FUNDSREVIEWIRELAND

DOMICILE APPEALWhy is Ireland proving such anattractive location as a fund domicile?

WHAT NEXT?How the funds industry is drivingeconomic recovery

US EDITION

TOP OF THEASSET CLASSIreland leads the way in the global

funds industry

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INSIDE THIS ISSUEFUNDS REVIEW

IRELAND

Where we are now PG 30Domicile bliss

5 Commentary from John BrutonPresident IFSC Ireland, formerIrish Prime Minister and EUAmbassador to the US

6 An Taoiseach, (Irish PrimeMinister) Enda Kenny showshis support for the Irish fundsindustry in this special articlepenned by the Irish leader

8 Ireland made huge gains in 2011 and was clearly the managers’ European domicile of choice.

11 The International FinancialServices Centre: Ireland(IFSC Ireland) from vision toreality – how it all startedalmost 25 years ago

14 Kieran Donoghue, IDAIreland, speaks about the newpartnership with the IrishFunds Industry Association(IFIA) and how the IDA issupporting the industry

16 Competition: What are thejurisdictions competing withIreland and what do theyoffer?

18 Interview: Ken Owens,chairperson of the Irish FundsIndustry Association, reveals

how the industry haschanged in the past 20years and how somethings have stayed thesame

20 Gary Palmer, ChiefExecutive of the IrishFunds Industry Association(IFIA), answers some ofthe tough questions

22 Dr Dan McLaughlin,Group Chief Economist atBank of Ireland, discussesIreland's remarkableturnaround in a year

25 Green AssetManagement: HowIreland is capitalising onalternative and retail fundsexpertise to be a globalleader in green assests

28 PWC's Ken O’Brien showshow Ireland has becomehome to mutual andalternative fund productsalike

30 Patrick Freyne quizzesindustry experts about theattraction of Ireland as afunds domicile – and thedangers of complacency

32 Where are the

promoters of Irishregulated funds from andwhere are they distributingtheir funds? Asks BrianDillon from Dillon Eustace

34 Niamh Keogh from WilliamFry examines boosts to theIrish funds industry that aremaintaining its status as aleading jurisdiction forinvestment

36 Gateway to globalisationDonal O’Sullivan from Ernst& Young on why Ireland is agateway hub for globalasset managers

39 John Ahern from KPMGexplains why sovereigncredit ratings are not linkedto UCITS funds

41 Regulation options for US managers: Deirdre Power and Patrick Rooney from Deloitte check out regulation and the opportunities and threats it presents for investment managers

42 Sean Pairceir, BrownBrothers Harriam, asks ifIreland's domestic woes areleading to a regulatorybacklash

EDITORangela madden

Ireland was the managers’ domicile ofchoice in 2011 experiencing twice asmuch in net inflows of UCITS as all otherEuropean domiciles together. Irelandstood out; most European jurisdictionsfaced significant outflows. Irish domiciled investment funds passedthe €1 trillion mark – up 40% in twoyears. Ireland now administers almost €2trillion in total servicing 40% of allalternative investments. And, 2012promises to be equally busy with Irelandideally positioned to benefit from newregulations sweeping the globe.”Angela has 20 years' experience injournalism and PR in Ireland, the UKand the US, holding roles of reporter,financial correspondent, editor,group editor and New York-basedAmerica correspondent for a numberof leading business and nationaltitles. Today she runs PR and mediaconsultancy firm Tempus Mediarepresenting the interests of theIrish Funds Industry Association(IFIA) around the globe. �

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JOHN BRUTON

FUNDS REVIEW IRELAND

Before looking at Ireland’senviable internationalfinancial services sectorand, particularly, the

funds industry I would like tomake a few points about the Irisheconomy – and address some ofthose questions I get asked on mytrade missions around the world.

In Ireland’s case, the credit ofthe state itself has unfortunatelybecome entangled with that of thebanks. It would be no solution toanything to enhance the credit ofthe banks, by diminishing thecredit of the state.

Where does responsibility lie?It is spread widely.The Irish banking problem wasinfluenced by failure to preparefor the possible consequences ofthe free movement of capitalwithin Europe since 1990, and thedeep interdependence that thathas created, with all its good andbad aspects.

The main responsibility for Ire-land's plight rests with Irish insti-tutions.

Private sector institutions werefirst and foremost responsible,especially the property develop-ment industry for its reckless bor-rowing, and estate agency com-munity for encouraging thebubble.

The boards and managementsof banks for the reckless lendingshare responsibility, as do themedia, with their reliance onproperty advertising, for encour-aging people to climb the so calledproperty ladder, as if one's placeon this ladder was a measure ofone’s place in society.

The Irish economics professionhas a responsibility for, generallyspeaking, not calling attention tothe obvious unsustainability of theborrowing, and of the level of con-

struction activity, which could notpossibly have been maintained.

It is obvious that the Irish Cen-tral Bank, the Financial regulatorand Government made majorerrors.

There is a European, as well asan Irish dimension, to Ireland’scurrent problems The ECB had aTreaty based responsibility to

"contribute to the smooth conductof policies pursued by the compe-tent authorities relating to pruden-tial supervision of credit institu-tions, and the stability of thefinancial system".

It could have issued instructionsto the Irish Central Bank in respectof its supervision of Irish bankswhen it saw the explosion of creditin Ireland and the imprudent con-centration of that credit in onevolatile sector, construction.

It could also have issued instruc-tions to the central banks of theother euro area countries, whosebanks were availing of the freemovement of capital to lendimprudently to the Irish banks in away that fed the Irish property bub-ble.

Under any reading of Article 3.3,these things were the ECB's busi-ness as well as, of course, being thebusiness of the Irish authorities andthe authorities of the countrieswhose banks lent irresponsibly intothe Irish property bubble.

So, if we are to overcome the cri-sis and avoid a new one, everybodymust be self critical, including theECB and other European institu-tions.

To make that point is not toargue for Irish institutions trying toavoid their financial responsibilities.

A bond is a promise, and prom-ises should not be broken, espe-cially if one’s economy is based onthe provision of international serv-ices, in which trust is vital.

Trust plays an important role inthe fact our international financialservices centre is flourishing – peo-ple who do business here can do sowith certainty.

The same goes for our 12.5 percent rate of Corporation Tax. Thishas been a cornerstone of the Irisheconomy since the 1950s. It pro-vides certainty.

Our international financialservices business has never beenstronger perhaps demonstratingthere is a dual economy at workin Ireland – the domestic versusthe international.

Exports are at an all time high.Fund managers and promoterscontinue to chose Ireland as theirdomicile of choice because of ourpeople and their expertise, ourproduct innovation and outinternational outlook and reach.

Today more than 30,000 peo-ple are employed in internationalfinancial services in Ireland -12,000 of those exclusively infunds and growing. More than400 net new jobs were created in2010 and more than 1,200 during2011.

These new jobs are being cre-ated as funds under administra-tion here grow.

Today Ireland administersclose to EUR 2 trillion assetsfrom all around the globe. Irishfund administrators serviceassets from almost 170 countriesand Ireland’s funds industrysupports some 852 promoters.388 fund promoters from over 50countries use Ireland to distrib-ute UCITS and other funds tomore than 70 countries across theglobe. Almost all the world’smajor fund service providershave a presence in Ireland andnearly 30 languages are sup-ported.

Since the Incorporation ofIFSC Ireland in September 2010, Ihave participated in trade mis-sions to over 10 foreign jurisdic-tions to cities and countries asdiverse as Abu-Dhabi, Doha,Saudi Arabia, Dubai, Chile,Chicago, Boston, New York, Lon-don, Frankfurt, Paris, HongKong and Singapore and I lookforward to continuing to supportthe efforts of my colleagues ininternational financial servicesand the funds industry.

Perhaps somewhat ironically,while Ireland has always had theexpertise, innovation and reachdemanded by international man-agers, as costs continue to fall inIreland there has never been abetter time to do business here.

Next year IFSC Ireland cele-brates its 25th year – it just goesto show that when Ireland putsits mind to something anythingis possible. �

5

ABOUT IFSC IRELAND

IFSC Ireland has been formed bythe leading representative andprofessional bodies associatedwith International FinancialServices (IFS) in Ireland to providea common marketing platform topromote Ireland, both at homeand abroad, as a world classcentre for internationally tradedfinancial services. In dischargingits role, IFSC Ireland works in closeco-operation and partnership withkey stakeholders, existingrepresentative bodies such as theIFIA who are the foundingmembers and IDA Ireland whichhas the primary responsibility forattracting foreign directinvestment into Ireland.

FUNDS INDUSTRYthriving in irelandJohn Bruton, President IFSC Ireland, formerTaoiseach (Irish Prime Minister) and EU Ambassadorto the US, discusses the funds industry in Ireland.

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The government, that Ilead, has taken Office ata very difficult time forour country. Hard

decisions have to be made toget Ireland back to work and onthe road to recovery. However,we have made a start. When wecame to Office, we facedextraordinary challenges andwe met them head on. • Repairing our broken bankingsystem• Restore our public finances• Resuscitating our damagedinternational reputation.

Eight months later, despitedeplorable international condi-tions, we’ve made goodprogress. We’ve stabilised thebanking sector. We’ve securedlower interest rates under theEU/IMF Programme. Andeven now, international marketsentiment is improving. Obvi-ously, there’s huge work stillahead.

After three years of contrac-tion, the economy is returningto growth. Our exports continueto perform strongly - up 4% inthe first seven months of theyear, with a similar increaseforecast for the year overall.Crucially, our balance-of-pay-ments is now in surplus: a keyindicator of economic sustain-ability. Our competitiveness hasimproved and is improving.The cost of doing business hasfallen across the economy. Pro-ductivity grew last year at thehighest rate since 2002.

Despite the difficulties stillfacing us, the Irish Governmentis determined to see throughthe next round of adjustmentsneeded for the path to recovery.

International FinancialServices CentreThe International FinancialServices Centre in Ireland(IFSC) has been one of the mainIrish success stories. Celebrating25 years since its establishmentin 2012, an important aspect ofthe growth in internationalbusiness here is as a directresult our international financialservices and its largest stake-holder – the funds industry.

With close to 25 years expert-ise and experience, Ireland isproud to be one of the world’sleading locations for interna-tional investment funds. We

value its excellent reputation andrecognise its hardworking anddedicated workforce of morethan 12,000 professionals whoseknowledge is recognised world-wide.

All these factors contribute tothe continued increase in thenumber of funds and assets beingdomiciled and serviced by theindustry in Ireland.

Growth in the funds industryDuring 2010 the industry grewby over 30% with the value offunds administered rising to€1.88 trillion. 2011 has alsoproved a strong year for the Irishfunds industry with Irelandclearly the managers’ choice for

both UCITS and alternativeinvestments.

The robust regulation of thisindustry has set us apart from theothers and meant that Ireland asa domicile already has solutionswhich comply with new legisla-tion sweeping across Europe andbeyond.

On the alternative side, man-agers gearing up for AIFMD arerapidly turning their sights to Ire-land with figures for its AIFMDready Qualifying Investor Fund(QIF) performing extremely well.Recent figures from the CentralBank of Ireland show that thenumber of QIFs is at an all timehigh of 1,355 with assets alsoreaching a new peak of €173 bil-lion in November. Ireland, whichalready administers some 40centof the world’s alternative invest-ments, has seen QIF assets growin excess of 20% in the last 12months.

Equally successful is Ireland’sgains in 2011 on the retail side.

Latest statistics from Efama showthat Ireland was also the man-agers’ choice for UCITS in 2011attracting nearly twice as muchin net new assets as all otherEuropean domiciles put together.

Ireland attracted some €60 bil-lion in net assets of UCITS duringthe 12 months – most othersfaced considerable outflows. Allthis means that Ireland’s UCITSmarket share has increased to14.5% from 11.5% at the begin-ning of 2011 and more than 500%over the past 11 years.Ireland’s gains in UCITS

business were reinforced by fig-ures from the Central Bank of Ire-land at the end of 2011 whichshowed that Irish domiciled

investment funds reached arecord high, passing the €1 tril-lion mark for the first time andup some 40% from the end of2009.

Job creationJob creation is the top priority forthe Irish government. Even in adifficult economic climate thefunds industry has continued tosee a 5% growth in jobs in 2010with the creation of 432 net newpositions. It is now expected thatit will go on to create more than1,200 new valuable knowledgeeconomy jobs by the end of 2011.

I have made my commitmentto the funds industry very clear –We must ensure that the environ-ment for the development ofinternational financial servicesand, in particular, investmentfunds, continues to offer signifi-cant opportunity. This potentialcan be achieved as Ireland contin-ues to provide solutions andopportunities to the international

funds industry.The government will continue

to promote Ireland's attractive-ness as a leading funds domicilewith specific legislative frame-work and developments in thetax and regulatory environmentsall areas for consideration.

Co-operationAn important feature of thefunds industry has been the sig-nificant engagement of govern-ment with our European coun-terparts. Recent EU legislativedevelopments present opportu-nities for the European industry,where global players and largelythose in the United States seek touse a European base for their

international business. Government agencies such as

IDA Ireland and Enterprise Ire-land, stakeholders and theindustry are now working moreclosely together than ever beforeto promote and support the Irishfunds industry – at home andabroad.

The fruit of such co-operationis apparent in the new partner-ship between the Irish FundsIndustry Association and IDAIreland which has resulted in theIrish funds industry openingrepresentative offices throughoutthe US in Chicago, Boston andAtlanta, the UK in London andthroughout Asia in Tokyo andSingapore.

Islamic FinanceBuilding upon the success of theIFSC, significant inroads arebeing made into Islamic Finance.

Ireland has recognised itsimportance in the global finan-cial system through adapting our

The funds industry is playing a crucial role in aiding theIrish economic recovery. So says Irish Prime Minister,An Taoiseach Enda Kenny.

AN TAOISEACH

FUNDS REVIEW IRELAND6

AN TAOISEACHsupports irish funds industry

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FUNDS REVIEW IRELAND 7

tax system and financial regula-tory system to ensure a levelplaying field between IslamicFinance and conventional meas-ures.

The IFSC has the potential tobecome a Centre of Excellence forIslamic Finance and the changesin recent Finance Acts will sup-port its development. In addition,Ireland has been active in con-cluding double taxation agree-ments with important IslamicStates, including recently SaudiArabia, Bahrain, Kuwait and theUAE. The Central Bank of Ire-

land has also said that it is open tothe establishment of IslamicFinance institutions in Ireland andit has already authorised a num-ber of Sharia compliant funds.

When examining key funddomiciles outside the MiddleEast, Ireland now accounts for20% of the market.

Green financeAnother area there is significantpotential for growth for the Irishfunds industry is in the area ofthe ever-growing green economy.The global economy is transition-

ing towards a low-carbon, moresustainable model – which inturn means investment.

The Government is activelylooking at establishing a ‘Green’financial services centre to pro-vide the types of financial serv-ices that will experience signifi-cant growth in the coming years.

Green finance is not a nichemarket but one that is growingevery day; the Carbon market isestimate to reach $2.4 trillion paby 2020; Europe needs to invest€2.9 trillion to meet its targets inthe next decade and Cleantech is

estimated to reach $630 millionper annum by 2030.

Building on Ireland’s expert-ise in international finance andgreen enterprise combinedwith supportive tax and regu-latory regimes, Green IFSC canposition Ireland as a worldleader in green finance.

And to ensure we have theskills required into the futureto sustain growth in this mar-ket, Green IFSC has helpedlaunch a series of new coursesin sustainable finance at someof Ireland’s leading universitiesand set itself the target to upskill some 10 per cent of thosealready working in interna-tional financial services andfunds in the next few yearsalone.

Conclusion Through its continued growth,the funds industry is playing acrucial role in aiding the Irisheconomic recovery. Attractinginternational investment, creat-ing jobs, and focusing onfuture potential are central toIrish economic recovery and tothe continued success of theinternational funds industryalike.

Working together, we canensure that Ireland remains thenumber one location for allinternationally distributedinvestment funds. �

AFTER THREEYEARS OFCONTRACTION, THEECONOMY ISRETURNING TOGROWTH. OUREXPORTS CONTINUETO PERFORMSTRONGLY - UP 4%IN THE FIRST SEVENMONTHS OF THEYEAR, WITH ASIMILAR INCREASEFORECAST FOR THEYEAR OVERALL.

An Taoiseach Enda Kenny withGary Palmer, Chief Executive of IFIA,at the IFIA Annual Conference heldin the Convention Centre Dublin.

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In 2011, Ireland stood out.Ireland bucked the trendand was clearly thenumber one location in

Europe for managers.Ireland experienced the

highest net inflows of UCITSof all fund domiciles in 2011attracting some €62 billion –almost €50bn more than thenext most successful domicile.

In fact, Ireland attractednearly twice as much as all theother jurisdictions puttogether during 2011 andexperienced growth of 8%.

Domicile gainsOther domiciles which madesmall gains were the UKwhich attracted only €13bn,Switzerland €6bn, Sweden€4bn, Norway €3bn, Den-mark €2bn, Romania€0.2bnand Bulgaria €6 mil-lion.

The annual statistical report,Trends in the UCITS Market,from the European Fund andAsset Management Associa-tion (Efama) revealed that Ire-land was the exception withmost domiciles, in stark con-trast, facing significant out-flows of UCITS during 2011.

France, Italy and Luxem-bourg suffered the biggestlosses of €91bn, €30bn and€24bn, respectively.

In the fourth quarter alone,Ireland attracted an impres-sive €26bn in new monies.Gains by only four otherdomiciles were considerablyless at €3bn, €1bn, €1bn andless than €1bn.

Outflows Throughout the last quarter of2011, some 20 countries registerednet outflows.What all this meansis that Ireland continues to be thefastest growing UCITS domicile inthe world and is rapidly outpac-ing all other domiciles in terms ofgrowth.

Over the past 11 years the netassets of Irish UCITS have grownmore than 500%.

And during 2011, Ireland’sUCITS market share increased to14.5% from 11.5%, according toEfama.

Ireland’s impressive gains inUCITS business were reinforcedby figures from the Central Bankof Ireland at the end of 2011 whichshowed that Irish domiciledinvestment funds had reached arecord high, passing the €1 tril-lion mark for the first time and upsome 40% from the end of 2009.Irish authorised UCITS accountfor almost 80% of the assets of allIrish domiciled funds.

Ireland’s shareKen Owens, Chairman of the IrishFunds Industry Association, said:“These figures demonstrate Ire-

land is rapidly growing its shareof UCITS business and is clearlythe managers’ choice for 2011.

“Importantly, this also empha-sises that Ireland is able to pro-vide all the solutions to the inter-national funds industry whetherin the retail or alternative sector.”

Owens added: “We expect, thatas the world moves to embracefurther regulation such as AIFMDand FATCA, that Ireland will con-tinue to be the natural choice forfund managers. This will largelybe as a result of Ireland’s robust

regulation; its regulation-readyproduct solutions with a proventrack record and widest distri-bution capabilities; and its openenvironment with informationexchange agreements in all of itstax treaties and a policy of coop-erating in matters of tax trans-parency.”

Certainly, independent fig-ures show that while Ireland ismaking impressive gains on theretail UCITS product, it contin-ues to drive forward on thealternative side also.

It is well known that Irelandis already the world’s leadingalternative investment fundcentre servicing some 40% ofthe globe’s assets.

And, managers gearing upfor AIFMD are ever more turn-ing their sights to Ireland withfigures for the jurisdiction’sAIFMD-ready QualifyingInvestor Fund (QIF) soaring.

Recent figures from the Cen-tral Bank of Ireland demon-strated that the number of QIFshad reached an all time high of1,420 with assets also reaching anew peak of €182 billion. Ire-land, already the world leaderin alternative investments, hasseen QIF assets grow more than20% in 12 months and 35% in2010.

Asset managementToday, Ireland services a total ofalmost €2 trillion in assets, anincrease of more than 30% in thelast two years.

All this growth in businessmeans the Irish funds industryis playing an increasinglyimportant role in Ireland’s econ-omy creating more than 1,200net new jobs throughout 2011and has the continued supportof Government which is ensur-ing Ireland is best positioned inthe funds industry globally.

And, as the world gets readyfor the raft of new regulationssweeping the globe such as theAIFMD and FATCA – bothlikely to precipitate movesonshore – Ireland is sure toattract further interest from pro-moters and managers aroundthe world.

Ireland is becoming the obvi-ous choice for many with itsregulation-ready products andsolutions like the QIF, whichhave proven track record. Thefigures tell us so. �

DOMICILE GAINS

FUNDS REVIEW IRELAND8

IRELANDdomicile of choice in 2011Ireland made huge gains in 2011 and was clearlythe managers’ European domicile of choice,writes Angela Madden.

FranceGermanyIrelandLuxembourgSwitzerlandUnited Kingdom

-90.9

-3.7

61.6

-23.7

6.313.1

UCITS Net Sales for 2011 (EUR bn)

WE EXPECT, THAT ASTHE WORLD MOVESTO EMBRACEFURTHERREGULATION SUCH ASAIFMD AND FATCA,THAT IRELAND WILLCONTINUE TO BE THENATURAL CHOICE FORFUND MANAGERS

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Smart ideas often takeshape in hard times.Three decades ago, thenotion that Ireland, then

seen as a recessionarybackwater, could be any sort offinancial hub was the stuff ofscience fiction.

The idea that became theIFSC was first proposed at adinner at the Shelbourne Hotelin the mid-eighties at whichthen Minister for Labour RuairiQuinn was seeking solutions toIreland’s seemingly intransi-gent unemployment problem.The dinner included a numberof prominent business leadersof the day, Pat O’Mahony thenof AIB, John Fanning fromMcConnell’s Advertising and,of course, Dermot Desmond,and many ideas were thrownabout (most left to the dustbinof history). Desmond proposedthe idea of developing a finan-cial hub in Dublin and beforethe party adjourned to KittyO’Shea’s pub, he promisedQuinn’s advisor Greg Sparksthat he would write up a moredetailed proposal.

That could have been the endof that. Desmond’s proposalended up on a department shelf

as the Fine Gael/Labour coalitionfocused on other strategies. ButDesmond ended up tellingCharles Haughey about the ideaand the report and the Fianna Failleader was intrigued. With theadvice and assistance ofDesmond, he put the basic outline

into Fianna Fail’s 1987 electionmanifesto, and the rest, accordingto business lore, is history.

It wasn’t so simple at the time.“When the manifesto was pub-lished, commentators generallyderided the concept,” Desmondlater wrote, and Willie Slattery,

the Irish head of State StreetBank, also recalls the naysayers.“Nearly everyone thought itwouldn’t work,” he says. “Obvi-ously the people involved werecommitted to it and would haveexpressed confidence that itwould have worked, but otherswould have been very scepticalas to whether anything wouldcome of it.”

Nonetheless, despite the criti-cism, the Haughey governmentwent ahead with it. They quicklyestablished a committee of poten-tial stakeholders to oversee theenactment of the plan and anoutline of the project was subse-quently included in the FinanceBill. Slattery, a Central Bankemployee at the time, was on thiscommittee. “I had a very openmind,” he says. “Anything thatcould attract business and jobsseemed good from my perspec-tive so I was all for it.”

But it was slow. “We had todevelop various types of infra-structure - regulatory infrastruc-ture, tax infrastructure, legalinfrastructure – all to support thedifferent types of companies thatmight have had interest in set-tling in the IFSC,” he says. “Infact, for the first three years there

FUNDS REVIEW IRELAND 11

ONCEupon a timein the 80sPatrick Freyne explores the originsand the history of the IFSC.

HISTORY

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HISTORY

IFIA IYUVHV12

was no regulatory law. Regula-tion was by agreement and, bythe way, every company agreedto be regulated. No one could geta tax certificate if they weren’tapproved by a certification advi-sory committee chaired by theDepartment of Finance. Compli-ance with the Central Bank’s reg-ulatory requirements was put inas a condition on their tax certifi-cates.”

The first companies to arrive,according to Slattery, were “aneclectic set of banking and lend-ing type activities attracted bythe 10% tax rate” but progresswas slow at first. “One wellknown UK bank had 700employees in Jersey alone,” hesays. “That was more than every-one down in the IFSC at the time.Some people were disheartenedby this, saying ‘well we’re notthat substantial’, but I nevershared that opinion. I alwaysthought we were makingprogress.”

Nowadays the attraction of theregion is clear (a good taxationand regulatory regime coupledwith a cluster of companies and askilled work force creates its ownmomentum) but for the firstcompanies to arrive down to theempty dockland, it was a bit of agamble. According to Slatterythe original pioneers camelargely due to a compelling salespitch from a trio of ambassadors.“The troika, the ‘three wise men’as they were called. We sent themout to convince people interna-tionally that Ireland was a goodplace to do business and they didthat job very well. Dublin wasnot then the exciting place it’sbecome. It was regarded as quitea poor city. So we didn’t have alot of natural attraction at thetime. It was only when peoplecame in and discovered that theycould do good business here thatwe slowly established real scaleand we started to become one ofthe most important jurisdictionsin the world. Back then Dublinreally had to be sold to people.”

Slattery also notes that IrishAmerica had a part to play in theearly days. “Some of the individ-uals who committed early on hadstrong affiliations with Ireland,”he says. “When no-one has any-thing, when you don’t have anyobvious reason to be an outlier

from the herd and persuade anorganisation to put a business ina new jurisdiction without atrack record you’d have to havesome very strong convictions. Itwas noticeable that some of thepeople who did so were IrishAmericans who had strong affili-ation with Ireland, who were, touse the fashionable term, of thediaspora.”

There were, of course, otherattractions once people got toknow us. Ireland had a highlyeducated, cost-effective workforce, business-friendly policymakers and regulators and itwas an ever flexible environ-ment in which to work. Thisflexibility even manifested inhow the vision for the IFSC itselfchanged. In the early days manyhad envisioned the area couldbecome a front-office style oper-ation for the financial sector, butit soon became clear that it wasmuch more attractive as a back-office location (“Traders wantedto be in a big city like London,”notes Slattery).

The first funds industry out-liers arrived in 1989 and by theearly to mid-nineties, the indus-try started to gravitate towardsthe city in earnest. RachelTurner, BNY Melon’s Head ofIrish Funds, began working forLGT Asset Management as agraduate in 1992 and experi-enced first-hand the develop-ment of a generation of skilledfund industry professionals.

“For a business graduate inthe early 90s it was fantastic,”she says. “There were very fewjobs available and there weren’tpreviously any real industriesfor finance graduates to earntheir trade in. LGT was one ofthe first fund administrationcompanies to relocate their busi-ness from the UK to Ireland andI was one of 25 graduates thatthey took in. You could seestrong finance graduates learn-ing a craft from scratch andgaining a very strong under-standing of the industry.”

Turner maintains that it wasthis early and hard won knowl-edge that enabled the industryto attract and facilitate morecomplex financial products.“Having that core operationalknowledge has ultimatelyserved Ireland really well,” says

Turner. “We learned and under-stood the core of how a fundwas constructed. We learnedabout funds at a fundamentallevel. It made it really easy forthe Irish industry to deal withmore complex structures and tobranch into alternatives andhedge funds.”

By the late nineties, thisincreasingly more skilled work-force began to service the hedgefund industry in Ireland for thefirst time. Furthermore, thecountry was also, at this point,in the midst of a major eco-nomic boom. “The boom was amixed blessing, really,” saysSlattery. “The fact that the citywas growing and that there wasa buzz around the place wascertainly an attraction for somebusinesses. But it also hurt us interms of cost competitivenessand that was a very big draw-back.”

The special 10% tax rate alsocame to an end in 2002, butover the past couple of yearswith costs being reigned in anda steady stream of good newsstories about jobs in the sector,Slattery feels that the industryis still in a good place. He wor-ries, however, about how knee-jerk regulatory policies mightaffect the sector in the futureand hopes that policy makerswill stay true to the business-friendly vision set in place overnearly 25 years ago. “Thewrong sort of regulation is avery real danger,” he says. “Wecan’t lose sight of why thisindustry was so successful herein the first place.”

All in all, the level of this suc-cess is something that even Slat-tery, open-minded as he was,didn’t envision at the outset.“The proof of the pudding wasdefinitely in the eating andevery sceptic was eventuallyforced to change his or hermind because of the amount ofreally good jobs that were com-ing into the country,” he says. “Iwasn’t a sceptic. I was opti-mistic, but even I never envi-sioned that we’d end up with5000 firms and 30,000 peopleemployed in internationalfinancial services around Ire-land. I did not expect that levelof success. It’s been a superbachievement.” �

“NEARLY EVERYONETHOUGHT ITWOULDN’T WORK,” HESAYS. “OBVIOUSLYTHE PEOPLEINVOLVED WERECOMMITTED TO ITAND WOULD HAVEEXPRESSEDCONFIDENCE THAT ITWOULD HAVEWORKED, BUTOTHERS WOULDHAVE BEEN VERYSCEPTICAL AS TOWHETHER ANYTHINGWOULD COME OF IT.”

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Over the past 40 yearsIDA Ireland has built asuccessful track recordbringing foreign direct

investment to Ireland and 2011has been no different with theorganisation set to achieve itsambitious investment targets forthe year, with over 130 newinvestments secured.

A large factor in IDA’s successover the years has been its stronginternational presence; as aninternational promotion agency,with offices across the globe, IDAbrings its international knowl-edge back home to ensureinvestor requirements can be metfrom Ireland.

Collaboration and partnershipare key requirements for over-seas companies and IDA hasbecome a trusted partner forinvestors, acting as a liaisonbetween the Irish governmentand industry. It is this ability tobring government and industrytogether, for their mutual benefit,which makes IDA such a valu-able asset to Ireland in the mar-ketplace.

The international financialservices sector also relies on col-laborations and partnerships togrow and thrive. More than 250of the leading global financialinstitutions have establishedoperations in Ireland with manylocated in Dublin’s InternationalFinancial Services Centre (IFSC).The IFSC was created by theIrish government in 1987 andpromoted by IDA Ireland world-wide to drive the developmentof the sector and today it housesmany of the world’s leadingfinancial institutions along with asophisticated support networkincluding accountancy, legal,actuarial, taxation, regulatory,

telecommunications and otherservice providers.

The vibrant international finan-cial services sector in Ireland car-ries out a wide range of activitieswithin the banking, insurance andthe investment and funds indus-tries.

In September 2010, Ireland’sinternational financial servicesindustry in a novel private sectorinitiative created a new role, Presi-dent of IFSC Ireland, and formerTaoiseach (Prime Minister) JohnBruton, who has proved to be agreat ambassador, was appointedto the position.

IFSC has been developed andis wholly funded by a number ofindustry stakeholders includingthe Irish Funds Industry Associa-tion and the President is sup-ported in his role by IDA Ireland.

The funds industry in Irelandhas remained resilient throughoutthe global downturn and contin-ues to act as a source of well-paidemployment creating more than400 net new jobs in 2010 and anestimated 1,200 in 2011.

By working closely with theIrish Funds Industry Association(IFIA) IDA is anxious to ensureand even accelerate the continuedgrowth of the funds industry -sharing the belief that this indus-try will play a significant role inIreland’s economic recovery.

Ireland now administers morethan 40 per cent of the world’salternative investment funds andis the European domicile ofchoice, home to 63 per cent of allEuropean Hedge Funds.

Ireland also attracted more netassets of UCITS than any otherdomicile in 2011 (according toEFAMA) proving it has theexpertise to attract retail and alter-native investment funds equally.

Earlier this year, IDA and IFIAcollaborated on an internationalmedia event, the inaugural IrishFunds Media Summit, where bothorganisations actively engagedwith key European financial mediaon Ireland’s advantages as a loca-tion for funds investment.

Importantly this event broughttogether all relevant agencies andstakeholders to ensure joined upthinking in the promotion of Ire-land as a funds domicile and anend-to-end solution for interna-tional financial media queries.

In a further collaboration, June2011 saw the IFIA announce at its

annual conference that itplanned to open representativeoffices in the US and the UK in ajoint venture with IDA Ireland.The move means that the Irishfunds industry now has repre-sentatives on the ground in NewYork, Boston, Chicago, Atlantaand London for the first time.

In November, the roll out ofnew offices continued when rep-resentatives from IFIA and IDAtravelled to Singapore and Tokyowith IFSC Ireland President,John Bruton, to oversee theopening of funds industry repre-sentative offices there, utilisingIDA Ireland’s presence in thosemarkets. But this is just the startwith further new representativeoffices being planned through-out Europe in the comingmonths.

The success of the Irish fundsindustry can be seen in some ofthe key investments that havebeen made in Ireland in the pastyear. Leading global hedge fundadministrator, HedgeServ,announced a substantial expan-sion in October of this year withplans to create 300 new jobs.

Deutche Bank revealed that itis to establish its Europeanhedge fund administration cen-tre in Ireland with the creation ofup to 100 jobs.

Apex announced plans forsome 60 jobs, and Citi is expand-ing it Dublin and Waterford sitescreating 250 new jobs. AndNorthern Trust has just addedsome 200 people to its team inLimerick. These are only a fewexamples and by no means anexhaustive list.

And, showing the impact thefunds industry is having in thecreation of jobs and Ireland's eco-nomic recovery, domesticallyPWC revealed it is to hire 600new people. IDA Ireland will work hand inhand with the IFIA in 2012 andbeyond to ensure that Irelandremains the domicile of choicefor internationally distributedinvestment funds, ensure ournewly established funds teamare meeting with the managersand promoters locally in thecountries in which they arebased - and create further newjobs for Ireland in the process. Kieran Donoghue is Head ofInternational Financial Services atIDA Ireland �

IDA IRELAND

FUNDS REVIEW IRELAND14

IDA IRELAND WILLWORK HAND INHAND WITH THE IFIAIN 2012 AND BEYONDTO ENSURE THATIRELAND REMAINSTHE DOMICILE OFCHOICE FORINTERNATIONALLYDISTRIBUTEDINVESTMENT FUNDS.

WORKINGhand in hand for jobsIDA Ireland and the Irish funds industry are workingtogether to create new jobs, explains Kieran Donoghue.

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BBH

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LuxembourgLike Ireland, Luxembourg is awell-regulated European base inwhich to sell funds across multi-ple jurisdictions. Its financial sec-tor is well established, accountingfor over a quarter of its GDP andit has as stable an economy andpolitical culture as you couldhope to find. Also, like Ireland,the local policy makers are rela-tively nimble when it comes toresponding to changes in theindustry but unlike Ireland theyhaven’t faced a raft of reputationdamaging domestic issues. Lux-embourg’s biggest problem, itwould seem, is a rising cost-basewhich might put a brake ongrowth. However, 2011 hasproved challenging for Luxem-bourg which, according to Efama,has experienced net outflows ofUCITS assets of close to €25 bil-lion.

Hong Kong and SingaporeDespite the existence of thoserenowned Asian hubs, HongKong and Singapore, both filledwith financial infrastructure andexpertise, Asia-managed fundsare typically located in foreignjurisdictions such as Ireland andLuxembourg. The game-changingpotential of a strong Asian funddomicile is often discussed inhushed tones in Irish and Luxem-bourgian corridors. As yet, how-ever, Asian locations do not bene-fit from the type of cohesivelegislative environment that canbe found in Europe and so theyhaven’t come up with their ownversion of a passport-able fund…yet. But never say never.

DubaiJust as the city itself rose fromnothing, Dubai’s financial centrehas been the fastest growing

financial hub in the world (itdidn’t even exist before 2004).Well-placed to benefit from beingin a time zone between Londonand Hong Kong, it has attractedmajor international players, has azero per-cent tax on profits and aplethora of double-taxationtreaties. It has also been benefitingfrom a new trend: Middle Easternwealth, typically invested abroad,has been returning to the region.

CaymanCayman is a long established low-tax fund domicile, which, likemany others is in danger of beingcompromised by legislation fromthe EU and the US encouragingfund managers to seek more thor-oughly regulated bases (like Ire-land). Furthermore, taxes are alsoset to increase in response to itswider economic problems, and theObama administration’s antipathyto off-shore tax-havens (and in onespeech the president singled outthe Caymans in particular), whilenot necessarily having a practicaleffect on its funds industry, doeshave an effect on general attitudesto it as a financial centre.

Bermuda Historically Bermuda is one of thewealthiest off-shore fund domi-ciles, but even this British colonyis not immune to either the effectsof recession or the increasedscrutiny of international bureau-crats and populist politicians(many see it, like the Bermuda Tri-angle, as a place taxes disappear).Its political system is generallyconsidered to be calm and stable,but in the face of its economicwoes, some commentators haveniggling worries about the possi-bility of civil unrest (this is anissue historically, if not so much inrecent years). Notwithstanding

this, Bermuda remains a majorlocation for the funds industry.

Nova ScotiaCanada is increasingly pitchingitself as a centre for financialservices and funds. Positioned,as it is, in a relatively untroubledand well regulated economywith a highly educated talentpool, they have some advan-tages. The geographical proxim-ity to New York and the factoffices in Halifax open an hourbefore the New York StockExchange is also a strong sellingpoint.

The Isle of ManThe Isle of Man is relatively polit-ically and economically securebut has, in recent years, faced aslightly more prickly attitudefrom the big powerful islandnext door (it’s a Royal Depend-ency of the UK). Indeed, the UKhas cut its funding over the pastfew years and increasingly looksat its financial sector nervously.The island’s relative stabilityshould see it powering on for theforeseeable future, however.

The Channel Islands (Jerseyand Guernsey)More UK Dependents acting asoffshore centres, both Jersey andGuernsey have stable politicalsystems and well established andsophisticated financial infrastruc-ture. But they, like many otheroffshore islands, are facingincreased scrutiny from the US,the EU and the G20, not to men-tion increased oversight from UKitself. While the UK benefits fromits proximity to these off-shoreislands (arguably they attractbusiness to the City of London),it increasingly fears reputationaldamage and a bailout bill shouldeither of them suffer financialcollapse or regulatory failure.

Somewhere elseThis is a fast moving space(Dubai didn’t even exist as afinancial centre seven years ago).Regulations at home and abroadare always changing; the mar-kets are ever volatile and even aswe speak policy makers some-where are devising schemes tosuck funds and money theirway. Complacency is not anoption for those in the Irishfunds industry. �

AT A GLANCEthe best of the restSome Domiciles Next Door (and further away).

COMPETITION

FUNDS REVIEW IRELAND16

DUBAI HAS A ZEROPER-CENT TAX ONPROFITS AND APLETHORA OFDOUBLE-TAXATIONTREATIES. IT HASALSO BEENBENEFITING FROMMIDDLE EASTERNWEALTH.

1-19 IFIA:Layout 1 8/3/12 15:21 Page 16

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1-19 IFIA:Layout 1 8/3/12 15:21 Page 17

The name Ken Owens issynonymous with theIrish funds industry. It isalmost impossible to

think of one without the other.Ken started his career just asfunds were emerging in Irelandand over the past 20 or so yearsthe two have grown together instature on the global stage.

Today Ken is Chairperson ofthe Irish Funds Industry Associa-tion and a Partner at PwC Ire-land, but he admits that backthen he – or no-one else – knewmuch about funds. He recallsthat the “large black computer”that was stored in a cupboardand only able to help prepare themost basic of spreadsheets wasthe only electronic equipmentavailable at the time in the fundsindustry. In a world of Internetnews tickers, with up to the sec-ond trade information and pric-ing, that image shows just howmuch things have changed.

However, Ken was quick topoint out that while the develop-ments in technology have beenremarkable, what today and thenhas most in common is thathunger for those in the industryto market Ireland all around theworld. “I remember 20 years agothat there was a core group whospent most of their time onplanes going all around theworld marketing Ireland – the‘Fathers’ of the industry.”

If anything the desire to pro-mote Ireland globally is again atthe forefront of the industrybecause of Ireland’s domesticeconomic situation. “We in thefunds industry and in Ireland ingeneral had become a little com-placent,” explained Ken as busi-ness just continued to grow. Nowwe see the need to continue thismarketing work, he said andemphasised that one of the con-sequences of the financial crisishas been an increase in the com-petitiveness of the industry inIreland from a cost perspective.“As a result there has never beena better time to set up a newbusiness or expand a business inIreland. Once again we are work-ing together as a team to pro-mote Ireland,” he said, “andleaving our own company inter-ests to one side for the greatergood.”

He also said that beyond thefunds industry all agencies,

stakeholders and Governmentwere working much more closelytogether to maximise growth andensure joined up thinking andconsistent messaging of IrelandInc abroad. He cited the relation-ship forged with IDA Irelandwhich, in a joint initiative, sawIFIA representative offices openingin a number of key locations inLondon, Atlanta, Chicago, Boston,

Singapore and Tokyo as an exam-ple of this new level of co-opera-tion.

Emigration is another sharedexperience then and now but,while Ken admitted that no-onelikes to be in the position wherethey are forced to emigrate, inmany cases they return home afterdeveloping a wealth of experience.

He also cited Farmleigh has an

example of how some of thosewho emigrated and excelled in thesphere of work have special ties toIreland and do all they can to sup-port and promote Ireland as aplace to do business – giving Ire-land a real edge over other coun-tries and domiciles.

On top of that the fact that somany worked in other countriesand domiciles and returned to Ire-

FUNDS REVIEW IRELAND18

KEN OWENS

KENOWENS

and the Irishfunds industry– two sides ofthe one coin.

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IFIA IYUVHV 19

land meant that Ireland has adepth of talent and experienceenvied the world over.

It is the experience of the peoplein the industry which is its greatestasset, he said. Speaking of his ownfirm Ken explained that when ithit audit time in the US they sentout up to 40 people from Irelandto help out. “The fact that thesepeople are still being requestedfrom Ireland, and not from othercountries, over the past few yearsdemonstrates the value the peoplein the industry in Ireland add.”

Looking ahead Ken feels thatthe UK and the US, Ireland’s twokey markets will continue to playa key role in the growth of theIrish funds industry but also islooking during his Chairmanshipto further build business in Asia,Latin America and MENA.

Asia is an increasingly impor-tant market for funds, especiallyUCITS funds based in Ireland.Historically the funds have beenset up by US and UK promotersfor sale into Asia. More recentlyhowever we have seen a steadystream of promoters from Asiaalso looking to establish funds in

Ireland for sale globally or backinto Asia. The Irish funds industryhas been visiting Asia for manyyears and the marketing trip at theend of November visited Singa-pore, Tokyo and Malaysia for thefirst time.

Islamic finance will also be animportant market for Ireland, saidKen. After all, according to figuresfrom PwC, when examining keyIslamic fund domiciles outside ofthe Middle East, Cayman has 40per cent with Ireland accountingfor an impressive 20 per cent. Theother 40 per cent is made up of acombination of other domiciles.

Also, Ireland already has a sig-nificant double tax treaty networkand the Irish Government hasundertaken to increase the num-ber of double tax treaties in force,particularly with countries in theMiddle East and North Africa. Todate Ireland has double tax treatieswith more than 60 counties includ-ing Bahrain and Morocco. Treatieshave also been signed withMalaysia, Pakistan and Turkey.

“The Irish funds industry isalways evolving and looking fornew markets to excel,” said Ken.

“Green IFSC will put Ireland at theforefront of providing solutionsfor green financing around theworld building upon the expertisewhich already exists in the fundsindustry and international finan-cial services.”

Essentially, Green IFSC is an ini-tiative of the Department of theIrish Prime Minister and taskedwith ensuring the optimum busi-

ness environment for greenfinance to flourish.

According to Ken, Ireland hasbeen at the forefront of innovationin the asset management industryover the years. “The Industry herewas the first to see the opportuni-ties in the areas of Money MarketFunds and Exchange TradedFunds (ETF’s) and now has a mar-ket leading position in both ofthose industry sectors and there isno reason why we cannot repeatthis success in the future.”

One area where Ken sees enor-mous opportunity is in providingsolutions to the growing globalpensions’ crisis where companiesand countries struggle to provideadequate pensions for retirees. Ire-land has already developed a veryefficient structure to service pen-sion funds assets called the Com-mon Contractual Fund (the CCF)

Ireland’s AIFMD ready Qualify-ing Investor Fund (QIF) is alsoproving increasingly popular heexplained, as the 2012 deadline forimplementation of the new Direc-tive draws ever near. Statisticsfrom the Central Bank of Irelandshowed that the number of QIFswas at an all time high of 1,273with assets also reaching a peak of€159 billion with QIF assets grow-ing some 18 per cent in the past 12months.

While Ireland is regarded as thealternative centre of excellenceKen says that he wants to high-

light the fact that it is also thecentre of excellence for retailUCITS funds.

“On the retail UCITS side, sta-tistics from EFAMA showed thatIreland was also the domicile ofchoice for UCITS in 2011, attract-ing the highest inflow of netassets of any domicile for theyear. In fact the gains made byIreland were twice as much as allother domiciles put together,” heshared.

Ireland stood out. The datafrom Efama demonstrated thatIreland attracted some €60 bil-lion in net assets of UCITS dur-ing the 12 months – most othersfaced considerable outflows. Allthis means that Ireland’s UCITSmarket share has increased to14.5% from 11.5% at the begin-ning of 2011 and more than 500%over the past 11 years.

In conclusion Ken againstressed that a key strength ofIreland over any other jurisdic-tion was its people and theirexceptional experience andpointed out that it was a careeroffering great potential for thoseconsidering what to study in uni-versity.

“The industry has grown toinclude more than 12,000 peopleover the past 25 years. Even 2010which was a year of domesticchallenges, saw more than 400net new jobs and some 1,200 netnew jobs created by the end of2011.

“It is international in its out-look. More than 850 fund pro-moters from over 50 countrieshave chosen Ireland as theirinternational hub. Irish fundadministrators service assetsfrom almost 170 countries andoffer support capabilities in 28languages and 23 currencies.”These figures are from an IFIATransfer Agency Survey con-ducted in 2011.

“There is opportunity in theIrish funds industry at home andabroad and it is this internationalexperience which makes Irelandspecial – and able to continuallyoffer the service and solutions onthe global stage.

“It is not a co-incidence, or theso-called luck of the Irish, thatthe Irish funds industry is thefastest growing of all the majorUCITS domiciles and is the num-ber one alternative investmentfund centre in the world.” �

ISLAMIC FINANCE WILL ALSO BE ANIMPORTANT MARKET FOR IRELAND, SAIDKEN. AFTER ALL, ACCORDING TO FIGURESFROM PWC, WHEN EXAMINING KEYISLAMIC FUND DOMICILES OUTSIDE OF THEMIDDLE EAST, CAYMAN HAS 40 PER CENTWITH IRELAND ACCOUNTING FOR ANIMPRESSIVE 20 PER CENT.

1-19 IFIA:Layout 1 8/3/12 15:21 Page 19

Q: What attracted you to thefunds industry?The ambition, enthusiasm andenergy of the industry and thoseworking in it.

Q: When did you first becomeinvolved in the fundsindustry?I first became involved in theindustry in 1995 during thedevelopment of the Certificate inInvestment Services, the indus-try education programme. Atthat stage I was working withthe Institute of Bankers, the part-ner organisation and awardingbody for the industry's educa-tion programmes and I joinedthe then Dublin Funds IndustryAssociation in 1999.

Q: What is the single biggestthing you have learned overthat time?The potential that Ireland has tobecome the premium regulatedjurisdiction for internationallydistributed investment funds,and the requirement and benefitof all stakeholders; industry,authorities and agencies work-ing together despite our differ-ent mandates.

Q: What have been and whatare the biggest challengesfacing the Irish funds industrythen and now?The industry in Ireland is a part-ner to the international invest-ment funds industry and in allpartnerships, each partner mustbe contributing to the partner-ship. Both then and now and intothe future, the success of theindustry in Ireland is dependenton our ability to continue to offerproduct solutions, operating effi-ciencies and distribution oppor-tunities to the internationalindustry.

Q: How is the Irish funds

industry facing up to thosechallenges?Through excellence, innovationand global reach, Ireland as afund jurisdiction continues torespond to and anticipate therequirements of the internationalindustry. Continuing to deliverexperience, expertise and thoughtleadership will ensure our futuresignificance and relevance.

Q: What is the benefit of anassociation like the IFIA? Howdoes it promote the industry?The IFIA is simply or signifi-cantly an industry facilitator, aforum whereby all parts of theindustry can work together to

achieve our common objective ofmaking Ireland the premium reg-ulated jurisdiction for interna-tionally distributed investmentfunds. With input from thewidest of industry constituencies,the industry agenda can be deter-mined and with the collectiveefforts of the industry andthrough engagement with theauthorities and agencies, thatagenda can be pursued anddelivered.

Q: Ireland has traditional beenseen as the home for thedomiciling and servicing ofalternative investments. Is thatperception changing?

FUNDS REVIEW IRELAND20

GARY PALMER

FACE TO FACEwhat next for funds?Angela Madden goes Face to Face with Irish FundsIndustry Association’s Chief Executive Gary Palmer.

20-40 IFIA:Layout 1 8/3/12 15:24 Page 20

FUNDS REVIEW IRELAND 21

Ireland has an unrivalled expert-ise in the establishment and serv-icing the widest range of invest-ment fund structures and whilewe have a particular and uniqueexpertise in alternative invest-ment funds, this is in addition toour significance as a UCITS juris-diction of choice. This breath anddepth, unique to the Irish indus-try, has allowed and providesinvestment managers with con-sistency and certainty as prod-ucts develop and evolve.

Q: Given the focus on Ireland'sregulation of domestic bankswhy do you think it is that thefunds industry has alwaysbeen so robustly regulated?Unlike other industry sectorsand even other financial prod-ucts the fundamentals and prin-ciples of the funds industry islegislation and regulation. Thecatalyst for the establishment ofthe industry was legislation andassociated regulation ie theUCITS Directive and the oppor-tunities it provided for a regu-lated investment fund to be dis-tributed in a number ofjurisdictions. Openness, trans-parency and regulation were thepillars on which the funds indus-try in Ireland was establishedand and these are the fundamen-tals with which the industry con-tinues to develop.

Q: As a result of this robustregulation is Ireland now in aposition of advantage to cashin on the raft of regulationsweeping the industry ingeneral?Yes, events and market develop-ments over the last few yearshave highlighted the virtues andvalues of governance, trans-parency and openness. Theindustry in Ireland having beenbuilt on these pillars can nowprovide the benefits of robustregulation with pragmatism, effi-ciency and effectiveness.

Q: What then are your viewsof onshore versus offshore?In the last number of years therehas been a significant trendtowards regulated investmentfunds. This drift has beenencouraged by investors whonow place a premium on regula-tion and the associated safe-guards being demanded by the

authorities. Responding, promot-ers are preparing and providingregulated funds.

Q: How supportive isGovernment of the Irish fundsindustry?Very; right from the commence-ment of the international finan-cial services industry in Irelandand the funds industry in partic-ular the Government, theirdepartments and the authoritieswere active and involved indus-try stakeholder. This involvementis obvious through the estab-lished industry/authority stand-ing committees and workinggroups led by and responsible tothe Taoiseach's own department.

Q: How important is thatsupport?Critical; legislation and regula-tion are the bricks and mortarwith which the industry buildsits products and provides itsservices. To ensure the develop-ment and relevance of thoseproducts and services requires afacilitating and evolving legisla-tive process, and as the legisla-tive framework is the preserve ofthe Government, the Govern-ment's involvement and supportis critical.

Q: Why do you think 2010 and2011 were such successfulyears for the Irish fundsindustry?2010 and 2011 were very success-ful years and the industry figureshighlight this. However, through-out the industry's 25 years therehas been continued and sus-tained growth and development.Why? Well it goes back to theexcellence and expertise of theindustry and the provision ofproduct solutions, operating effi-ciencies and distribution oppor-tunities to the internationalindustry.

Q: What next? What are thebig plans for the fundsindustry for 2012 and beyond?Off a very firm foundation theindustry needs to continue whatit has done; to anticipate andrespond to the requirements ofthe industry. Enhancing the leg-islative framework to facilitateefficiencies and evolution ofproduct development, regulatoryconsiderations to anticipate and

facilitate those products andindustry thought leadership todrive and deliver efficiencies andeffectiveness.

Q: Is the industry 24/7 or doyou have time for otherinterests?Working in a such a fast grow-ing, dynamic and world leadingindustry has been a significantprivilege; however, it doesbecome all encompassing andsomewhat of an enemy of time,with little for much else.

Q: What advice would you givesomeone of thinking of acareer in the funds industry?Why would you recommend itas a career?To enjoy and continue the indus-try tradition of excellence andthought leadership. Being part ofan industry which provides hugeopportunities and significantrewards is something we allhoped for in our careers andwhich the funds industry pro-vides. Couple that with the satis-faction of being involved in aglobal industry where Irelandexcels, the privilege of the indus-try is obvious.

Q: How would you sum up theIrish funds industry frominception to today and whywould Ireland be the preferred

location for the domiciliationand servicing of assets?Vision, dedication and goodluck. The inception of Ireland'sinternational financial servicescentre co-incided with the origi-nal UCITS directive and thesetwo developments comingtogether provided the opportu-nity for the funds industry.From this beginning and theestablishment of the requiredlegal, tax and regulatory envi-ronments the industry com-menced. Through vision anddedication a reputation as a cen-tre of excellence was soon estab-lished.

Q: Can it continue to grow?Where and how?Yes, without doubt and as I saidoff a very firm foundation theindustry simply needs to con-tinue what it has done; to antici-pate and respond to the require-ments of the internationalindustry. The internationalindustry needs and wants a cen-tre of excellence for the manu-facturing, management andservicing of investment fundswhere their business can beorganised and structured toleverage off their global special-isations and with the right prod-uct range and control oversightenvironment Ireland can be thatcentre. �

THE IFIA IS SIMPLY OR SIGNIFICANTLY ANINDUSTRY FACILITATOR, A FORUM WHEREBYALL PARTS OF THE INDUSTRY CAN WORKTOGETHER TO ACHIEVE OUR COMMONOBJECTIVE OF MAKING IRELAND THEPREMIUM REGULATED JURISDICTION FORINTERNATIONALLY DISTRIBUTEDINVESTMENT FUNDS. WITH INPUT FROMTHE WIDEST OF INDUSTRYCONSTITUENCIES, THE INDUSTRY AGENDACAN BE DETERMINED AND WITH THECOLLECTIVE EFFORTS OF THE INDUSTRYAND THROUGH ENGAGEMENT WITH THEAUTHORITIES AND AGENCIES, THAT AGENDACAN BE PURSUED AND DELIVERED.

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Two questions come tomind whencontemplating anycountry saddled with a

heavy debt burden – does thesocial and political will exist torepay the debt, and if so, canthe economy generate theadditional income required. Forsome time now the market hasdecided the answer to bothquestions for Greece is aqualified ‘no’, while the officialline from the EU is a qualified‘yes’, hence the plan to provideadditional finance in a secondbail-out. The funds requiredwill be more than initiallyexpected given a sharper thananticipated recession in Greeceand that has thrown up otherissues which in turn areunsettling investors andreinforcing a sense of crisis –who pays, how can anycontagion from Greece becontained and what about theimpact on the holders of eurosovereign debt, particularly themajor European banks?

The EU had brokered a dealin July involving a voluntary21% haircut on Greek debt takenby private investors, with short-term debt rolled over intolonger maturities. That agree-ment now looks inadequate,and most EU leaders believethat the private sector contribu-tion should be much higherwith a haircut nearer the currentmarket price for Greek bonds.Securing agreement on thatissue has proved difficult, soprolonging the uncertainty grip-ping markets.

The July agreement alsosought to dampen any conta-

gion from Greece by expandingthe fire power and flexibility ofthe European Financial StabilityFacility (EFSF) and that has beenachieved, although the ratifica-tion process has taken some time,much to the chagrin of US andUK policymakers who see theeuro crisis as the major threat toglobal growth. In the event theeffective size of the facility,€440bn, is now thought by manyto be inadequate and the debatehas switched to the issue of lever-aging the EFSF. Some argued thatthe ECB could simply lend to itbut the Bank shot that down andthe most likely development now

is that the EFSF may act as aninsurance fund, agreeing to com-pensate bond buyers for (say) thefirst 20% of any losses, which ineffect would substantiallyincrease its spending power.

A larger haircut on Greek debthas prompted the market to focuson those banks with exposures tothe sovereign debt of the periph-eral economies. Political leadersin France and Germany initiallyresisted the idea that their banksneeded additional capital toabsorb any potential losses but

have now swung behind it,although the question of whoprovides this capital is still unre-solved. Indeed, this has set up afresh round of sovereign debtselling by investors, this timeencompassing France, on thebasis that the respective Stateswill have to step in to recapitalisetheir banks.

This sounds very familiar toIrish ears – the State stepping into support its banks, and paying aheavy price – but the substantialfall in Irish yields over the sum-mer months, only partiallyreversed of late, implies thatinvestors are now much morewilling to accept that Ireland cancome through the crisis and repayits loans. Commentary on Irelandfrom foreign analysts and mediaalike has also turned positive,overly so in some cases, a remark-able turnaround from the situa-tion a year ago.

What has changed? A key factor for Ireland is that thefiscal deficit is on target, against ageneral slippage in many othereuro countries; if the recent pat-tern is maintained to end-year –revenue is ahead of profile andspending is running behind – theunderlying deficit could emergewell below the target, althoughNovember, 2011 is a huge taxmonth and can render any fore-casts redundant. Non-tax revenuehas already hit the full-year tar-get, largely because of muchhigher receipts than projectedfrom the deposit guaranteescheme. The initial projections forthe interest cost on Irish officialborrowing is also now too high,and if the recent proposals by the

European Commission areimplemented, Ireland couldsave 2.92% a year on up to€40bn of EU loans, equivalentto €1.2bn per annum.

The total package agreed byIreland with the troika lastNovember also envisaged up to€35bn for the banking sector,with the Central Bank subse-quently deciding that €24bnwas required by the guaranteedbanks in additional capital. Inthe event, the State’s share waslower than expected (thanks toburden sharing by bond holdersand a private sector equity con-tribution to Bank of Ireland)with the direct cost to theexchequer put at €7.8bn. Allthis helped investor sentimentbut economic developmentswere significant too, in that GDPgrowth has surprised to theupside in the first half of theyear, prompting a substantialupward revision to the consen-sus growth forecast for 2011,which is now seen around 1.5%.

Ireland still faces many chal-lenges, nonetheless, both interms of the economy (con-sumer spending is still falling onan annual basis and unemploy-ment is over 14%) and in termsof investor sentiment (despitethe recent rally, the cost of insur-ing against an Irish bond defaultimplies a 40% probability ofdefault within 5 years). Risksabound and some are beyondIreland’s control, including thepath of global growth and themarket response to the detail ofthe latest EU plan to contain thesovereign debt issue, when (andif) it emerges in the comingweeks. �

REMARKABLEtransformationDr Dan McLaughlin, Group Chief Economist atBank of Ireland, discusses Ireland’s remarkableturnaround in a year.

BANK OF IRELAND

FUNDS REVIEW IRELAND22

IRELAND STILL FACESMANY CHALLENGES,BOTH IN TERMS OFTHE ECONOMYAND IN TERMSOF INVESTORSENTIMENT.

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William Fry

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Arthur CoxAd

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FUNDS REVIEW IRELAND 25

Green asset investmenttakes on many differentforms. Renewableenergy projects are still,

by far, the most popular forinvestors – particularly windand solar projects at a nearoperational stage. Green fundsare also investing in carbontrading projects, and cleantechopportunities such as, electriccars and micro-energygeneration.

There are a number of macrodevelopments that help explainwhy Ireland is ideally placed toavail of this opportunity. Firstly,investors, including large pen-sion funds, institutional, andother classes, are participating infunds that invest in green assetsparticularly in the renewableenergy space. Such investmentsare attractive to investors for thefollowing reasons:− They produce stable cashflowsover a 20 to 25 year term, andtherefore, are particularly attrac-tive for pension investors;− A significant part of the renew-able type investment is sup-ported by Government incentivemeasures such as ROCs in theUK and by Tariff regimes inother parts of the EU; − Investors are seeking new assetclasses to invest in which presentlow risk stable returns in excessof deposit rates; and− Power Purchase agreements

are typically entered into withhighly rated utilities therebyreducing counterparty risk.

Secondly, these investors willusually require a collective vehicleto hold their assets in an appropri-ate jurisdiction. Such investorsface a choice between unregulatedjurisdictions such as Cayman andDelaware, or regulated jurisdic-tions such as Ireland.

What is very clear in the globalmarketplace is that funds sellingto European institutional investorsare increasingly required to offerregulated structures for two rea-sons; firstly, to meet internal gov-ernance rules which require

investment only into regulatedstructures and/or listed productsand, secondly, because of theAlternative Investment FundManagers’ Directive (AIFMD)which will likely precipitate amove to regulated structures.

Because of these develop-ments, we are likely to see muchgreater use of European regu-lated structures – in particularthe various Irish fund modelsthat are currently available.

This presents considerablechallenge for promoters andasset managers in that US andAsian investors are comfortablewith the unregulated offering

while European institutionalinvestors – taxable and non-tax-able – will generally prefer a reg-ulated platform. Ireland has anumber of key competitiveadvantages, highlighted in thisarticle, which will help to attractmany of these funds to thiscountry

Certain asset managers aresetting up dual structures – onefor the non-EU and one for theregulated European investors,thereby offering greater flexibil-ity but greater complexity.

Why Ireland?Ireland has already emerged as a

GREEN IFSC

GREEN LEADERasset management

Ireland is capitalising on its alternative andretail funds expertise to position itself as theglobal leader in green asset management,explains Mike Hayes, head of KPMG’sEnergy and Natural Resources team.

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FUNDS REVIEW IRELAND26

GREEN IFSC

leader in green asset manage-ment as evidenced by recentannouncements from someglobal asset managers. Forexample, Blackrock has estab-lished its renewable powerinvestment front office capabil-ity in Ireland and many others,particularly funds, have domi-ciled their cleantech and greenfunds in Ireland.

Another example is Klein-wort Benson Investors whichhas opted for Ireland as the loca-tion for front office green assetmanagement.

Steve Falci, Head of StrategyDevelopment in SustainableInvestments with KleinwortBenson Investors explained:“We are very pleased to haveestablished a specialist environ-mental equities team in Ireland.Ireland already has a world-leading funds industry andoffers us access to the talent weneed to grow our business. Weare incredibly optimistic aboutthis sector and see the potentialfor Ireland to be the globalleader in green funds – and in arelatively short space of time.”

Other companies that set upasset management operations inIreland and have a strong greenfund presence include Medi-olanum and Marshall WaceAsset Management. The factthat these companies are head-quartered in locations across theglobe from the US, Italy and theUK, demonstrates Ireland’sattractiveness to managersacross the globe.

However, what is perhapsmore revealing is the rapidgrowth in this sector. In the pastyear and a half, green assetsmanaged from Ireland havedoubled and in the past fouryears have tripled. When greenfunds managed, domiciled andserviced in Ireland are consid-ered in totality, then Ireland isresponsible for at least $10 bil-lion of the global green fundsunder management.

So, why are these funds com-ing to Ireland – and at a rapidlyincreasing rate? Ireland has awell-established, world-classfunds industry that includes theglobe’s leading custodians andadministrators, an open androbust regulatory regime andclarity on the tax treatment offunds – and these are key differ-

entiating factors from other com-peting jurisdictions. More than850 fund promoters from over 50countries have chosen Ireland astheir international hub. Irish fundadministrators service assets fromalmost 170 countries.

Another critical reason whyIreland is moving centre stage isdue to the success of a number ofIrish companies that are activeworldwide in the renewable andgreen enterprise areas and areable to bring their experience andcredibility to bear on the manage-ment of green assets. Theseinclude global leaders such asMainstream Renewable Power,NTR Plc, various semi-stateorganisations and some of Ire-land’s foremost industrial compa-nies that are leading R&D effortsin developing energy efficientsolutions.

Persons working for theseorganisations have developedprojects all over the world fromIreland to China and Chile, andthis expertise is invaluable togreen funds. This access to talentis the key difference between Ire-land and other competing fundlocations, where there is no trackrecord of developing green assetseither at a local or internationallevel. This pool of talent will besupported in the years to come asa result of Ireland’s concertedeffort in the creation of educa-tional programmes to developnew talent in this area.

There are other obvious rea-sons why managers and promot-ers chose Ireland – its optimumtime zone which means it can dobusiness with Asia in the morningand the US in the evening provid-ing a 24 hour service; an open andtransparent environment (Irelandwas the only international fundscentre to appear on the original

OECD white list of countries thatare in compliance with interna-tionally agreed tax standards);and with a continuously expand-ing tax treaty network of some 60countries, Ireland has one of themost developed and favorable taxtreaty networks in the world. Addto this the fact that Ireland is theonly native English-speakingcountry in the eurozone.

Bridging the gapThere are a number of differentways in which green asset man-agers can use the Irish Fund infra-structure including the following:

1) Managers can establish thefund structure in Ireland in multi-ple different types of fund struc-tures to meet different require-ments;2) Ireland can provide the holdingstructure which holds the variousgreen investments on behalf ofthe green funds;3) The fund manager can locatesome or all of the investmentmanagement function in Ireland;as such expertise is present andflourishing in the country; and4) Other support can be providedfrom Ireland such as administra-tion and custodial services.

Green IFSC The Green IFSC initiative was setup in Ireland to capitalise on Ire-land’s increasing attractiveness togreen asset managers and interna-tional financial services generally.This Government-supported ini-tiative is a public-private partner-ship to position Ireland as theglobal centre of excellence forgreen finance and green assetmanagement.

This initiative is supported byall key participants such as theglobal banks which nearly all

have existing operations in Ire-land, by fund managers and bythe principal operators in thegreen enterprise sector.

In addition to green assetmanagement, other areas offocus of the green IFSC projectinclude:− Project bonds issued out of Ire-land;− Securitisation of green assets;− Insurance services to the greensector to build upon its alreadyworld-class offering; and− Playing a leading role in vari-ous aspects of the carbon mar-kets.

Reaching the peakThe vision is that Ireland willbecome the global hub for greenrenewable industry finance witha very strong funds manage-ment sector managing greenassets globally.

This is an example of Ireland,not withstanding its domesticfinancial woes, looking to newmarkets to continue its impres-sive growth in internationalfinancial services.

It is worth noting that the lasttime Ireland faced considerabledomestic economic challenges,the notion of an InternationalFinancial Services Centre (IFSC)was born.

2012 is the 25th anniversary ofthe IFSC and today it is theworld’s number one alternativefunds centre servicing morethan 40% of the globe’s hedgefund assets.

Ireland is also the fastestgrowing retail domicile inEurope. In 2011, Irelandattracted twice as much newmonies as all other Europeandomiciles put together and is thefastest growing UCITS domicileup 500% in the past 11 years.

Ireland’s fund industry from astanding start, has grown toclose to €2 trillion. In this con-text, seeing Ireland as the globalleader in green finance andgreen asset management is noth-ing more than a natural progres-sion. Ireland is leading the chal-lenge to become the globalcentre of excellence for greenassets. We have already grownan international financial centrebefore from nothing. This timewe have 25 years of experience,expertise and innovation tobuild upon. �

“IRELAND ALREADY HAS A WORLD-LEADINGFUNDS INDUSTRY AND OFFERS US ACCESSTO THE TALENT WE NEED TO GROW OURBUSINESS. WE ARE INCREDIBLY OPTIMISTICABOUT THIS SECTOR AND SEE THEPOTENTIAL FOR IRELAND TO BE THEGLOBAL LEADER IN GREEN FUNDS." –STEVE FALCI, KLEINWORT BENSON.

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HML Ad

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With more than 20years of experienceand expertise,Ireland offers fund

promoters a unique level ofspecialist skills for variety ofdifferent fund types includinghedge funds, Exchange TradedFunds (ETFs) and UCITS toname but a few.

The below charts outline thegrowth of these products overthe last five years…

Mutual Funds

UCITS

Ireland is renowned as a centreof excellence for UCITS prod-ucts. According to the IrishFunds Industry Association(IFIA), 80% of Irish domiciledfunds fall under the UCITSregime. Distribution is para-mount to the success of theUCITS product. Irish domiciledfunds are distributed to a largenumber of countries acrossEurope, the Americas, Asia andthe Pacific, the Middle East andAfrica.

The chart outlines the growthof Irish UCITS of the last fiveyears.

This category of funds hashad strong growth throughoutwith the exception of a dip in2008 due to the financial crisisfrom which it swiftly recoveredwith assets climbing steadilyevery year since then, surpass-ing pre-crisis levels.

Exchange Traded Funds(ETFs)Ireland is the leading Europeanfund domicile for internation-ally distributed ETFs.

ETFs domiciled in Irelandhave assets under managementin excess of EUR 64 billion injust under 400 funds, represent-

PwC

FUNDS REVIEW IRELAND28

2006

2007

2008

2009

2010

-

600

400

200

800

1000

1200

Growth of Irish UCITS - AssetsUSD Bn

Source: Irish Funds IndustryAssociation (IFIA)

Various products from the mutual fund space and thealternatives space have chosen Ireland as their home.writes Ken Owens, Partner, Asset Management, PwC.

VARIETYis the spice of..

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PwC

FUNDS REVIEW IRELAND 29

ing 32% of the European market. Ireland was an early mover as

an ETF domicile and the Irishindustry now has an invaluableknowledge base of the specificrequirements in establishing andservicing a successful ETF plat-form.

According to data collatedfrom Lipper, Irish ETFs havebeen on a steep growth curvesince 2006 and have remainedunaffected by the global finan-cial crisis.

Money Market Funds (MMFs)

Money market funds are thedominant asset type in the Irishmarket place - 46% of Irishdomiciled funds are classified asmoney market funds.

Ireland is a leading domicilefor money market funds inEurope. The chart shows thegrowth of these types of fundsover the last number of years.The impact of the financial crisiswas felt in 2008 but was quicklyrectified and Irish MMFs nowsurpassed the pre-crisis level of2007 with assets under manage-ment of USD469Bn.

Alternatives

Hedge fundsIreland is a jurisdiction that issynonymous with hedge funds.

After all, more than 40% of globalhedge funds are serviced in Ire-land, making it the largest hedgefund administration centre in theworld and Europe’s leadinghedge fund domicile.

Ireland was the first regulatedjurisdiction to provide a regula-tory framework specifically forthe hedge fund industry andremains at the forefront in prepar-ing for, and reacting to, regulatoryand market developments.

Irish hedge funds experienceda sharp decline in 2009 due to thefinancial crisis but assets haverisen rapidly between 2009 and2010 and have recovered theground lost and are now back ontrack to pre-crisis levels.

Private Equity & VentureCapital

Ireland, as a domicile for privateequity funds, offers a variety ofpotential fund structures bothregulated and unregulated, withdiffering levels of investmentflexibility, minimum subscriptionrequirements, differing taxregimes and regulatoryrequirements for serviceproviders depending on whichstructure is chosen as theappropriate vehicle for aparticular project.

Irish private equity funds havegrown steadily over the last five

years. This is one area where theindustry sees great potential. TheIFIA, with the 'Green IFSC', isworking on submissions toenhance the legal framework forsuch funds in Ireland.

Niche markets

Islamic Finance

Ireland is an ideal location fordomiciling and managing Shariahcompliant funds due to its vastexperience in the conventionalspace. Ireland as a domicile hasbeen extremely proactive in theIslamic finance space from a tax,regulatory and service providerperspective by working on ensur-ing that it is an attractive locationfor Islamic funds.

Irish Islamic funds had excep-tional growth between 2006 and2007 and have had continuousgrowth in the subsequent years.

Socially ResponsibleInvestment (SRI) /Green

At the beginning of 2011, Irelandlaunched the ‘Green IFSC’ seek-ing to establish Ireland as a hub ofgreen finance, by building on thecountry’s existing financial serv-ices industry and expertise.

A central strand of the proposalis the establishment of an interna-tional carbon standard and an

associated international volun-tary offset registry for Ireland.

The Irish Government hadagreed “in principle” to provideseed funding of €6.8 million overthree years to develop the plan.

The Green IFSC has the poten-tial to create about 7,000 new jobsover the next five years andcould generate revenues of €6billion for the country.

SRI/Green funds have alreadyestablished themselves in Irelandand were on steep growth curvebetween 2006 and 2008. Theglobal crisis resulted in a sharpdecline in 2009 but assets areclimbing again as of 2010.

The proof is in the numbers …Ireland knows fundsDespite some dips as a result ofthe global financial crisis, Irishmutual and alternative fundproducts have grown steadilyover the last five years. Thisemphasizes the confidence fundpromoters have in Ireland asthey continue to place product inthis domicile year after year. Ire-land’s has proven itself as domi-cile which is suitable for all typesof investment funds.

In order to maintain and capi-talise on this success Ireland can-not become complacent. Compe-tition from other internationalfund jurisdictions is fierce.

These are challenging timesand Ireland must continue withinitiatives such as the recentlylaunched joint venture betweenIDA Ireland and the IFIA. TheIFIA has opened representativeoffices throughout the US, Asiaand the UK with IDA Ireland.

The move means that the IrishFunds Industry will now haverepresentatives on the ground inNew York, Boston, Chicago,Atlanta, Malaysia, Singapore,Tokyo and London for the firsttime.

There are plans to continue rollout a series of other representa-tive offices in key locationsaround the globe over the com-ing months.

Government support and ahighly regarded regulator arealso highly important to IrishFunds Industry’s future.

Ireland cannot rest on the suc-cess of the past five years butmust continue to strive to havethe same success or better overthe next five years. �

2006

2007

2008

2009

2010

-

30

20

10

40

50

60

70

Growth of Irish EFT’s - AssetsUSD Bn

2006

2007

2008

2009

2010

-

250

150

50

350

450

Growth of Irish MMF - AssetsUSD Bn

2006

2007

2008

2009

2010

50

30

10

70

Growth of Irish Hedge Funds -Assets USD Bn

2006

2007

2008

2009

2010

1,500

1,000

500

2,000

2,500

3,000

Growth of Irish Private Equity -Assets USD M

Source: Lipper Fund Encyclopaedia2010/2011

Source: Lipper Fund Encyclopaedia2010/2011

Source: Lipper Fund Encyclopaedia2010/2011

2006

2007

2008

2009

2010

1,500

1,000

500

2,000

2,500

3,000

Growth of Irish Green SRI funds- Assets SD M

Source: Lipper Fund Encyclopaedia2010/201

2006

2007

2008

2009

2010

-

250

150

50

350

450

Growth of Irish Islamic Funds -Asset USD M

Source: Lipper Fund Encyclopaedia2010/201

Source: Irish Fund IndustryAssociation (IFIA)

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We’re here becausewe’re here becausewe’re here,” sangBritish Tommies

during WWI. At this point, thefunds industry has been so longa presence in Ireland it couldsing likewise. But we can’t becomplacent. While the legacy oftwo decades of that sector being“here” has led to an enviableconcentration of intellectualcapital and skills in Ireland, butinternational funds originallycame “here” because offarsighted policy decisionsmade in the 1980s. Just as anindustry grew and thrived onthe back of those decisions,future jobs will be created on theback of good strategic thinkingnow.

How did we get this far? “Ire-land really did benefit from earlymover advantage,” recalls CarinBryans, Managing Director J.P.Morgan Ireland. “Ireland is awell-established jurisdiction nowand one of the two main options[the other being Luxembourg]when a promoter is looking at set-ting up a European fund to sellacross multiple jurisdictions. Ire-land adopted the UCITS directivevery early on in 1989. This direc-tive created the ability to passporta fund domiciled in one countryin Europe to the rest of the Euro-pean Union. Ireland then built upa very strong expertise in servic-ing funds of all types, but becamethe dominant location for domicil-ing ETFs [exchange traded funds],money market funds and also

funds that have invested in themore alternative types of assets –like hedge funds and propertyfunds. The experience in servicingalternative funds has led to Ire-land now providing administra-tion and accounting services tomore than 40% of the world’shedge funds.”

This clustering of businesses,funds and skilled workers in thecountry has led to a batch ofincreasingly influential home-grown leaders. “Over the last fif-teen years we've developed a lotof home-grown talent at seniorlevels in the funds industry andmany of these people haveresponsibilities which extendbeyond Ireland,” says Paul Kil-cullen, Managing Director, EMEAFunds Services with Citi. “I am

responsible for our Luxembourgoperation as well as the Dublinoperation and that wouldn't beunusual among my senior col-leagues in the industry. Irishmanagement have risen to keyinfluential positions - and that'sobviously going to have somepositive effect on the industry inthe future.”

This suggests that Irish man-agers may have a role in decid-ing the future of the industryinternationally. Furthermore, asPaul Daly Managing Director ofBNP Paribas Securities Servicesnotes, being English speakinghasn’t hurt. “It’s no surprise thatfrom a cultural perspective wehave an advantage,” he says.“Of the €2 trillion of assets serv-iced in Ireland about 90% relate

FUNDS REVIEW IRELAND30

WHERE WE ARE NOW

Patrick Freyne quizzes industry experts about the attraction of Ireland asa fund domicile and the dangers of complacency.

DOMICILE BLISS?where we are now

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WHERE WE ARE NOW

FUNDS REVIEW IRELAND

to investment managers who arebased in either the United Statesthe United Kingdom.”

These are all compelling rea-sons for the industry to continuehere. However, there are a num-ber of other traditional attrac-tions more dependent on policywhims, which industry expertsare very keen to retain. The firstis our competitive and transpar-ent tax system. When it comes tothis there are a couple of issues.“The 12.5% tax-rate is veryimportant consideration forfirms and I would not expect forthis to change,” says Paul Daly.“And when it comes to domestic

taxation it’s important that thegovernment keep this in checkto ensure that we can remaincompetitive.”

Paul Kilcullen is also worriedabout this. “This specialised areais based upon skilled individu-als,” he says. “Attracting thoseindividuals to this country andretaining them is important andthere is no doubt that the per-sonal taxation environmentcould act as a potential disincen-tive. That said, the introductionof SARP (Special AssignmentRelief Programme) could miti-gate against this.”

Then there is our robust butadaptive regulatory regime.Almost everyone interviewedworries about a domestic regula-

tory backlash on foot of problemsin the domestic banking industry.Willie Slattery, Managing Director,State Street International fears“pro-cyclicality”. “In good timespeople forget about the problemof regulation and allow too muchcredit growth and loose standardsand then in the bad times they gothe other way and reinforce thedownturn,” he says. “Regulationis not a problem if we just adoptwhat people are doing interna-tionally, but if we go beyond it forreasons of our own that puts us ata competitive disadvantage.”

Carin Bryans says that many ofher customers are being impacted

by significant volumes of regula-tion from both the EU and the US.“This can create quite a bit ofuncertainty in terms of productdevelopment. The challenge forus is to stay very nimble to ensurethe service we provide is fit forpurpose and works in whateverregulatory environment we existin.”

She also notes, however, thatsome of the international regula-tion is working in Ireland’sfavour. “Some of the internationalregulations are driving funds toget into a more regulated domicileand Ireland is a good option forthat,” she says. “We’re seeingfunds that were formerly unregu-lated now coming into the juris-diction of regulators. So managers

who would historically havefunds in places like the CaribbeanIslands might now be seeking amore regulated jurisdiction. AndIreland, a place with a core of reg-ulated hedge funds and hugecapability is an obvious candidatein this context.”

Loosely connected to the regula-tory issues are the country’s repu-tational issues. For Paul Kilcullenhaving Ireland negatively featuredin the international press doespotentially “affect the perceptionof Ireland as a regulatory regimeto launch products. It is vitallyimportant for the long term suc-cess of this industry, that the mes-sage that Ireland has always beena strongly regulated environmentfor international funds is wellunderstood. The people we aretargeting, investment managersand promoters fully understandthe benefits of doing business inIreland.”

Paul Daly is optimistic: “Ourclients are sophisticated andunderstand what’s involved inservicing funds in Ireland. If BNPParibas acts as a custodian for afund in Ireland our clients under-stand how the assets are heldwithin our global sub custodiannetwork. I believe that our clientsunderstand that the country’sdomestic problems are a separateissue.”

Another problem that rose tothe fore in the inflationary boomera was the rising cost-base. Mid-way through the last decade, spi-ralling salaries and rental costswere beginning to make thingslook unsustainable, but since thenwe’ve become competitive oncemore (“it’s an ill wind blowsnobody no good,” jokes oneexpert). But “we need to keep aneye on it,” says Willie Slattery.

And with this in mind, competi-tion from abroad is always apotential issue. “Other jurisdic-

tions trying to mirror what wedo is always a concern,” saysCarin Bryans. “For example,there’s long been talk of Asiacoming up with its own versionof a pass-portable fund. In theEuropean Union we have a cohe-sive legislative environmentwhich doesn’t exist as yet inAsia, and creates significant effi-ciencies in authorisation and dis-tribution.”

While things look relativelybright for Ireland’s funds sectorat present, nobody is taking thisfor granted. “We can’t be com-placent,” says Paul Daly. “Weneed to continuously market our-selves and ensure that the worldunderstands what we have tooffer, an example of this is thejoint initiative between the IFIAand the IDA in opening up repre-sentative offices in the UnitedKingdom, in the United Statesand in November throughoutAsia in Tokyo and Singapore. It’sreally important that we continueselling Ireland as a premier loca-tion for servicing Irish and nonIrish funds.”

Carin Bryans agrees andstresses the importance ofremaining adaptable. “It’s a fastmoving space,” she says. “It’shealthy right now. It’s continuedto grow despite what we’veexperienced in the domesticeconomy as evidenced by thenumber of funds coming into Ire-land and also the inflows intothose funds. But the industryhere is very dependent on theglobal economy. When marketsare doing well, the funds indus-try does well, and you see morefund launches and productinvestment as a result. All we cando is make this country the mostattractive place in which to dothat. It is constantly changing.”She laughs. “But you can’t letthat keep you up at night.” �

31

IN GOOD TIMES PEOPLE FORGET ABOUTTHE PROBLEM OF REGULATION AND ALLOWTOO MUCH CREDIT GROWTH AND LOOSESTANDARDS AND THEN IN THE BAD TIMESTHEY GO THE OTHER WAY AND REINFORCETHE DOWNTURN.

Carin Bryans Managing DirectorJ.P. Morgan Ireland

Paul Daly Managing Director ofBNP Paribas Securities Services

Paul Kilcullen Managing DirectorEMEA Funds Services with Citi

Willie Slattery, Managing Director,State Street International

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Since its establishment,almost a quarter of acentury ago, there hasnever been such focus on

and optimism surrounding theIrish funds industry. Fundsindustry stakeholders haveworked since its inception todevelop the sector and there hasbeen a recent wideracknowledgement that the fundsindustry can, if properlyresourced and supported, be anengine to drive the Irish economy.

The 2010 appointment of MrJohn Bruton as IFSC Chairman(now President), the publication ofthe Strategy for the InternationalFinancial Services Industry in Ire-land 2011-2016 by the Departmentof the Taoiseach, the 'Green IFSC'initiative, and the opening of mul-tiple overseas offices by the IrishFunds Industry Association (IFIA)in partnership with the IndustrialDevelopment Authority (IDA Ire-land) are four tangible examples ofthe effort being made to harnessthe potential of the industry.

The government is targetingthe creation of in excess of 10,000jobs in the financial sector overthe next 5 years. Currently someof Ireland’s largest employers arein the funds sector and if the jobstarget is to be achieved a signifi-cant proportion of these new jobswill have to be created within thefunds sector. In order for this tomaterialise asset managers willneed to select Ireland as the domi-cile for their regulated fund prod-ucts thereby creating jobs servic-ing the funds.

Promoters of Irish Funds There are 850 promoters fromover 50 countries in Ireland with

70 new fund promoters havingestablished Irish funds during thepast year. You can see from figure1 below that the majority of thefunds domiciled in Ireland are pro-moted by asset managers who areregulated in the United States orthe United Kingdom .The similari-ties of culture, legal structure andlanguage allied to the strengthsmentioned below continue toattract the asset managers fromthese two markets. The IFIA nur-tures the markets providing regu-lar information seminars in bothcountries. The continued activityat our New York representativeoffice and the recent establishmentof an Irish presence by the USFund administrator SS&C FundServices to support their US clientswould indicate that US promoterscontinue to favour Ireland.

Figures show that there aresome 5,000 funds administeredhere in Ireland with total assetsclosing on €2 trillion. The princi-ple Irish regulated fund productsare the Qualifying Investor Fund(QIF) and the UCITS. These Irishproducts account for approxi-mately half the total assets admin-istered here.

Foreign asset managers havebeen attracted to Ireland becauseof the competitive cost, selection of

and expertise offered by serviceproviders, innovative fund productoffering and the distribution chan-nels open to Irish funds.

Looking closely at figure 1 “Oth-ers” represent only 8% of the fundshere. “Others” include promotersfrom Japan, Australia, Canada, Sin-gapore, China, Hong Kong, SouthAfrica, India, Russia, Brazil and theMiddle East. Industry memberscontinue to travel to develop ourshare of these markets. In addition,nascent markets such as Vietnam,Malaysia, Taiwan and closer tohome Poland, need to be culti-vated. The primary focus of ourown Tokyo and Hong Kong repre-sentative offices is to assist Asianpromoters with their Irish fundranges. Ireland needs to continuecompeting aggressively with otherEU Member States such as Luxem-bourg and Malta to develop ourmarket share in these countries.

Distribution of Irish FundIreland is also a platform fromwhich to distribute funds interna-tionally. Promoters distribute Irishfunds to over 70 countries aroundthe world. Ireland’s ever expand-ing tax treaty network, includes 66countries is one of the most devel-oped and favourable tax treaty net-works in the world. Ireland hasalso signed bilateral memoranda ofunderstanding with 20 jurisdic-tions, including China, with a viewto extending the countries in whichfunds domiciled and serviced outof Ireland may be distributed.

Irish UCITS are registered forretail sale in every EU MemberState and in the continued absenceof a pan Asian retail product arethe product offering of choice forpromoters selling in many Asian

countries. The familiarity ofmany Asian regulators with Irishregulated funds continues toassist the registration process.

Amendments to the criteriaapplicable to QIFs have greatlyenhanced the attraction of theQIF. The minimum initial sub-scription has been reduced from€250,000 to €100,000 and the cri-teria in order to be considered a“qualifying investor” have beenrelaxed. These amendments rep-resent a very significant develop-ment in the context of Ireland’sfund offering not least becausethere had been a view that distri-bution to some institutionalinvestors, pension funds, familywealth offices, corporate andindividuals being professionallyadvised were excluded from theQIF product because of the highnet worth requirements in partic-ular.

ConclusionIreland’s fund industry needs tomaintain its share of its exitingmarkets, grow its share in the“Others” market and expandinto new markets while main-taining and where possibleimproving the jurisdiction’s corecompetencies. We need to antici-pate and adapt to the everchanging needs and require-ments of global fund promotersand investors to ensure that Ire-land continues to successfullydevelop as the leading servicecentre for the international fundsmarket.

Brian Dillon is a partner at Irishlaw firm Dillon Eustace which hasrepresentative offices in New York,Tokyo and Hong Kong. �

PROMOTERSwhere and who?Brian Dillon looks at where the promoters of IrishRegulated Funds are from and where they aredistributing their Funds?

DILLON EUSTACE

FUNDS REVIEW IRELAND32

32%

53%

8%

8%2%2%

Germany

Ireland

Italy

Others

USA

UK

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The Irish funds industryhas received a furtherboost in the form of theFinance Bill 2012. The

Bill, as initiated, follows theMinister for Finance’s Budgetday speech where he referred toa package of measures tosupport the funds industry. TheBill includes provisions to assistIreland in maintaining its statusas a leading jurisdiction forinvestment funds. Many of thechanges will further facilitatethe rationalisation anticipatedunder UCITS IV.

The key provisions proposedin the Bill are outlined below.However, the Bill remains sub-ject to change until passed bythe Oireachtas, which is antici-pated to be in April this year.

Easing administrative burdens• It entitles funds redomiciling

to Ireland from certain off-shore jurisdictions (Jersey,Guernsey, Cayman Islands,Isle of Man, Bermuda andBritish Virgin Islands), toavail of the ‘equivalent meas-ures’ regime. Under thisregime, instead of obtaining anon-resident declaration fromeach investor, the fund canprovide a declaration statingthat all investors are non-resi-dent, except for those identi-fied in a list who are Irish resi-dent. It should be noted thatexit tax will be deductedwhere a previously non-resi-dent investor becomes resi-dent in Ireland.

• It confirms the application ofthe ‘equivalent measures’regime to investments madethrough intermediaries.

• Further to consultation with

the funds industry, the legisla-tion which provides for theautomatic reporting to Revenueof payments to investors isamended. The reporting forinvestment funds will focus onthe value of the units, which isinformation more readily avail-able to Irish funds. Informationalready provided under the EUSavings Directive, will not berequired to be reported againunder this provision.

Master/ feeder structures• The Bill further enhances Ire-land’s attraction as a location formaster funds under UCITS IV.Reorganisation relief will beextended to allow the issue ofunits in a master fund directly to aforeign feeder fund in exchangefor the assets of that foreign fund.Previously, the relief only appliedwhere the assets of the foreignfund were transferred to the Irishfund in exchange for the issue ofunits to the investors in the for-eign fund. Now, relief is alsoallowed where units of the Irishfund are issued to the foreignfund, rather than to the investorsin the foreign fund.

Irish resident investors• The Bill ensures that an Irish

investor will not suffer a chargeto tax on either inbound (foreignfund merges into an Irish fund)

or outbound (Irish fund mergesinto a foreign fund) mergerswhere the other fund is locatedin the EU, EEA, or an OECDcountry with which Ireland hasa double taxation treaty. The taxcharge is deferred until thereplacement units are disposedof. The legislation alreadyallows relief where units areexchanged in a reorganisationinvolving two Irish funds. Thelack of relief in respect of cross-border mergers may have beendiscriminatory.

• The Bill provides that Irishinvestors can switch betweensub-funds in certain foreign reg-ulated funds (for example theEU), without triggering Irishtax. This relief is already avail-able in the case of Irish umbrellafunds and the absence of relieffor offshore funds has been sug-gested to be discriminatory.

Other enhancements• The Bill includes a tax exemp-

tion for payments made by Irishfunds to non-resident investorswho dispose of units to some-one other than the investmentundertaking. This is an impor-tant clarification for ExchangeTraded Funds.

• Stamp Duty exemptions areextended to include the follow-ing:

- Cross-border mergers of invest-ment funds;

- Transfer of assets between anexempt unit trust and a corpo-rate fund;

- Transfer of Irish assets betweentwo offshore funds (inEU/Treaty countries) in cases ofreconstructions or amalgama-tions; and

- In specie transfer of foreignimmovable property into anIrish fund in exchange for units.

Special Assignee ReliefProgrammeIn addition to the industry spe-cific changes, the sector shouldalso benefit from some of theother Finance Bill changes, suchas the Special Assignee Relief Pro-gramme which may reduce thecost of staff assignments to Ire-land.

The above changes are wel-come and it is hoped that theGovernment will continue tofocus on the funds industry as akey element in Ireland’s futuregrowth. �

GROWTH INIrish funds industryNiamh Keogh, tax advisor with William Fry, examines boosts to the Irish funds that are maintaining its statusas a leading jurisdiction for investment.

WILLIAM FRY

FUNDS REVIEW IRELAND34

THE BILL ASSISTSIRELANDIN MAINTAINING ITSSTATUS AS AJURISTICTION FORINVESTMENT

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Ireland is the jurisdiction ofchoice for US asset managerswho wish to distribute theirfunds into world markets. To

date, over 50% of promoters ofIrish funds are US-based whichis testimony to the popularity ofIreland for US managers. Sowhat makes Ireland such a wellrecognised gateway for this typeof business?

Ireland has a robust and effi-cient regulatory and tax environ-ment, specialist expertise, andthe ease of global distributionoffered by an Irish fund plat-form, encourages US promotersto choose Ireland as their inter-national hub. Ireland has showna willingness to innovate, toaddress continuing industrychallenges and to meet the spe-cific needs of US managers.

Globalisation of an asset man-ager’s business will ultimatelybe judged by the success of itsdistribution strategy. Irelandplays a key role in supportingthis strategy through the distri-bution success of fund productsavailable here. The Irish fundsindustry has built up significantexpertise in relation to targetmarkets which service providersand industry bodies continue toactively promote.

Distribution of Irish fundsIrish products have achievedsignificant distribution successin both the Undertakings forCollective Investments in Trans-ferable Securities (UCITS) mar-ketplace and the alternativespace. Any discussion of cross-border investment sales inEurope, Asia Pacific and theAmericas, needs to acknowledge

the success of the UCITS regime. The regime was set up in 1985

and the UCITS brand has becomeglobally recognised as well regu-lated with a focus on investor pro-tection. UCITS have far outsoldother mutual funds in Europe andAsia Pacific, with further gains inthe Americas and Africa. Forexample, UCITS account for amajority of fund sales in offshore,oriented markets such as HongKong, Singapore and Taiwan, andgenerate significant sales in Japan,Malaysia and Thailand. UCITSmanaged in Hong Kong haveattracted some investment frommainland China via the QualifiedDomestic Institutional Investorregime and in South Korea are dis-tributed via local feeder funds.

The success of the Irish UCITShas come about due to the widerange of internationally accepted

legal structures available, tax effi-ciency in Ireland and high stan-dards of investor protection. Legalstructures already in place includecompanies, trusts, partnerships andcontractual funds and the range ofstructures continues to evolve tomeet market needs.

Ireland has the most tax efficientfund regime, with no tax at fundlevel or for foreign investors. Irishfunds also enjoy access to a range ofDouble taxation treaties, furtherenhancing the tax efficiency of thevehicles.

Figures from the European Fundand Asset Management Association(EFAMA) showed that Ireland wasthe domicile of choice for UCITS in2011 attracting the highest inflow ofnet assets of any domicile for theyear.

In fact, the statistics show thatthe gains made by Ireland weretwice that of all other domiciles puttogether and demonstrate Irelandattracted some €60 billion in netassets of UCITS for 2011 – mostother jurisdictions faced losses.

The alternative marketIreland has long been the man-agers’ choice for alternative invest-ment funds, a trend which contin-ued during 2011. Recent figuresfrom the Central Bank of Irelandshow that the number of QIFs is atan all time high of 1,355 with assetsalso reaching a new peak of €173billion in November. Ireland, whichalready administers some 40% ofthe world’s alternative investments,has seen QIF assets grow in excessof 20% in the last 12 months.

In particular, US managerspreparing for the implementationof the Alternative Investment FundManager Directive (AIFMD), are

focusing on Ireland and theavailability of the Irish QIF,which is essentially an AIFMDready product.

Ireland is well prepared forthe impact of recent US regula-tory changes on alternativeinvestment funds. Tax law andcompany legislation wereupdated to include a streamlinedre-domiciliation process toaddress potential issues andopportunities under the AIFMD.Custody requirements under USrules, are easily met in Irelandwhere we already have arequirement for an independentcustodian while serviceproviders are preparing forFATCA with increased focus ondata management and develop-ing the infrastructure and report-ing tools.

InfrastructureThe strength of the supportmechanisms available for USasset managers is vital to the suc-cess of Ireland as a global distri-bution base. Some of the largestUS third party fund administra-tors and custodians are based inDublin and have a presence inmany key markets.

Ireland has signed the bilateralMemoranda of Understandingwith 19 jurisdictions includingChina, Dubai, Hong Kong, Isle ofMan, Jersey, South Africa,Switzerland, Taiwan, UAE andUSA and cooperates with all EUmember states through the EUlegislative framework.

With over 3,000 funds andsub-funds listed on the IrishStock Exchange, Ireland is recog-nised worldwide as the leadingcentre for listing investmentfunds.

The Irish Funds industry hascontinued to show its commit-ment to enhancing its relation-ship with the US industry andhas opened representative officesin New York, Boston, Chicago,and Atlanta. There is also a focuson Asian markets with new rep-resentative offices in Tokyo andSingapore.

Ireland is well placed to con-tinue its long and fruitful rela-tionship with the US. The indus-try continues to listen to theneeds US asset managers andadapt its products and servicesto ensure that Ireland is theglobal gateway for distributionof their fund products. �

ERNST & YOUNG

36

IRELAND IS WELLPREPARED FOR THEIMPACT OF RECENTUS REGULATORYCHANGES ONALTERNATIVEINVESTMENT FUNDS

GATEWAYto globalisationDonal O’Sullivan, Financial Services Tax partner atErnst & Young explains why Ireland is a gatewayhub for global assest managers.

FUNDS REVIEW IRELAND

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The recent decision byChile’s Risk ClassificationCommission (CCR) toreclassify Irish domiciled

UCITS as restricted investmentsrather that general investmentshas highlighted the importanceof continuing to communicatethe clear distinction between thestatus of UCITS funds and ahost country’s sovereign creditrating.

The CCR reclassified IrishUCITS after Ireland failed tocomply with a unique provisionset out by the Chilean watchdogthat states the rating of the coun-try in which the fund, its man-ager or holding company areregistered should not fall belowAA-.

This decision does not reflectthe clear distinction between theIrish sovereign credit rating andthe credit rating of Irish domi-ciled funds.

Due to the strict measures inplace with respect to the safe-guarding of assets and the inde-pendence of a fund’s investmentstrategy from the host country’sdomestic economy, the credit rat-ing of the Irish sovereign mayhave no bearing on the credit rat-ing of funds domiciled in Ire-land. The recent assignment ofAAA ratings to two Irish domi-ciled money markets funds byinternational credit rating agen-cies is a clear example of this.

Strict rules on safekeeping ofassetsUCITS investment funds areauthorised in Ireland in accor-dance with the strict require-ments of the EU Directiveswhich apply across all MemberStates. The Irish government hasfully implemented the require-

ments of the EU Directives whichimpose strict measures to protectunitholders.

One of the fundamentalrequirements of UCITS regula-tions is the appointment of anindependent custodian who isresponsible for the safekeeping ofthe assets of the fund. The assetsof the fund are required to be seg-regated and belong exclusively tothe fund. In practice, the assets ofIrish domiciled funds are held ininternational custodian networksmanaged by international custo-dian banks. The safekeeping ofthe fund’s assets is thereforedependent on the health of theinternational custodian bank andnot on the credit rating of the Irishsovereign.

The Central Bank of Ireland isresponsible for the regulation andsupervision of Irish domiciledfunds and related serviceproviders in accordance with therequirements of the EU Directives.The Central Bank of Ireland hasissued detailed regulatory noticesand guidelines in relation to theduties and conditions imposed onIrish domiciled funds and theirservice providers. The notices andguidelines set out clearly the obli-gations of the custodian in rela-tion to the safe-keeping of assetsand their supervisory and report-ing duties.

The notices require that theIrish domiciled fund’s assets areseparate to, and segregated from,the custodian’s assets and those ofany sub-custodian appointed bythe custodian and that such assetscan be safely returned to the Irishfund’s investors. The custodianmay not also act as a managementcompany and must act independ-ently and solely in the interests ofthe unitholders.

The Central Bank of Irelandimposes strict requirements forentities that act as custodian toIrish domiciled funds. Custodiansare required to be subject toproper and adequate prudentialregulation and supervision intheir own right. They must imple-ment the necessary proceduresand controls in order to ensurethe segregation and safekeepingof the Irish domiciled fund’sassets.

As a result of these strict safe-keeping requirements of the EUdirectives, the status of a UCITSfund’s assets is not dependent onthe sovereign credit rating of thehost country.

Investment strategy notlinked to host country’seconomyThe investment fund industryin Ireland is an internationalindustry. While Irish domiciledfunds are administered and reg-ulated in Ireland, the funds aredistributed globally and theinvestment management func-tion may be outsourced to inter-nationally based investmentmanagers, who manage theinvestment fund in accordancewith the fund’s investmentstrategy and the rules set out inthe fund’s prospectus. There-fore, unless the investment strat-egy includes investmentsdirectly or indirectly in Irishassets, the fund’s credit rating isnot affected by the domesticeconomic conditions in Irelandand related downgrading of theIrish sovereign credit rating.

Impact of reclassificationThe CCR decision to reclassifyIrish funds as a restricted invest-ment does not result in a prohi-bition on Chilean pension fundsinvesting in Irish UCITS.Chilean pension funds can con-tinue to invest in restrictedinvestments but are subject tospecial investment limits.

It is estimated that €2.9billion(0.36% of Irish UCITS funds) ofChilean pension fund assets areinvested Irish domiciled funds.Total assets in Irish domiciledfunds at 31 July, 2011 were€989billon of which €789billionwere in invested in UCITSfunds.

The decision to reclassify bythe CCR was driven by the spe-cific requirements of Chileanregulations and it is not expectedto have a significant impact onthe Irish funds industry.

However, the decision doeshighlight the importance for theEuropean fund industry of con-tinuing to clearly communicatethe distinction between the sta-tus of UCITS funds and the eco-nomic performance of the Euro-pean host country, particularlyin light of the recent credit rat-ing downgrading of a numberof European countries.

It is, perhaps, interesting tonote that, according to EFAMA,Ireland attracted the largest netinflows of UCITS this year sofar. �

CREDIT RATINGSnot linked to UCITSSovereign credit ratings not linked to UCITS fundsexplains John Ahern, Senior Director with KPMGFinancial Services.

IT IS ESTIMATED THAT€2.9BILLION (0.36%OF IRISH UCITSFUNDS) OF CHILEANPENSION FUNDASSETS AREINVESTED IRISHDOMICILED FUNDS.

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FUNDS REVIEW IRELAND

For US investmentmanagers seeking tomarket regulated fundsinternationally, Ireland

offers the brand recognition ofthe Undertakings for CollectiveInvestment in TransferableSecurities (UCITS) and theAlternative Investment FundsManagers Directive (AIFMD),compliant funds, combined withthe right expertise, efficiency andease of doing business.

Ireland has unrivalled expert-ise as a regulated hedge fundcentre. Furthermore, Ireland is anEnglish speaking jurisdictionwith a clear and efficient regula-tory and tax framework. US pro-moters have established over1,000 funds with assets worth$733 billion in Ireland. Demandfor UCITS and implementationof the EU’s AIFMD directive, areset to increase Ireland’s draw.Possibilities to enhance organisa-tional efficiencies, via an Irishplatform under UCITS andAIFMD, should be considered byUS managers.

AIFMD will provide a har-monised EU framework for theauthorisation and supervision ofalternative investment funds.The new regime must be imple-mented by July 22nd 2013 andincludes a range of new organi-sational and operational require-ments including rules on thedepositary, liquidity, leverage,transparency and disclosure toinvestors and regulatory report-ing. The regime will set the stan-dard for the sale of all Alterna-tive Investment Funds (AIFs),defined as non-UCITS, acrossEurope via a marketing passport.Much of the UCITS risk manage-ment and governance frame-work has been adapted to

AIFMD, which also sets out newtransparency requirements thatwill appeal to institutionalinvestors and regulators globally.

The Irish QIF solutionEstablishing an Irish QualifyingInvestor Fund (QIF) eliminatesuncertainties around privateplacement and the Third Countrypassport, and provides a more effi-cient solution for US managersseeking to market AIFMD compli-ant funds. The QIF is a tried andtested regulated hedge fund vehi-cle that is already compliant withmany of the provisions of AIFMD,including the appointment of asingle independent depositary foroversight and safekeeping.

AIFMD allows for the possibil-ity to designate a QIF as a self-managed entity or to appoint amanagement company as theAlternative Investment FundManager (AIFM). The Irish QIF ormanagement company, acting asthe AIFM, would comply with therequirements of the directive whilethe US manager would beappointed as a delegate of the Irishentity. Under this arrangement,the US manager would not berequired to become an AIFM in itsown right but must instead be SECregistered. As a delegate of theIrish fund, the US manager wouldbe subject to due diligence of thefund’s board which reflects the

current arrangements. Unlike theThird Country passport, theoption of settng up a QIF is cur-rently available to US managersseeking to move onshore. Estab-lishing a QIF will enable contin-ued access to the European marketwith a view to meeting futurerequirements under AIFMD.

US managers seeking to movetheir funds to Ireland can avail of astreamlined re-domiciling processthat ensures minimal disruption today-to-day management and dis-tribution of the fund. The newprocess allows for a simplified reg-istration and no tax arises on thetransfer of assets to the Irish struc-ture. Re-domiciling to Ireland can

also prevent delays in fundauthorisation. Once the serviceproviders are pre-approved bythe Central Bank, a QIF can beauthorised in as little as 24 hours.

UCITS Sold in over 70 countries world-wide and with close to €6 trillionin AuM, UCITS are the most suc-cessful mutual fund product,recognised for the high level ofinvestor protection, regulationand oversight they provide.While UCITS are a retail fundproduct, they are also favouredby institutional investors whovalue their regulatory and riskmanagement framework, liquid-ity and transparency. UCITS caninvest in a wide range of eligibleassets and combine robust riskmanagement with opportunitiesto use more sophisticated invest-ment strategies. Ireland continuesto see strong demand for UCITSfrom US managers who have setup a wide range of UCITS struc-tures, including money marketfunds, exchange traded fundsand sophisticated UCITS usingderivatives.

One of the key aims of UCITSIV is to enable a UCITS located inone EU member state to be man-aged and administered by a man-agement company located inanother EU member state, via amanagement company.

The implementation of AIFMDcould present managers with theopportunity of creating a singlemanagement company toincrease efficiencies by managingboth UCITS and non-UCITSfunds under the one managementcompany structure. WhileAIFMD will increase complianceand operational costs, it also pres-ents an opportunity for US man-agers to gain competitive advan-tage. Setting up an Irish QIF canenable US managers to preparefor AIFMD implementation andeliminate uncertainties and com-pliance challenges around theThird Country arrangements.

US managers can also considera range of UCITS product optionsand maximise operational, taxand distribution efficienciesunder UCITS IV to maximisereturns. Ireland remains at thecutting edge of these EU regula-tory developments and is wellpositioned to assist US managersin responding to this change. �

41

REGULATIONoptions for US managersAs US investment managers respond to regulatorychange, Ireland holds unique appeal, writes DeirdrePower and Patrick Rooney from Deloitte.

TAX TRANSPARENTASSET POOLINGVEHICLES AREINCREASINGLY BEINGDEPLOYED BY ASSETMANAGERS AS AWAY OF LEVERAGINGEFFICIENCIES ANDECONOMIES OFSCALE AT A GLOBALLEVEL.

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There is an immediacy andenergy in the descriptivenouns used in the press todescribe the financial

markets in the last few years:“Crisis,” “Meltdown,”“Destruction,” “Panic.” Sub-editors have already exhaustedtheir lexicon. Economic historianstend to be more measured in theirterminology if only, perhaps, byapplying those terms to periodsmeasured in years, not days. InJanuary 2009, during a trip toTokyo, I was visiting a client who,earlier in the day, had met with anofficial Irish delegation, whichincluded the Taoiseach. When Ipolitely inquired into what theyhad spoken about, the client saidthat he had reminded thedelegation that recessions can last12 years as well as 12 months.That longer-term perspective is acritical factor in determining howto manage and lead through thistime.

A complex debateIn this context, to me, regulatorybacklash therefore seems too swift,sharp and complete a term. It canperhaps be better said that a per-ceptible seismic shift of the inter-national regulatory tectonic platesis underway. While “Burn thebondholders” and “Protect thesmall investor” are now popularpublic house discussion points,they also demonstrate the com-plexity of the debate over theappropriate allocation of risksbetween market participants. Afterall, bondholders are also smallinvestors and taxpayers. InEurope, the debate is more com-plexly articulated in the tensionsbetween the Alternative Invest-ment Fund Management Directive(AIFMD), UCITS V, and the

Investor Compensation SchemesDirective (ICSD) with the CapitalRequirements Directives (CRD),MIFID 2 and the Securities LawDirective (SLD). This regulatoryshorthand is opaque and complex.Given the complexity, there is anopening for the Irish industry to putthe expertise, that has been devel-oped over the course of the last 25years, to work and to create newopportunities.

Ireland’s participation in this reg-ulatory shift cannot be myopicallyviewed through the lens of a nar-row domestic agenda. This publica-tion is a timely and pertinentreminder that the Irish funds indus-try measures the assets that it serv-ices and manages in increments oftrillions of dollars. Ireland remainsone of a handful of credible andattractive options for global assetmanagers who are constructinginvestment platforms for global dis-tribution. Therefore, Ireland must bean active and meaningful partici-pant in the debate over regulation.This is imperative for two reasons:The navigation and translation ofthe impact of this shift for Irishclients, and to retain and build onthe position that Ireland has alreadyachieved. The next phase of thisconversation will clearly be inEurope. Will it be global in nature?Ireland possesses the vocabularyand expertise required to provideleadership and create the frame-work of this shift.

Increased regulatory oversightA significant event, though little dis-cussed or analysed in the generalmedia, is the creation of the Euro-pean System of Financial Supervi-sors (ESFS) at the start of 2011. TheESFS was established to addressperceived flaws in the previous EUregulatory regime, which were cred-

ited with contributing to and inten-sifying the financial crises: a lack ofcoordination between the variousEU agencies and national regulatorsthat created a gap in oversight ofsystemic issues at the EU level; aninconsistent approach to the appli-cation of EU regulation betweenvarious EU countries.

The ESFS created three newEuropean Supervisory Authorities(ESAs). The three ESAs coordinatethe work of the national supervisorsin the areas of banking, pensionsand financial markets. The goal ofthe coordination is to create a har-monised set of rules across the EUand to reduce the opportunity ofregulatory arbitrage. The ESAs areresponsible for: drafting specificrules and guidelines for the nationalregulatory authorities to followwhen they implement EU legisla-tion, ensuring that the rules arebeing enforced and consistentlyapplied by national regulatoryauthorities and to act as an arbitra-

tor in any dispute betweennational regulators, in relation tointerpretation of EU law. In realterms, this means that significantauthority has transferred fromnational regulators that functionwithin a guidance frameworkunder the Committee of EuropeanSecurities Regulators (CESR) to acentralized and binding frame-work within the EFSF. Basically,we have moved from a diversifiedmodel of policy making to a cen-tralised one.

It is vital that the Irish industryrecognises and understands thismove and creates the proper infra-structure to manage to this shiftand align with the interests of itsclients. This is not a brief period ofdisruption followed by a rever-sion to previous approach. Thefund industry, globally, is havingto adjust to ever-faster regulatorycycles. The development stage ofregulatory change is shorter andinvolves a political dimension thatwas generally absent in the past.The rulemaking stage is now gov-erned through processes definedby the European Securities andMarket Authority (ESMA – one ofthe three ESAs under EFSF) andinvolves the perspective of manyjurisdictions and stakeholders.The implementation stage, whererules are finalized and introducedinto guidance, is too late an entrypoint if the intention is to effectchange.

Ireland ready for mainstreamparticipant roleGiven the relative scale of theindustry in the global context, Ire-land can – and should – be athought leader in framing thisnew approach; not as an exiledleader of an intransigent resist-ance, willfully blind to the mis-takes made in the domestic con-text, but as an articulate particip-ant in the mainstream, where wecan align ourselves more effec-tively with the trajectory of inter-national change and influence reg-ulatory process, providinginformed comment and meaning-ful perspective. The performanceof the international sector duringthis time period has proven thatIreland is capable of adaptingquickly. Without wishing to resus-citate an old cliché, Ireland needsto be closer to Boston AND Berlin.Seán Páircéir, Partner, BrownBrothers Harriman �

BACKLASH INthe industry?Are Ireland’s domestic woes leading to a regulatorybacklash in the industry? Seán Páircéir investigates.

BROWN BROTHERS HARRIMAN

FUNDS REVIEW IRELAND42

IRELAND REMAINSONE OF A HANDFULOF CREDIBLE ANDATTRACTIVE OPTIONSFOR GLOBAL ASSETMANAGERS.

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