Peter O'Dwyer looks at what made Ireland the fastest growing funds location in Europe.
Ireland’s funds industry has roared back in 2010 and is now the fastest growing funds location in Europe. The declines, which were suffered in 2008 and 2009 have been spectacularly reversed.
The latest statistics published by the Central Bank of Ireland for May 2010 show that the value of Irish domiciled funds has reached €856 billion, compared to a previous peak of €808 billion in 2007.
Total assets of Irish domiciled funds
Source: Central Bank of Ireland
These figures show a significant turnaround from the situation just two years ago in 2008 when total assets fell to €647 billion. Total assets under administration in Ireland, which includes fund vehicles domiciled outside of Ireland, have also risen by 33 per cent from a low in Q2 2009 of €1,200 billion to €1,606 billion in Q1 2010. Of these, €792 billion relates to non-Irish domiciled entities, showing the significant strength of this market in Ireland.
Total number of funds administered in Ireland
Q4 2008 10,855
Q1 2009 10,704
Q2 2009 10,390
Q3 2009 10,788
Q4 2009 10,331
Q1 2010 10,617
Source: Irish Funds Industry Association
In this context, it is widely acknowledged that over 40 per cent of the world’s alternative investment funds are administered in Ireland, making it far and away the world’s largest centre for this growing and dynamic industry. Particularly significant in Ireland has been the growth of Qualifying Investor Funds, or QIFs, which cater for the HNWI and institutional market. Assets in these sophisticated products have grown from €28 billion in 2003 to €135 billion in June 2010 in some 1,245 funds.
Total assets of Irish Qualifying Investor Funds
Source: Central Bank of Ireland, PwC
In its review of Ireland’s alternative industry in June 2010, one of the hedge fund industry’s most respected publications, ‘Hedge Fund Review’, had the following to say:
“While other countries in the EU can claim a larger industry by value, none has the pedigree when it comes to hedge funds and other alternatives. Industry participants believe this will benefit Ireland in the future. Hedge funds are increasingly choosing onshore jurisdictions for their funds and Irish service providers think they will have a big advantage of being in a place managers know and trust. In addition, Ireland’s membership of the EU is seen as a big plus, as regulatory uncertainty continues to plague the industry.” Hedge Fund Review, June 2010
The increase in Ireland’s funds has followed a pick up in growth in Europe and globally. According to statistics compiled by EFAMA, the European Funds Industry Association, investment fund assets worldwide increased by 4.2 per cent in the fourth quarter of 2009 to reach €15.9 trillion. In Europe, net inflows into Undertakings for Collective Investment in Transferable Securities (UCITS) totalled €49 billion in Q1 2010 compared to a figure of €1 billion in Q4 2009.
However, while Ireland is benefitting from this global trend, growth in Ireland has been in excess of other centres and it is the fastest growing centre in Europe. In Q1 2010 all European centres experienced growth with the exception of Spain and Italy. Ireland’s growth was 9.2 per cent followed by Luxembourg at 7.4 per cent, the UK at 6.8 per cent and France at 1.6 per cent.
Why has Ireland been so successful?
Why has Ireland has been so successful in an industry which did not even exist here some 21 years ago?
A particular feature, which has been identified is that promoters can rely on Ireland as a ‘one stop shop’ for the domiciliation and administration of funds, with unparalleled experience in servicing all types of funds, instruments and asset classes.
Ireland has particularly positioned itself as a location for the establishment of regulated funds, of which the most successful and well known are UCITS and QIFs. Ireland also possesses a highly sophisticated support infrastructure of administrators, lawyers, custodians, auditors and internationally experienced non-executive directors.
A recently published report by PricewaterhouseCoopers[i] has attempted to identify and distile some of the reasons why Ireland is chosen as a fund domicile. Some of these factors and others identified by the author are summarised below:
Irish domiciled funds are distributed in over 60 countries. 358 promoters from some 50 countries have domiciled funds here. If both domiciled and non-domiciled funds are included, 847 promoters have chosen Ireland.
Ireland has a constructive and efficient regulatory framework. Promoters can be certain as to time frames for the approval of both promoters and the fund product itself. There is a fast track approval process for QIFs. The Financial Regulator has considerable experience in the funds sector and is approachable and pragmatic. The regulatory environment is built on the principles of openness, transparency and investor protection.
Ireland has developed over the past two decades a very robust system of interaction between industry, represented by the Irish Funds Industry Association (IFIA) and not only the regulator, but also Government and the legislature. Powerful joint public-private sector bodies and sub-committees meet regularly to review international trends and developments. From these groups a continuous programme of legislative and regulatory change is both updated and implemented on a real time basis to keep Ireland at the forefront of the industry and globally competitive.
Ireland is a member of the EU, the Eurozone, the OECD, FATF and IOSCO. Ireland does not and has never operated a bank secrecy regime. Significantly, Ireland was the only international funds jurisdiction to feature on the original G20/OECD White List of countries that are in compliance with internationally agreed tax standards.
Ireland is the only English speaking country in the Eurozone.
Ireland has an extensive double taxation agreement network with 59 countries. In addition memoranda of understanding have been signed with China, Dubai, Hong Kong, the Isle of Man, Jersey, South Africa, Switzerland, Taiwan and the USA.
There is specific expertise in Ireland in the modern international funds industry, which can deliver economies of scale and a broad pool of experience. Ireland has a skilled funds workforce involved in providing services and advice to the widest possible range of fund product, which is wider than competitor jurisdictions. Over 11,000 people are employed in the Irish funds industry. Employment in this sector has held up remarkably well in the recent crisis, with numbers measured in December 2009 being level with those for December 2008 and increasing in 2010. Labour has also become less expensive. The EU Commission has forecast that the cumulative fall in Irish unit labour costs over the period 2008-2011 will be nine per cent. Relative to the EU average, this represents a competitive improvement of a not inconsiderable 13 per cent.
Peter J. O’Dwyer is a business and financial consultant with a number of interests. He primarily specialises in providing bespoke advice to cross-frontier businesses, in particular to those involved in international investment funds, holding company structures and structured finance and to Governments and regulatory authorities. He is Managing Director and proprietor of Hainault Capital Limited, based in Ireland. He is a non-executive director of several private and public companies, including investment companies, mutual funds, energy, property and hedge funds domiciled in Ireland and the Cayman Islands for amongst others; HBOS, Barclays Capital, Citigroup and BNP Paribas. He is a former director of a Shari’a hedge fund and has lectured widely on the subject of Shari’a investment funds.