the end of 2008 there is a young, educated work- administration centre in the world. – a 10-fold increase since the begin- force available,” he says. The Irish funds industry services ning of 2000. He points to the agreement over €1.8trn in investment fund Quite simply, the fund administra- between Ireland and the UK opening assets and this figure is growing. tion business is the biggest success the Northern Ireland counties as This number includes retail funds story in Ireland since the inception a pool of labour for fund adminis- The Irish funds and types of investment funds other of the International Financial Serv- trators. “There are talented people than hedge funds. The Irish Finan- ices Centre. there, accountants, lawyers. Opening industry had a cial Regulator regulates all fund “Ireland’s industry is still Northern Ireland will add another phenomenal year administrators based in Ireland. growing nicely,” confirms John dimension to Ireland’s industry.” Over the past three years, assets Hamrock, a member at Kinetic Part- The main focus of the industry, of growth in 2007, under administration in Dublin ners responsible for advising asset says Hamrock, is on valuations. He more than doubled. management companies on regula- expects a standard to emerge over with assets under The Irish funds industry had a tory compliance and corporate gov- time, although he does not think management phenomenal year of growth in 2007, ernance issues and on cross-border there will be any regulation on the with assets under management fund distribution. issue. “Funds do strive to adhere to growing by 35%. growing by 35%, according to data “The market has adapted a best practice,” he says. from Lipper Fitzrovia. lot and it’s not just Dublin where For Kinetic, the focus is on helping Most of this growth appears to be financial services are centred. the funds it administers maintain volume-related, with a 29% increase There is a move to establish offices standards and clear reporting. “We in the number of funds serviced. At outside Dublin – in places such as see it all the time: valuation and this rate of growth, the industry Cork, Galway and Kilkenny, where transparency. This is where the
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dynamic is between the sponsor and The real blot on the future land- the fund administrator relationship,” scape, says Butler, will be if the says Hamrock. credit crunch continues. “Hedge He believes Ireland’s fund admin- funds need leverage. If the lending istration sector will continue to from prime brokers stops, the dominate, but thinks Ireland needs buying will too,” he says. to continue to be innovative in terms Trinity Fund Administration was of new products, cost efficiencies one of the first administrators to and technology. set up outside Dublin, in Blackrock. At Custom House, chairman The decision was made, according to Dermot Butler believes rising costs in managing director John McCann and Dublin and the strength of the euro director Peter O’Dwyer, after consid- against the US dollar could affect the ering lifestyle issues affecting staff. fund administration sector in Ireland. The company has what it considers a As an administrator that has been good rate of staff retention, particu- operating since 1993, he has a good larly in management, with service perspective of the industry. He pre- averaging a little over 10 years. dicts that growth will be attracted to Both are confident about the lower cost centres. future of Ireland’s fund administra- The company recently announced tors. They believe, however, that the a merger with Equity Fund Services. larger administrators are neglecting The combined company will employ funds with assets under $1bn. over 260 people, operating from Ire- Clients, they say, want custom- land, the US, Singapore, Luxembourg, ised services and the medium and the Netherlands, the Netherlands Anti- smaller-sized funds are not receiving lles, Guernsey and Hong Kong. this from the larger houses. appraisals, transactions informa- The diversity of fund strategies tion, risk assessment, performance Technology importance and the introduction of innovative information and net asset valuation. While technology is important to products and trades are also putting At BNP Paribas Securities “We spend a lot the operation, Butler believes fund pressure on the larger fund admin- Services, there is also a focus on technology. It is administration is a people-centred istrators, they say. Both agree the on technology and personalised business. “We spend a lot on tech- industry needs highly automated client services. According to Pete very important. But nology. It is very important. But it is systems in place to lower the risk of Townsend, head of operations for also important to talk to the client, human error, and to collect informa- Ireland and global head of alter- it is also important and for both sides to build up confi- tion and make accurate calculations. native investment operations, to talk to the client dence and trust,” he says. Trinity provides turn-key solu- the Dublin operation administers When asked what kinds of tions for emerging, newly established around a third of global alternative and for both sides to funds Butler prefers, he is quick and institutional asset managers. or hedge fund assets. He admits build up confidence to respond. “We look for funds or The company is committed to BNP Paribas is not that well known people with a track record in busi- state-of-the-art information sys- as a fund administrator, although it and trust.” ness. It’s often more important to tems architecture. The technology has the systems in place to handle have someone introduced to us. it uses is a mixture of off-the-shelf all types of instruments. Dermot Butler, Informal references go a long way. programmes and in-house solu- Townsend says the company CUSTOM HOUSE It is also important for us to under- tions that combined create a system made a commitment about two years s stand what they do and for them to that is highly automated and able ago to focus on the investment man- understand us. Personally, I prefer to cope with almost any strategy agement industry. He points out that the more interesting structures, not or type of trade by a fund. As an the group is the largest custodian in necessarily complex funds, but ones administrator, Trinity can produce a Europe, with about $5trn of assets that are a bit unusual.” range of reports, including portfolio under custody. He believes this gives believes this made it possible for the it an advantage over some other company to shift into fund adminis- Total funds administered in Ireland independent fund administrators tration more easily than an opera- with no custodian network. tion that was not geared for daily transactions. 2000 Logical move He believes the company can pro- $bn Townsend says the move into hedge vide the bandwidth needed by fund 1750 funds was logical. The company was managers who want daily net asset 1500 already servicing long-only funds values (NAV), pricing and value cal- and had both the technology and culations. He believes the industry 1250 capacity to deliver daily informa- will continue to grow, particularly 1000 tion on trades. The growth in hedge as more institutional investors put funds and alternative asset manage- money into the funds sector. Tech- 750 ment convinced the company this nology, he says, will be essential was an area of potential growth. as the demand will increasingly be 500 Townsend says it was relatively to deliver daily pricing and final 250 easy for the company to produce holding information. daily net asset values, pricings and Established fund administrators in 0 offer full administration services to Ireland have seen new entrants to the 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 the industry. The culture and men- market. Over the past 12–18 months, As at June each year. Source: Lipper, Fitzrovia 2006 tality of the company was already at least four new companies have geared for daily trading. Townsend set up shop. While each has its own
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unique proposition, all are putting hedge funds. An in-house team of people at the heart of the operation. technology specialists has comple- Majority ownership of Quintil- mented and extended the core appli- lion, launched in 2006 by a team that cations with innovative tools for came from PFPC, is shared by the data capture, reconciliation, process management and staff, with a 25% control and client reporting. minority share owned by its US Somerville says Quintillion will seed investor. Ken Somerville, head keep its offices small to ensure the of business development, believes client-centered culture is main- this structure will help keep staff tained. Anything above 150–160 engaged and lower the turnover rate. he believes is too large an office to He believes that giving people more ensure close ties to clients. So, if the authority and engaging with clients work expands and staff increases, will bring greater job satisfaction. he foresees satellite offices in Dublin “The people here all want to be or elsewhere in Ireland. involved,” he says. Setting up Quin- At Capita Financial Group, man- tillion was a “once in a lifetime aging director Paul Nunan also chance” to put theory into prac- believes in keeping staff close to tice. The company’s experienced clients. Capita was granted a licence accounting and investor services in July 2006 and is slowly building professionals, coupled with leading up its portfolio of clients. “We see technologies deployed in an innova- ourselves as different to other start- tive manner, are at the core of its up administrators. We are small but offering to the market. backed by a FTSE100 company. Like other new entrants to the We are not part of a bank but we market, Quintillion saw an appetite are part of a large team that is very around this. Unlike some large from funds under $1bn, that were experienced in hedge fund adminis- administrators, we have a single struggling to receive a customised, tration and accounting,” he says. point of contact for the client. You personalised service from the larger On average he says the company talk to the same person every day, “A lot of hedge administrators. Somerville points is gaining one or two new funds a you don’t change. We build relation- funds when to the fact that the company has month and is “growing at a sustain- ships. We know the fund. That’s $5bn in assets under administration able, steady rate”. Capita is also tar- important to us, that we can answer they launch, and across a wide range of strategies and geting the middle-range funds. questions straight away and that the asset classes as proof the company’s “A lot of hedge funds when they client can get through to the right especially the offering was needed and accepted. launch, and especially the boutique person immediately,” notes Nunan. boutique funds, Somerville stresses having the funds, are too small for the larger He also says Capita is unique right people with a commitment to administrators,” says Nunan. He among Irish administrators as it pro- are too small serving the client is the key element believes smaller funds, particularly vides management company services for the larger of success. Clients can access senior in the first six months, need real to Irish-domiciled funds. This, he personnel at all times. hand holding. says, facilitates the set-up process administrators” Quintillion uses specialist soft- “This is a people business and and moves corporate governance ware solutions designed to sup- people are important to us. But we requirements away from the client. Paul Nunan, Capita port alternative investments and also need an operating model built Another new Dublin adminis- Financial Group trator that also stresses the personal s elements of services is Admiral US aDMINISTRATORS continue to DOMINATE Industry Administration (Ireland). Managing director David Whelan moved back Lipper Fitzrovia reports that State Street has maintained the largest market to Ireland from the Cayman Islands share both for fund assets under administration ($228.8bn) and under to set up the operation in Dublin, quality service through a single custody ($239.6bn). which received authorisation in point of contact using small port- According to the Lipper Fitzrovia 2007 report on Ireland, of 342 July 2007 but did not start trading folio teams. An account will have an fund management companies with funds domiciled in Dublin, US fund until October 2007. The company assigned head who will handle NAV management companies account for the largest proportion by total net now has 11 staff. It is focused on calculation, share register, all the day- assets ($485.4bn). Of the largest fund promoters, Barclays/BGI has assets ensuring systems are in place and to-day administration of the fund. under management of $134.1bn, followed by Goldman Sachs ($81.9bn), operating smoothly before taking on This will give the client continuity Russell Investment ($53.8bn), HSBC ($37.3bn) and Vanguard ($39.6bn). too many clients. Whelan is focused of service and one point of contact on “bedding down good infrastruc- for all elements of the fund. And this Top five administrators in Ireland By FUnd Assets ture, building and ensuring proper should also give high job satisfaction controls are in place and that man- to the staff. They will not work in a Company Assets in $bn agement growth in future is scalable. vacuum and be responsible for only State Street 228.8 We want a model that can grow.” a small piece of the jigsaw. They will Admiral is no stranger to fund see the whole picture and will be able Bank of New York Mellon 205.7 administration, having run a suc- to develop the client relationship for JP Morgan 170.6 cessful operation in the Cayman the future, helping to grow the busi- Islands and in the US. Moving to ness,” explains Whelan. Northern Trust 135.8 Dublin was a strategic decision to He says this model was successful PFPC 120.0 take advantage of the growth of in the Cayman Islands and believes it the hedge fund industry in Europe is the right approach to take in Dublin. and Asia. The Cayman Islands operation now Source: Lipper Fitzrovia annual “Ireland Fund Encyclopaedia 2007”. “Our philosophy is to give a high- has $45bn in assets under adminis-
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experience with collateralised debt criteria for clients. Downey says it obligations and complex credit deriv- is not realistic to expect new funds atives will be a big plus for the new to start off with $1bn. He is happy venture. The company has spent con- to start small and help clients grow. siderable time and money ensuring He believes new funds and start-ups the technology it uses will be able to with more complex needs with be deal efficiently with complex instru- particularly suited to LaSalle. ments in large volume through a Downey emphasises that what is fully automated system. While the important in the first instance is not technology is important, he says, it size but the base on which the fund is even more important to maintain will build: the type of manager, track close and good working relationships record and potential for growth. with the fund managers. He believes He believes it is more important to the core operation of the company is have a strong relationship with the relationship-based. He has opted for manager from the beginning. Small managers with slightly more experi- funds grow, he says. Factors other ence and at a higher level than one than asset size will influence his would expect. This is because he decision to work with a fund. wants them to be not just account- To find clients, Downey admits it ants but relationship managers for is about “just going out and meeting accounts. “We take a long-term view people, knocking on doors, having of clients and their investment opera- meetings and probably around JOHN MCCANN, MANAGING DIRECTOR, TRINITY FUND ADMINISTRATION tions. I had low single-digit turnover one-third of the business we get is where I worked before and expect fortuitous – knocking on the right tration. Whelan hopes to emulate this tion tax, and a young and educated to match that here with experienced door at the right time”. Word of success in Ireland. He is confident the workforce already experienced in people with expertise fitted to the mouth is important and he believes company will be able to retain staff hedge fund services. role,” says Downey. once LaSalle is “on the radar” of because job satisfaction levels will be Another newcomer to the admin- “Our ambition is not to be the the fund management industry it high and people will be given respon- istration scene is LaSalle Global largest employer or to have more will rapidly expand business. sibility. Fund Services, now part of Bank of assets under administration than Like other administrators, While the Dublin operation takes America after its takeover of ABN anyone else. I don’t focus on the Downey is open to outsourcing over some aspects of administration Amro and LaSalle. Having a triple league tables. We want to be profit- some parts of the operation, but from the Cayman Islands operation, it A-rated investment bank behind the able, yes. We believe the market is emphasises that this is difficult to is beginning to pick up its own clients. operation is a big plus, says European looking for a different type of fund do if you want to avoid a silo-based Whelan acknowledges that the first managing director Morgan Downey. administrator, one where it can find set-up. He believes being based in half of 2008 was a slow time for new The fund administration side of customised support and systems. We Dublin is a good choice. Ireland has launches, but expects the second half the business was set up in the last take a long-term view of clients and seen significant business for a long of the year to pick up and to see “sig- quarter of 2007 and so far has seen their investment operations,” he says. time and has a strong foundation in nificant development opportunities”. steady growth. Downey confirms it He believes the company’s “sweet fund servicing. While keeping com- Whelan thinks locating in Ireland now has over 12 relationships with spot” for funds is much larger than petitive as a jurisdiction is always a was a good choice. The country has around 40 structures it is servicing. many of the more established players challenge, Downey believes Ireland good infrastructure, low corpora- He says the advantage of LaSalle’s who stick to rigid minimum asset will maintain its dominance in fund
Industry growth poses cost containment challenges for Administrators
RBC Dexia Investor Services Ireland is one of experienced significant year-on-year growth. But enhanced and extended to meet the demands of Ireland’s leading fund administration companies. such exponential growth presents challenges. more sophisticated investors and to adapt to the With $30bn in assets under administration, “One of the key challenges is cost containment,” changing regulatory environment. RBC Dexia IS provides custody, trustee, fund notes Stack. “The trend,” notes Stack, “is definitely accounting and transfer agency core services and “Salary inflation is a principle driver of costs for investment managers to focus on core also supports clients with a number of value- and the industry has seen the level of personnel competencies, that is, asset management, added services. expenses increase significantly. Many companies and to outsource the rest of the tasks to the The company has been operating in Ireland for are seeking to leverage their global operating administrator.” 11 years and has a geographically diverse client model to extract certain costs out of the paradigm. This she says is creating an opportunity for base, covering Europe, the US, Asia and Australia. Use of the global operating model also assists “exciting” developments to assist asset managers “Our book of business is comprised of traditional with managing capacity and optimising the as the products they invest in become increasingly long-only, equity, bond and cash funds, funds service model for the increasing range of global complex and the level of support they require of funds, multi-manager funds, virtual pooling asset managers.” becomes more extensive. vehicles, alternative funds and private equity This process needs to be tailored to comply “We are seeing increased demand for funds,” explains Annette Stack, general manager at with the minimum activity requirements in middle-office services, especially in the context RBC Dexia IS in Ireland. Ireland, cautions Stack, adding that most industry of alternative products, and this has led to the Stack says Ireland services a diverse range of participants believe this is an area ripe for review. development of an entire infrastructure, including fund products and is “consequently positioned “One of the other key challenges continues to be intellectual capital to support such key services. It to take advantage of swings in the market. The the attraction and retention of talent. To be fair, is still critical that the administrator has the ability current market turbulence has seen a flight to this issue is not unique to Ireland and is more of to provide accurate and timely net asset values money market vehicles and Ireland, as the lead a global industry issue that is being tackled at a but this is taken as a given and the expectations service centre for these funds, has seen assets local level,” she says. of the administrator in today’s world are far more significantly increase.” The scope of the role of the fund administrator sophisticated. They are viewed as a key partner to She points out that the Irish funds industry has is continuously evolving, with services being support the asset manager,” concludes Stack.
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014-022_HFR_0608_Ireland.indd 20 5/6/08 16:05:20 014-022_HFR_0608_Ireland.indd 21 5/6/08 16:05:20 fund administration Hedge funds sector number one for growth say administrators
A survey carried out by Deloitte of Irish fund administrators shows that most in the industry see hedge funds as a top driver for industry growth
Hedge funds are the fastest-growing A growth in demand for alterna- The loss of such a high number of opened operations in Cork, Kilkenny, products for fund administra- tives such as hedge funds and pri- staff, particularly for the large admin- Limerick, Galway, Dundalk, Water- tors, according to the October 2007 vate equity funds is expected to give istrators, imposes a big cost on the ford and Newry. Around 15% of the survey of Irish fund administrators a fillip to fund administrators. industry and affects service levels. industry is now outside Dublin. carried out by Deloitte. The respond- The credit crisis is not perceived Deloitte estimates the annual cost for This is seen as a positive devel- ents represented around 80% of as an issue for the funds sector. How- firms of employee acquisition and opment and one that has increased the total industry in Ireland, with ever, some factors could dampen training is on average 15% higher as labour capacity. Experienced per- around $1.3trn of assets under man- enthusiasm. World macroeconomic a result of high attrition levels. sonnel have relocated from Dublin to agement, according to figures from factors in general are casting a cloud seed the development of new opera- investment fund research company over the industry, but most do not Staff retention challenge tions and, supplemented by a local Lipper Fitzrovia. expect a recession or general slow- Retaining staff is a big challenge. labour supply, have rapidly created An overwhelming 75% of down in Europe to have a negative Successful companies will be those high-quality fund servicing centres. respondents cited hedge funds as effect on the hedge fund industry. that can organise work to meet the A number of fund administra- the number one growth product. The issues causing the most con- expectations of this new generation tors have also opened offshore Traditional funds are also strong, sternation are the containment and of workers. centres. One of the closer and and Irish-domiciled Ucits and non- management of growth, and the Another area posing challenges more popular centres is Krakow Ucits funds are a continual source need for systems changes. Main- for the industry is technology. in Poland, although India is also of growth. taining service quality has become Overall, the industry plans to rede- seen as a possible location for some The 2007 survey also showed a big concern for the industry. Most sign business processes to improve operations. Over 75% of the major rise in private equity fund servicing. are also pleased with the regulatory productivity and to generally invest financial institutions have opera- Over a third (40%) of respondents environment. in technology. Although the Deloitte tions offshore, compared with 10% saw private equity as one of the top Over 80% of respondents said survey respondents said good in 2001. three products. This is consistent retention and recruitment of expe- progress had been made in relation Irish-based fund administrators with a general trend in recent years rienced staff is a significant or very to process standardisation, staff are also are attracting more busi- towards the servicing of complex, significant issue. development and training, and sys- ness in products requiring high higher-margin products. Industry attrition levels are run- tems enhancements, they conceded skill levels. Looking to lower-cost Another issue causing concern for ning close to 30% according to fig- a lot more needs to be done. centres to provide additional rou- fund administrators is risk manage- ures from the Irish Funds Industry Three-quarters of the adminis- tine, high-volume activities might ment. Many noted this is the number Association (IFIA). Over 60% of trators surveyed said they intend continue, but Ireland is likely to one issue focused on in due diligence. those it surveyed did not expect the to carry out systems changes or continue to retain core and complex This is a positive development, situation to improve in 2008. upgrades over the next 12 months. operations. signalling a move up the value chain Staff are moving to competitors, Regulatory issues also touch on of asset servicing. seeking a better work/life balance, Product gains low the industry’s preference towards Overall, there is confidence or travelling. Operational gearing has not partial or full passporting under regarding future prospects, with While one of the most successful improved. Growth is managed prin- Ucits IV regulations, which will pro- 80% of administratators optimistic sectors in Ireland over the past cipally by increasing staff rather vide all fund administrators with or more optimistic compared with decade, the funds industry is also than improved productivity. The the necessary flexibility in oper- 2006. Administrators said more new one of the youngest. A high pro- survey showed the industry expects ating models to implement these clients than ever are interested in portion of the industry’s workforce improvements to kick in, with most changes. This and the related issue setting up in Ireland. They believe is under 30. Many expect to take respondents predicting business of minimum activities were the big- the business and regulatory founda- career breaks and demand a work/ processing re-engineering initiatives gest concern for the Irish regulator. tion, coupled with the geographic life balance that might sometimes be would yield savings of between 6% Overwhelmingly, administrators position of the country, is encour- at odds with the industry. and 15%. see Luxembourg as the greatest aging funds to the country. Around 9,000 people are working Both regionalisation and off- threat to Ireland’s position in the in the funds sector in Ireland. This shoring are big concerns for fund funds industry. Administrators also Growing optimism number is expected to top 10,000 in administrators, with 32% of expect the emergence of eastern Optimism is also reflected in the 2008. The IFIA in 2007 reported that respondents identifying them as a top Europe, particularly now most of revenue growth Irish administrators 75% of these employees are general issue. Regionalisation has also been these countries are EU member expect. For 2008, 75% of adminis- staff or at junior management level. a main feature of the fund adminis- states, as a potential threat to the trators estimated revenue growth of The attrition rate at these levels tration landscape over the past few longer-term prospects of Ireland’s more than 20%. ranges between 25% and 35%. years. Fund administrators have fund sector.
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Lighting up the legal sector As the hedge funds industry matures and Ireland’s importance in the global order grows, the allure of a regulated market is attracting more alternative asset managers to the country. This is good news for Ireland’s legal community, which has built up skill and expertise over the years in this sector
Ireland’s lawyers are increasingly “The key attractions Dublin offers documents are in order before sub- kept a close eye on the process and occupied with hedge fund business. as a domicile,” says White, “are an mission — has been slashed from through spot checks has found that Dublin is looking attractive as a EU-regulated jurisdiction and a tax- eight weeks to 24 hours. “That the quality of applications is strong domicile for hedge funds looking to efficient regime. It offers regulated makes Ireland much more com- and good. Now that the process is attract investors who prefer a regu- hedge funds a flexibility of struc- petitive and at the same time gives less of an unknown, Barr expects lated market. Many fund managers tures, strategies and products that speed to market in a regulated envi- more people to consider an Irish are opting for an Irish domicile or have the badge of being in an OECD ronment,” notes White. regulated fund as opposed to an a Ucits III product. For lawyers this member state but at the same time are White believes the proactive unregulated structured vehicle. “It means more work. capable of being authorised within nature of Ireland’s fund business will is easier to sell to investors. The per- Law firms are needed to produce a very short time frame. An added continue to attract new business as ception is of quality. Promoters look and check many documents, register advantage is the possibility of listing well as push the regulator to be open at Ucits III and see a product that is the service providers, deal with the on the Irish Stock Exchange (ISE).” to new products and innovation. easier to sell to insurance companies Irish Financial Regulator and ensure White explains that funds domi- Michael Barr, a partner at A&L and pension funds. They have the all the service providers are author- ciled in the Cayman Islands, Bermuda Goodbody, agrees that Ireland is potential to passport the product ised by the financial regulator. Reg- and other non-regulated jurisdic- becoming more attractive to hedge throughout the EU. This is a com- istration in a regulated market, and tions have always sought listings funds seeking institutional funding pelling proposition,” says Barr. particularly in an EU jurisdiction, is on the ISE. He expects the numbers where a regulated fund is essential. Changing market conditions, increasingly important for investors. to increase in the coming months as Both the qualified investor fund and believes Barr, mean Ireland should Pension funds and insurance com- more investors ask for the comfort of Ucits III products are popular. Barr see more funds opting for a regu- panies in particular are restricted some measure of regulation for the points out that a regulated OECD lated environment, particularly if by their own rules to investments funds in which they invest. country that is also an EU member investor perception and preference only in regulated products, explains Until Ireland introduced a fast- combined with the ISE listing option is for more, not less, regulation. Mark White, a partner at McCann track procedure for fund registra- is a strong proposition for estab- Hilary Griffey, a partner at law FitzGerald. He says many investors tion, its competitive edge compared lished and new funds looking to firm Maples and Calder, has already who have opted for non-regulated with the Cayman Islands and other raise capital. seen a trend towards onshore funds. funds are now becoming nervous ‘regulation-lite’ jurisdictions was He also agrees that the new “Ireland doesn’t have a re-domicile and turning to listed products or blunted. Now the waiting time for approval process has worked well, concept so we can’t just move a fund funds in regulated domiciles. authorisation — as long as all the pointing out that the regulator has vehicle itself to Ireland from, say, the
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momentum from the market turmoil Ireland, she points out, is open to the traditional long-only institu- means more funds are seeking regu- the funds business. The regulator tional managers are moving into lated environments. “We are getting understands this highly complex the alternative investment area. The numerous enquiries about existing financial area and has the skill and traditional investor profile for hedge offshore products that now need expertise to understand new prod- funds – a high-net-worth individual an onshore piece to the structure. ucts that are being devised. Ireland with an appetite for risk and finan- The perceptions in the market have is already considered within the EU cial savvy – is also changing as changed. Investors and institutional to be an expert on hedge funds and more pension funds and insurance investors increasingly want that together with Luxembourg leads companies enter the market. intangible comfort of a regulated discussions at European level on What Ireland offers, points out jurisdiction, particularly if some- how to extend formal or self-regu- Griffey, is a real alternative to the thing goes wrong,” notes Griffey. lation without cramping the inno- non-regulated jurisdiction for both The fund market is about percep- vative nature of the business. investment manager and investor. tion, explains Griffey. With inves- “In general terms I see Ireland There is a flexibility of investment tors it is about the ‘smell’ test. If becoming much more attractive to strategy, borrowing and leverage as an investor thinks regulation is too alternative investment fund pro- well as speed to market. For inves- light or not quite up to standard, viders, primarily as a result of the tors there is a respected regulator michael barr, A&L goodbody they may opt for an established clichéd but true ‘institutionalisa- that keeps a close eye on the sector. regulated domicile such as Ireland. tion’ of the alternative investment Overall, the legal community in Ire- Pointing out that there is nothing space, both in relation to the pro- land is confident of Ireland’s ability Cayman Islands. But we are seeing wrong with the Cayman Islands viders and the investors in the area, to continue to attract and increase promoters setting up parallel Ucits and that it is a well-run, good juris- and also given that Ireland can now the number of funds setting up in the and non-Ucits vehicles here. It’s not diction, it is perceived differently by offer an optimal vehicle in terms of country. With this will come not only quite a flood, but the numbers are many institutional investors. Some flexibility and speed for alternative more business for the legal sector, growing,” she says. are constrained by having to invest managers,” says Griffey. but also a growing base of experi- Griffey says there are a number of only in OECD products. Others Long-established traditional ence and expertise that will be hard factors driving this trend and Ireland want the reassurance a regulated hedge fund managers are them- to replicate in Europe or any other is the beneficiary. The additional environment gives. selves becoming institutions while emerging hedge fund jurisdictions.
market share rankings domiciled funds market share rankings combined funds
Dillon Eustace Dillon Eustace
A&L Goodbody A&L Goodbody
Arthur Cox Arthur Cox
William Fry William Fry
Matheson Ormsby Prentice Matheson Ormsby Prentice
McCann FitzGerald McCann FitzGerald
LK Shields 2005 LK Shields 2005 2006 2006 Mason Hayes and Curran Mason Hayes and Curran 2007 2007 Maples and Calder Di erence Maples and Calder Di erence -100 0 100 200 300 400 500 600 700 -200 0 200 400 600 800 Domiciled Funds Combined Funds Source: Fitzrovia Dublin Fund Encyclopaedia 2007 Source: Fitzrovia Dublin Fund Encyclopaedia 2007
Combined market share ranking by assets as at 30 JUNE 2007 Rank Company name Assets in $ By % Fund number By % 1 A&L Goodbody 320.21bn 26.06 930 27.27 2 Dillon Eustace 265.15bn 21.58 900 26.39 3 Matheson Ormsby Prentice 251.51bn 20.47 469 13.75 4 William Fry 209.86bn 17.08 369 10.82 5 Arthur Cox 142.53bn 11.60 410 12.02 6 McCann FitzGerald 30.10bn 2.45 263 7.71 7 LK Shields Solicitors 6.10bn 0.49 50 1.47 8 Maples & Calder 2.39bn 0.19 14 0.41 9 Mason Hayes & Curran 938.24m 0.08 5 0.15 Total market size for Dublin $1,228.72bn 3,410
Source: Fitzrovia Dublin Fund Encyclopaedia 2007. Includes both domiciled and non-domiciled funds serviced (administration or custody) in Dublin.
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023-030_HFR_0608.Ireland.indd 25 5/6/08 16:06:46 ifia Irish fund organisation seeks growth through innovation Ireland’s industry works to keep the country at the forefront of the fund sector. Close links with government and international organisations help maintain Ireland’s postion in the global market
Gary Palmer, chief executive of the lations and operating conditions for To grow Ireland needs to leverage sure Ireland retains its dominant Irish Funds Industry Association the Irish fund industry. off the expertise and experience it position within the industry. (IFIA), is one of the best advocates The IFIA has already helped to has. The perception, says Palmer, is The organisation is also involved for Ireland’s growing funds industry. influence the development of Ire- that Ireland is the jurisdiction where in promoting education and He sees his role and that of the asso- land’s regulatory and legislative hedge funds growth is fastest. industry-specific training. Through ciation as a “driver of engagement”. framework for the fund industry, “To get a sense of how mature its members it has become involved “There is huge potential for the most notably in its efforts to secure the industry is in Ireland you only in defining market practice by devel- alternative investment industry in fast-track, one-day fund approval need to look at the number of new oping policy and guidelines. Ireland. We need to continue to col- (see article, page 10). companies setting up and the con- The association raises the profile laborate and foster the sense of all Palmer defines the organisation’s solidation that is taking place within of the industry, helping to make the stakeholders working together,” role as a facilitator. He helps the var- the industry. The maturity of the Ireland the prime domicile and serv- says Palmer. ious members work and engage with industry, combined with the estab- icing centre for international invest- He believes Ireland’s success as different government departments, lishment of new companies in the ment funds. a funds jurisdiction is in large part not just the financial regulator, and alternative investment area, helps The IFIA helps to keep the due to the financial regulator, which interact with other organisations at a to develop and promote alternative industry at the cutting edge of he describes as “strong and flex- national, European and global level. investment expertise.” global developments by providing ible”. He believes Ireland’s respected The IFIA engages with the Irish Fox agrees. He says the envi- industry policy, guidance papers position as a jurisdiction is based on government and supervisory bodies, ronment is changing. Many funds and technical briefings. its well-regulated market, which has including the finance and enterprise established in the “lighter touch” The IFIA helps the industry define created a stable environment for the trade and employment departments, regulation jurisdiction of the Car- best practice in complex areas such hedge funds industry. the financial regulator and the Irish ibbean are looking at regulated as compliance, valuation, accounting, “We have a good regulator that is Stock Exchange. environments. He believes the Irish share dealing and registration. strong and flexible. We have speed “The decisions given by the regu- qualified investment fund under There is considerable interaction to market. The future viability of lator are not always the decisions the which most hedge funds are created and representation at a European any international fund jurisdic- industry would have preferred. How- is perceived as a viable alternative level and the organisation co-oper- tion is to anticipate future needs, ever, the regulator is approachable, to offshore domiciles. ates closely with European partners. respond to those requirements and available and willing to sit down and Palmer notes Ireland’s fund It engages in policy discussions with produce the enhancements for the engage with the industry. The regu- industry is diversifying. The finan- the EU Commission and Committee jurisdiction that are needed to keep lator will always give reasoned and cial regulator is keeping pace with for European Securities Regulators it at the forefront of international measured consideration to all the pol- the competition. The fact that Ire- and is a member of European Fund competition,” says Palmer. icies it issues,” adds Kieran Fox, IFIA land has led the way in the develop- and Asset Management Association. The organisation, with head- director, business development. ment of Ucits III funds and offers Globally, the organisation repre- quarters in the heart of the inter- Although the regulator might flexibility is widely recognised. sents the Irish funds industry. national financial services centre in have a different mandate and Both the industry and the regu- Through links with the National Dublin, has been representing the approach, Palmer says the industry lator have had experience with alter- Investment Company Service Asso- funds industry in Ireland since its works together to keep Ireland in native assets, which places them in a ciation, the IFIA ensures training inception in 1991. Members include the forefront of the fund industry. position to understand the needs of and educational initiatives are com- custodian banks, administrators, “We recognise that we want the the industry and react quickly and petitive in a global context. managers, transfer agents, fund pro- same thing: a vibrant industry. To appropriately when new structures Palmer believes the IFIA will moters and professional advisory achieve that, we have established a are needed or innovative funds are continue to play a vital role in the companies including auditors and good working relationship with all being offered to investors. Diversifi- development of the funds industry the legal profession. the key stakeholders.” cation, says Palmer, is as important in Ireland. “We will attempt to The IFIA works with government The IFIA’s engagement with the as flexibility. ensure the legislative and regulatory and industry committees to ensure government is through a formal Palmer sees the IFIA as the cata- environment continues to evolve, the fund industry’s voice is heard on structure designed by the prime lyst that helps government and the reflecting both market requirements important issues. It has a number minister’s office. Palmer says all the regulator to facilitate the indus- and anticipated demands of the of committees and working groups government departments and agen- try’s growth and development. The industry,” says Palmer. “We will not discussing issues of concern to the cies recognise the importance to expertise and the experience of the rest on our laurels. Complacency industry. These groups provide Ireland’s economy of the financial Irish fund industry is impressive, comes the day before the industry papers and presentations to the gov- services industry – the alternative says Palmer, and he believes his dies and the industry in Ireland ernment to lobby for change in regu- asset sector in particular. organisation is well placed to make cannot let that happen.”
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023-030_HFR_0608.Ireland.indd 27 5/6/08 16:06:49 audit Irish audit expertise fuels demand for Big Four firms Ireland’s Big Four accountancy firms enjoy unrivalled success in attracting hedge fund business. As the profession looks forward to the challenges facing alternative asset management, all are confident of increased interest in Ireland- based services and expect continued growth in the sector
Ernst & Young’s Dublin audit prac- estimates it conducts audits on the “There is a definite slowdown. sion of the industry has been tice boasts eight partners, six of vast majority of major hedge funds We do not expect fund launches to focused outside Dublin, with a which are in asset management, operating globally. pick up until the second half of the growing fund industry now seen mainly hedge funds. According MacManus believes the com- year when there is a possibility of throughout Ireland, tapping into to Eoin MacManus, partner and pany is well placed to continue to liquidity improving and investors local universities and new labour. head of audit, Ernst & Young has attract the larger funds as clients. becoming more comfortable with He says this will help improve a dominant market share, per- He confirms that in the first half of allocating their assets into the alter- the stability of the industry where forming audits on 12 of the top 20 2008 launches of the big funds has native market. But the beauty of high staff turnover rates were a hedge funds by assets under man- slowed, although small and medium- hedge funds is that they look at the growing concern. agement in the world. The firm sized fund launches continued. market and see opportunities. They love market volatility. Too little vola- Solid base Competition between firms for audit work tility and they don’t make the sums Aidan Tiernan, partner at the firm, Among Dublin’s accountancy firms, PricewaterhouseCoopers has they want. In the markets we have at and MacManus agree the trend by maintained its lead across all funds audited as at June 30, 2007, with 1,931 present they will see definite oppor- the fund industry to move outside funds serviced in Ireland according to figures provided by Lipper Fitzrovia’s tunities,” says MacManus. Dublin has also helped lower costs. annual Ireland Fund Encyclopaedia. In second place is KPMG with 1,237 Looking to the future, MacManus Spreading the industry around funds, followed by Ernst & Young (979), Deloitte & Touche (445) and Grant believes there are challenges for the country gives a solid base for Thornton (137). Ireland. It has established itself future development, believes Mac- The survey, however, includes funds domiciled in Ireland and offshore. as the dominant locality for hedge Manus. He says in future the chal- According to estimates from Ernst & Young, it predominates in the fund administration world-wide. He lenge for the hedge fund industry in offshore sector, performing audits on an estimated 75–80% of hedge expects the management expertise general will come from the Middle funds in the world accounting for the vast majority of assets under found in Ireland to be able to deal East, which is trying to develop a management. with the increasing complexity of financial services centre like Dub- The Lipper Fitzrovia figures also make no distinction between hedge products and the development of lin’s, and from Singapore as well as funds and long-only, property, commodity and private equity funds. new ones. possibly from the new East Euro- Over the past five years, expan- pean members of the EU. He also
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points to emerging markets such as Institute Ireland – it does not rest of industry discussions for some sector is of growing importance. Its India, where offshoring activities on its laurels. Training and devel- time, they predict. While some sig- yearly survey of fund administra- and cost advantages may also chal- opment is integral to PwC’s human nificant changes to both the inter- tors (see article, page 20) highlights lenge Ireland. resources and Alexander points to national and US accounting rules the dominance of the sector within Both MacManus and Tiernan the fact that there is an attarctively should help increase transparency financial services and its potential say Ireland will have a tough fight clear career path. and boost risk management, valua- for the future. He believes the flex- on its hands with Luxembourg for She agrees with others in the pro- tion remains a problem. ibility and experience of the Irish supremacy of the regulated fund fession that the hedge fund sector is At Deloitte & Touche Chris- Financial Regulator with hedge and Ucits product market. Although an exciting industry for accounting tian MacManus, director of audit funds gives Ireland a competitive Ireland is seen as a centre of excel- firms. The skills and expertise services is equally bullish about advantage that should continue. lence and has certainly reached needed to service this growing, inno- Ireland’s dominance of the hedge Ireland’s real competitive critical mass for non-Irish products, vative sector of financial services is fund industry in general. He says advantage within the hedge fund both believe Luxembourg will be a considerably different to other audit both Ucits III and the coming sector, he thinks, is its depth of competitor in future. “Ireland has techniques. She believes the fast Ucits IV have transformed the knowledge across the whole gamut built up a formidable reputation as pace will be particularly attractive regulated product landscape in of fund strategies and products. a place that can deal with invest- to many in the profession. Europe. Institutional investor appe- MacManus says it is a huge comfort ment products, particularly the Ken Owens, partner, assurance/ tite for these products, in which Ire- to asset managers to know that in accounting and valuation issues, business advisory services at PwC, land has already established itself Ireland accountants, fund adminis- which are of great concern, as well agrees there are many opportunities as a market leader, is substantial, trators and other service providers as providing effective support,” for accountants in the hedge fund says MacManus. have depth of knowledge and concludes Tiernan. sector. He says that over the past MacManus points out that understanding of the industry built year more institutional investors Deloitte believes the hedge fund up over the past 10–15 years. Bullish for the future have begun to look at alternative At PricewaterhouseCoopers (PwC) investments. He expects this group, Side pockets stitched up Olwyn Alexander, partner assur- and traditional investors, to put con- Side pockets, where hedge funds keep illiquid assets separate from the ance/business advisory services, is siderable money into the industry portfolio of the fund or sub-fund, can be a useful way to ensure equality also bullish about the future pros- over the coming years. of treatment of shareholders where illiquid assets are held while also pects for Ireland’s fund industry. A He points to Ireland’s growing segregating and/or eliminating valuation difficulties, according to Hilary big part of PwC’s practice in Ireland attractiveness as a hedge fund Griffey, a partner at law firm Maples and Calder. relates to the hedge fund industry. domicile and is confident the firm She notes that the Irish Stock Exchange permits the use of side pockets The firm has also opened a satellite will also continue to support the by listed funds and has done so for some years. But the Financial Regulator operation in Kilkenny to be close industry in Ireland. only permits the use of side pockets on a case-by-case basis. It has now to fund administrators as well as Another major player in the hedge published policy on the subject. higher educational institutions, fund arena is KPMG. According to According to Griffey an industry submission from the funds industry (via which the firm sees as a good source Darina Barrett and Garrett O’Neill, the Irish Funds Industry Association) advocating the use of side pockets of new recruits. both partners in financial services for qualifying investor funds (QIFs) is with the regulator. It is asking for A big part of the annual audit audit, the firm has a good share of clarification of existing policy. work is fund-related, says Alex- the auditing and accounting work The idea is to find out what the regulator’s views are on how best to ander. With more than 30% of carried out in Ireland. It boasts full deal with illiquid investments of QIFs and to request the regulator to allow global hedge fund assets adminis- specialisation of all the alternative the use of side pockets for these vehicles. The industry submission makes tered in Ireland, she believes this funds and is equally expert in the the case that the use of a side pocket in certain circumstances is in the best work will continue to be a corner- private equity, property and other interests of the investors in a QIF. stone of the industry’s growth. specialised funds. Alexander is also an advocate for Ireland as a base for hedge fund New talent Valuation concerns focus on illiquid assets activities. She and others at PwC Like the other Big Four firm, KPMG Valuation issues are top of the list of concerns for the investment are involved with the Irish Funds has seen a steady influx of new management industry. Auditors are increasingly looking at how valuations Industry Association as well as with talent into the industry. Barrett says are made for assets contained in portfolios of hedge funds. The worries the Alternative Investment Manage- financial services is expanding and particularly concern illiquid instruments but also extend to many varieties of ment Association and International expects the opening of Northern Ire- assets that are considered hard to value. Organisation of Securities Commis- land as a source of labour to be par- A paper boosting awareness of the requirements of International sions work on questions of major ticularly beneficial to KPMG which, Financial Reporting Standards (IFRS) on determining fair value for financial concern such as valuation, due unlike the other accountancy firms, assets and liabilities and related disclosures was issued by the Global Public diligence and the calculation of net operates its partnership cross both Policy Committee, made up of the world’s six largest accounting networks. asset values. jurisdictions. Under IFRS (IAS 39), fair value is defined as “the amount for which an An initiative with Swift looking at She estimates that KPMG has asset could be exchanged, or a liability settled, between knowledgeable, automated settlements for fund of around a 27% total market share of willing parties in an arm’s length transaction”. hedge funds buy/purchase transac- the funds business, with more than A number of initiatives have been launched recently looking at this tions is another area where the firm half of that made up of non-Irish issue and how the industry – including managers, prime brokers and is involved. domiciled funds and with the largest fund administrators – can together start working on a standard model Like others in the industry, Alex- proportion of work coming from for pricing illiquid and other assets. Audit firms are expected to also be ander is concerned about the indus- hedge funds rather than mutual interested in these moves. The question of imposed regulation, particularly try’s ability to attract and retain funds. Barrett agrees with others from the US, is an open one. In Europe it appears unlikely that the EU will graduates and new recruits to the that the fastest growth is within the tackle this issue through legal requirements, preferring instead a best hedge fund industry. While PwC is hedge fund sector. practice approach. confident of its ability to continue Both Barrett and O’Neill agree Accounting and valuation issues will continue to engage the minds of to attract and retain graduates and that valuation is one of the biggest administrators, fund managers, auditors and regulators. Ensuring a standard staff – it was also voted the “best headaches for the industry. Who is approach or agreement on how and what pricing models should be used company to work for in Ireland” responsible for and how valuations will be hot topics for the industry over the coming months. in 2008 by the Great Place to Work are carried out will be at the centre
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023-030_HFR_0608.Ireland.indd 29 5/6/08 16:07:36 stock exchange ISE earns respect of hedge funds The Irish Stock Exchange is recognised globally as the leading centre for listing investment funds. Sound regulation and a good reputation continue to make Ireland the listing exchange of choice
The Irish Stock Exchange (ISE) rienced personnel specialising in once listed, they must abide by the was the first exchange to list hedge investment funds. Clear rules ensure rules. Funds that do not play by funds. “We were trailblazers,” a consistent and pragmatic approach the rules could be suspended or remembers Roseanne Kelly, head to the documentation needed to list. delisted. Kelly says directors usu- of investment fund listing at the The exchange is known for its flex- ally see what is coming and delist exchange. She is enthusiastic about ibility and speed, without any loss the security before the exchange the ISE’s future and believes the of quality or regulation. acts. When a fund is suspended or exchange will continue to grow. The staff’s experience makes it delisted the reasons for the action The ISE has been listing invest- possible for the ISE to turn around are made public. ment funds since 1989 and now has all documents submitted to the Post the subprime crisis and over 800 new funds and sub-funds exchange within five working days credit crunch, Kelly believes the listed each year. “We are the first for drafts and two business days for ISE will emerge unscathed. “Our or predominate choice for funds,” subsequent drafts. The exchange rules and requirements are robust confirms Kelly. She points out that also has a fast-track service that enough to withstand challenges, listing is a way for offshore funds halves the speed of turnaround. particularly in relation to diver- to gain a foothold in the regulated Costs are competitive too – listing sification.” She believes that, as a markets and move onshore. This fees average around €5,000. member of the Committee of Euro- is particularly useful for funds of Kelly’s staff are familiar with pean Securities Regulators, Ireland hedge funds, for which there is a the broad range of hedge funds has an important role to play. growing appetite in the institu- and mutual funds and with the A key aspect of Kelly’s work is tional investor market. myriad strategies they employ. She networking with other regulators in The exchange includes funds believes the ISE’s expertise allows and outside Europe. “Information ROSEANNE KELLY, IRISH STOCK EXCHANGE from almost every major fund domi- it to understand new and unusual gathering, networking and building cile and has had extensive experi- funds and to spot key issues that relationships is important,” says ence with many types of investment could affect the industry. funds market to such investors and Kelly. “We make judgements on vehicle structures and products. Funds from unregulated juris- also often enhances a fund’s pres- policy, strategy and macro players The exchange has listed hedge, dictions often choose to list on the tige and profile. based on this knowledge. We work feeder, multi-manager and prop- exchange. A listing on the ISE Although originally merged within a global environment but erty funds and funds investing in increases a fund’s potential investor with the London Stock Exchange, this is still a small community and venture capital, emerging markets base and often gives institutional since 1995 the ISE has been a fully we are able to keep close contacts. and derivatives. It has begun listing investors that are restricted or pro- independent limited company. As “We are always looking at oppor- Ucits III-compliant products linked hibited from investing in unlisted Ireland is both a member of the tunities. We have certain advan- to hedge fund indexes and is open to securities the comfort and secu- European Union and an OECD tages, such as infrastructure and new structures. rity of a recognised and regulated nation, it applies standards of regu- scope and see ourselves as a spe- Kelly points to her team of expe- exchange. The ISE listing helps lation to stockbrokers and listed cialist niche player with a global companies that are acknowledged name within Europe.” to be among the highest in Europe. She also believes the fund ise listings: over 60% of funds listed are alternative investment Once a fund is listed, it commits industry will continue to grow. to disclose information on a regular Although there was a slowdown 12,000 basis. Listed funds must submit in new launches of funds in the annual and interim accounts to the first half of 2008, Kelly says list- 10,210 10,000 9,630 ISE within set time limits related ings have continued as established 8,829 to the year end. Interim and annual funds are looking for a listing in a 7,816 accounts not only have to be pub- regulated market to calm nervous 8,000 lished but also must be sent to investors. She also points to the shareholders within set time limits. increase in Ucits products and in 6,062 6,000 60% Listed funds also have other dis- Irish domiciled funds seeking an 4,662 60% closure obligations. These include exchange listing. 60% Number of funds 4,000 notifying the ISE immediately of Kelly says the publication of any price-sensitive information, net asset value by the exchange, 2,000 material developments or opera- as well as other key information, tional changes that could affect the is another plus-point for funds performance or financial position and investors. She stresses that the 0 2002 2003 2004 2005 2006 2007 of the fund. exchange enforces the obligation to Source: Irish Stock Exchange Kelly admits some funds find give information to a fund’s share- the bureaucracy irksome but, holders, not to its competitors.
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031-035_HFR_0608.Ireland.indd 31 5/6/08 16:11:47 what they say about ireland What they say about Ireland
Christian MacManus, director audit services, Deloitte & Touche David Whelan, managing director, Admiral Administration (Ireland)
Ireland’s competitive advantage Ireland faces a number of chal- is its significant fund administra- lenges if it wants to remain the tion business, says MacManus. leader in fund administration He points to the “huge” depth and other services, according to of knowledge, experience and Whelan. The development of expertise the sector has built up technology and skills are needed over the years. He believes Ire- to keep the country competitive. land’s fund administration busi- He points to initiatives by the nesses understand the needs and Irish Funds Industry Associa- concerns of asset managers as tion (IFIA), aimed at attracting well as the inter-play between people into the funds industry. trustees, custodians, distributors Whelan also believes the govern- and prime brokers. MacManus ment, IFIA and the industry are also thinks the position of the addressing the challenges and Irish Stock Exchange as the main in particular are ensuring there hedge fund listing exchange is a is a pool of talented and skilled plus for Ireland. That combined people for the funds sector. Over with global administration expertise and straight-through processing 24/7 the next 10 years, he thinks Ireland’s focus will be on further development he believes gives Ireland a strategic advantage, he believes. Coupled with of what has become a mature industry. Whelan predicts a bright future for this, he says, is Ireland’s position between the UK and the US, where there Ireland, which he says is well positioned within Europe and has strong ties are strong expatriate links. As a member of the EU, MacManus sees Ire- to the US. As new markets open and money from areas like the Middle and land in a good position to generate new business from the continent. He also Far East flow into hedge funds, Ireland will, he believes, be positioned to points to Ireland’s favourable tax structures as attractive for all companies. service these new funds across all time zones.
Morgan Downey, managing director, Europe, LaSalle Global Pete Townsend, head of operations Ireland and global head of Fund Services alternative investment operations, BNP Paribas Securities Services According to Downey, Ireland has laid a good foundation over time for Townsend points to the regu- its fund services industry. He expects it to continue to expand. There will lation of Ireland’s hedge fund always be challenges for the government and government regulator, he industry as a positive advan- says. He also points to the fact that Dublin is still a “little less connected” tage. He believes Irish cus- to the front office. He sees no reason why Ireland will not be able to attract todians, administrators and more fund managers to the island. While he is realistic about competition directors as well as the legal from new and emerging fund administration centres, he thinks it would be and accounting infrastructure difficult to challenge Ireland’s premier position. built up in the country over the years, primarily in Dublin, Darina Barrett, partner, financial services audit, KPMG makes for an ideal location to launch a fund. Certainly he sees Barrett is realistic about the com- Ireland as a good place for BNP petition facing Ireland within the Paribas’s fund administration hedge fund industry. She thinks business. He sees advantages Luxembourg will continue to be in being close to clients as well a clear competitor in some areas. as others in the industry. He The Cayman Islands, British expects to see new markets like Virgin Islands and within Europe Brazil where investors are only allowed to put money into OECD funds, the Channel Islands, have the give an added impetus to Ireland. Townsend also thinks institutional inves- experience to challenge Ireland. tors will continue to demand regulated domiciles like Ireland and points to However, the physical constraints the Irish Stock Exchange’s listing supremacy as another point in its favour. these jurisdictions face do not apply to Ireland. She points to John Hamrock, consultant, Kinetic Partners the large pool of qualified profes- sionals already available and the Ireland is still the centre of fund administration, says Hamrock. He initiatives the government and believes Ucits funds will give the industry a further boost and that Ire- industry are taking to ensure a land has already established itself as a leading centre for these funds supply of suitable talent for the which have become a sign of quality within regulated markets. Ham- future. Pointing to the initiative with Northern Ireland, which would open rock also says Ireland should keep its competitive edge in future. The the whole island and extend the labour pool into the North, Barrett believes move by some fund administrators and other services to set up outside this move will help ease some of the hiring constraints some fund services Dublin has opened up the country to a larger pool of labour. This is also are facing. She thinks working with colleges and universities to ensure helping to reduce the costs of offices in Dublin. While some are looking people have the necessary qualifications and skills for the fund industry at outsourcing some functions outside Ireland, he believes the complex will help sustain growth in the future. Complacency, she says, is the greatest and client-centred services will remain in Ireland although there will be barrier to continued growth. increased competition from newcomers like Malta and possibly Poland.
32 | Ireland Supplement | June 2008 www.hedgefundsreview.com
031-035_HFR_0608.Ireland.indd 32 5/6/08 16:12:50 what they say about ireland
Hilary Griffey, Maples and Calder Olwyn Alexander, partner, asssurance/business advisory services, Ireland has a sophisticated infra- PricewaterhouseCoopers structure for fund managers and Alexander is enthusiastic about related services. It also offers the prospects for Ireland’s hedge knowledgeable, sophisticated fund future. With corporation service providers who under- tax at a low 10%, a good regu- stand the alternative invest- latory environment and a posi- ment business and who operate tion within the EU, she believes within a regulated environment. Ireland is set to maintain its pre- These are just two of the rea- dominance in the industry. She sons Griffey believes Ireland will points to Ireland’s strong man- maintain its position as the juris- agement skills base, developed diction of choice for much of the over the last 10–15 years. Ireland, hedge fund industry. She points says Alexander, has been open to out that one third of the world’s hedge funds for some time and hedge funds are administered with all the big names and top in Ireland. Not only does the hedge fund administrators oper- country provide experts in this ating out of the country, a good area, the easier route for regulated hedge funds now offered by the govern- future is likely for the industry. ment regulator is attracting more funds to the jurisdiction. Griffey says the While the industry is highly competitive, Alexander says they work well financial regulator has demonstrated an informed and pragmatic approach together within the Irish Funds Industry Association to ensure Ireland’s to regulation of alternative investments. Together with the industry, the continued success. country has developed a range of products that reflect the diverse require- ments of the marketplace and she believes this will continue in future. John McCann, managing director, Trinity Fund Administration Mark White, partner, McCann FitzGerald In Ireland fund administrators are close to the core of the business. The proximity to managers in London and Europe as well as the US has helped One of the reasons for the suc- the country’s industry grow. While he believes some administrators and cess of the Irish fund business other services may look to outsource some functions outside Ireland, he has been the proactive nature of believes the expertise and efficiency of the Irish industry will ensure the the industry and in particular bulk of operations remain on the island. the stock exchange, says White. He also points to the expertise of Gary Palmer, chief executive, Irish Funds Industry Association local providers who have helped attract funds and services to the Palmer takes a pragmatic island. White believes the finan- view of the future of the Irish cial regulator has listened to the funds industry. He believes the fund industry and while ensuring industry will continue to look the integrity of the regulatory ahead to products and struc- environment, has been able to tures that Ireland can pro- be flexible while the industry vide to the industry, working itself is constantly pushing for with the financial regulator innovation and better product to ensure the jurisdiction has development. By offering a more the most effective environment attractive regulatory jurisdiction, White sees Ireland as able to make a for those services. Palmer says case as an attractive offering without losing any regulatory protection and any international fund juris- supervision. He says the country stands out as a domicile for hedge funds. diction needs to be responsive to the needs of the industry. Dermot Butler, chairman, Custom House Administration and He believes all stakeholders Corporate Services need to work together to ensure the environment, poli- Having set up in Dublin when office space was relatively low priced, cies and overall attractiveness of Ireland for the hedge funds industry Butler believes rising costs of working in the capital city may be a chal- do not diminish. lenge in the future. He is concerned not just with the higher prices but also the strong euro against the US dollar which is also hitting fund managers. Michael Barr, partner, A&L Goodbody Butler thinks some service providers will be looking at locations outside Dublin as well as outsourcing come functions in order to keep costs down. Ireland, predicts Barr, will be able to keep its competitive edge because of the wealth of experience the industry offers, particularly in the areas of Eoin MacManus, partner head audit, Ernst & Young evaluation. He points out that Irish fund administrators are not just number crunchers, but have extensive expertise with hedge fund managers and MacManus believes it is important that Ireland continues to be able to are able to service difficult instruments as well as the more common ones. service the market. He believes both the industry and the Irish regulator The experience built up over the years, coupled with the sound regulatory are constantly looking at ways to improve and extend that environment. environment, has given the country a good reputation. Perhaps the big- Basically Ireland is a country full of entrepreneurs, says MacManus, and gest challenge will be to continue to provide skilled people to work in the these are people who are willing to consider new ideas and opportuni- industry. Like others he points to the Northern Ireland initiative as one that ties. He believes this is the kind of spirit that will keep the country in should help many service providers tap into a new pool of talent. Barr also the forefront of the industry. Coupled with the expertise and experience believes Ireland’s tax treatment of funds, particularly Irish-regulated ones, gained by the industry, including legal and accounting skills, Ireland is an advantage for the country. Together with the Irish Stock Exchange’s should remain the dominate market leader for the foreseeable future, he position as the leading exchange for listing hedge funds, he believes the concludes. country should continue to attract business in future.
www.hedgefundsreview.com June 2008 | Ireland Supplement | 33
031-035_HFR_0608.Ireland.indd 33 5/6/08 16:13:16 ireland at a glance Ireland at a glance FACTS WEATHER Official name: Republic of Ireland (Éire) The temperature remains relatively moderate Population: 4.3m (UN, 2007) throughout the year, typically ranging between Capital: Dublin 40ºF and 50ºF (4ºC–10º) in winter and 60ºF–70ºF Area: 70,182 km2 (27,097 sq miles) (16ºC–21ºC) in summer. It rains a lot and seldom Terrain: arable 10%, meadows and pastures snows. Accumulations are greatest in the west 77%, rough grazing in use 11%, and occur most frequently in the summer months. inland water 2% Storms can blow in from the Atlantic without notice. Major languages: English, Gaelic It can be sunny one minute and raining the next. Major religion: Christianity MEDIA Life expectancy: 76 years (men), 81 years Public broadcaster Radio Telefis Eireann (RTE) (women) (UN) dominates radio and TV. It provides a comprehensive Monetary unit: €1 = 100 cents service in English and Gaelic. The main commercial Main exports: machinery and equipment, TV station is TV3. Competition for RTE comes chemicals, foodstuffs mainly from British public and private terrestrial TV GNI per capita: $40,150 (World Bank, 2006) channels. Satellite stations are widely available and Internet domain: .ie there is extensive take-up of cable TV. The Irish print International dialling code: +353 and broadcast media operate freely. A commission Climate: temperate maritime appointed by the communications department ECONOMY regulates broadcasting. The Competition Authority Nominal GDP (2006): $180.7bn safeguards against unfair competition. Cross-media Real GDP growth (2006): 6% ownership is permitted with press groups allowed to Nominal GDP per capita (2006): $44,500 GEOGRAPHY own up to 25% of local radio and TV stations. Natural resources: zinc, lead, natural gas, Ireland consists of two separate countries: the Newspapers: The Irish Times (national daily), barite, copper, gypsum, limestone, dolomite, Republic of Ireland and Northern Ireland. The Irish Independent (national daily), Irish Examiner peat Republic of Ireland is an independent nation. (Cork-based daily) Agriculture (3% of GDP): cattle, meat, and Northern Ireland is part of the United Kingdom. Television: RTE (public, operates RTE 1, RTE 2), dairy products; potatoes; barley; hay; silage; TG4 (public, Gaelic), TV3 (national, commercial), wheat LANGUAGE Channel 6 (national, commercial, via cable) Industry (32% of GDP): food processing, Although English is spoken in the majority of the Radio: RTE (public, operates four networks: beverages, engineering, computer island, the official language of the Republic is Gaelic, flagship station Radio 1, pop music station 2 FM, equipment, textiles and clothing, chemicals, the Irish language. The regions in which it is the Gaelic Raidio na Gaeltachta, classical and cultural pharmaceuticals, construction primary language are referred to as Ghaeltacht station Lyric FM), Today FM (national, commercial), Trade (2006): Exports $119.8bn (excluding regions. Newstalk (semi-national, commercial) services): machinery, transport equipment, chemicals, food, live animals, manufactured materials, beverages HISTORY Imports: $87.4bn (excluding services): grains, The Irish people are mainly of Celtic origin, with the only significant sized minority descended from the petroleum products, machinery, transport Anglo-Normans. equipment, chemicals, textile yarns In 1800 the Irish Parliament passed the Act of Union with Great Britain and Ireland was an official part of Major suppliers: UK 31%, US 11%, Germany the UK until 1921. Religious freedom, outlawed in the 18th century, was restored in 1829, overshadowed 8%, China 7%, Japan 4%, France 3%, rest of by a severe economic depression and the great famine in 1846–48 when the potato crop failed. the world (including other EU states) 36% Millions died and millions emigrated, particularly to the US. In 1858 the Irish Republican Brotherhood (IRB, also known as the Fenians) was founded as a secret society dedicated to armed rebellion against NATIONAL HOLIDAYS the British. An aboveground political counterpart, the Home Rule Movement, was created in 1874, March 17 (St Patrick’s Day) advocating constitutional change for independence. Good Friday (although not officially Led by Charles Stewart Parnell, the party was able to force British governments after 1885 to recognised) introduce several home rule bills. At the turn of the century there was a surge of interest in Irish Monday following Easter Sunday nationalism, including the founding of Sinn Fein (We Ourselves) as an open political movement. First Monday in May A home rule bill was passed in 1914 but implementation was suspended until war in Europe ended. First Monday in June Padraic Pearse and James Connolly led the Easter Rising of 1916 but there was a lack of popular support. First Monday in August The British military government executed the leaders of the rebellion and threatened conscription of Last Monday in October the Irish to fight in World War I. This alienated public opinion and produced massive support for Sinn Christmas Day Fein in the 1918 general election. Led by Eamon de Valera, the elected Sinn Fein deputies constituted December 26 (St Stephen’s Day) themselves as the first Dail. British attempts to smash Sinn Fein ignited the Anglo-Irish War of 1919–21. IRISH TIME The Anglo-Irish Treaty of 1921 established the Irish Free State of 26 counties in the British Irish Standard Time (IST, Am Caighdeánach Commonwealth and recognised the partition of the island into Ireland and Northern Ireland. Although na hÉireann (ACÉ)) is sometimes erroneously supposedly a temporary measure, the six predominantly Protestant counties remained a part of the UK. referred to as Irish Summer Time Opposition to the treaty led to a civil war (1922–23) won by the pro-treaty forces. In 1932 de Valera became prime minister and a new Irish constitution was enacted in 1937. The last (Am Samhraidh na hÉireann). The scheme British military bases were withdrawn and the ports were returned to Irish control. runs from the last Sunday in March to the The government formally declared Ireland a republic in 1948. Ireland joined the EU in 1973 and the eurozone last Sunday in October each year. During on January 1, 2002. Since joining the EU Ireland’s rapid growth has transformed it from a largely agricultural the winter, Greenwich Mean Time (UTC+0) society into a modern, high-tech economy and it is now considered one of Europe’s economic powerhouses. is used.
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