A sector tantalisingly out of reach
Like a number of other centres for hedge fund administration, including Guernsey, Jersey and Luxembourg, Dublin has aspirations to move beyond the servicing of funds and become known as a focal point for alternative asset management as well. In 2004 the government economic promotion agency, IDA Ireland, commissioned Deloitte & Touche to examine ideas for the development of the hedge fund sector, including increasing its attractiveness to hedge fund managers.
Deirdre Lyons, head of international financial services at the IDA, notes that Dublin is already home to a number of hedge fund managers, including the asset management arms of the two domestic banks, Bank of Ireland and AIB, and Pioneer Investments, the international fund management subsidiary of Italian bank Unicredit. She says: 'There are benefits to do with the legal and regulatory environment, and obviously the 12.5 per cent corporate tax rate plus all our double taxation treaties makes it an attractive location for profitable managers.'
But a year and a half after the publication of the report, many industry players are sceptical as to whether Ireland can achieve its goal of attracting a significant cluster of managers that would give it critical mass in a sector dominatedby New York and London. Says Deloitte's Ronan Nolan: 'It was always going to be somewhat slow progress. It's questionable how feasible it is to attract investment management activity. We will never challenge the major manager locations, and I think people largely accept that.' According to Nolan, Dublin's attractiveness to foreign hedge fund managers has if anything decreased as the result of a change in the country's tax rules. 'Under a concession known to as the remittance basis of taxation, non-Irish domiciled people working in the country on a short-term basis were taxed in Ireland only on the basis of the non-Irish and non-UK income they remitted into the jurisdiction,' he says.
'However, this was changed in the Finance Act at the end of last year, to combat abuses in the construction industry. The Revenue moved to quash that without making any exemptions for the financial sector, and some high-profile people here on a short-term basis see it as a disadvantage. Certainly it would affect any efforts to attract highly-paid hedge fund managers.'
Another senior member of the financial services industry in Dublin comments that he used to be enthusiastic about building up Dublin as a centre for hedge fund managers, but he no longer believes it is a realistic goal. He says: 'What the Revenue Commissioners have done with the abolition of remittance basis taxation has clearly dissuaded non-Irish people from coming here.'
Even without the tax obstacle, there were already doubts as to whether Dublin could lure managers. Says HSBC's Tony McDonnell: 'Managers like the proximity to their investor base that London offers. It is the centre of hedge fund activity in Europe and there are currently still benefits, perceived or otherwise, for managers to remain there.'
Adds Custom House Administration chairman Dermot Butler: 'I'm surprised more people haven't someone taken advantage of double taxation treaties to open up a management company in Ireland and pay only 12.5 per cent in tax. On the other hand, popping down to the bar in the evening to meeting other people in the industry, which you see in London or New York, is very valuable for traders or money managers to find out what other people are saying and doing.'
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