Can Irish funds take on Cayman?
Dublin has made itself the unquestioned European jurisdiction of choice for hedge fund servicing, but locally domiciled funds remain in a minority. At the end of June 2005, just 434 - 14 per cent - of the 3,020 alternative investment funds serviced in Ireland were domiciled in the country, while the assets under administration of Irish funds, at $82.7bn, made up 18 per cent of the $473.9bn total. By contrast, Cayman funds accounted for 62 per cent of the total in terms of numbers and 63 per cent by assets. It has long been assumed in Dublin that its share of the hedge fund domicile market will rise over the longer term at the expense of Cayman and the British Virgin Islands (13 per cent by number of funds, 12 per cent by assets) as new institutional investors entering the alternatives market demand the security of a regulated structure and jurisdiction.
Says PFPC International's Mark Mannion: 'Certain pensions funds and other entities will not be comfortable with placing money in a Cayman fund, which is extremely lightly regulated - it relies on the administrator and auditor being comfortable with the promoter. Certain investors for whom that is not sufficient will find Dublin extremely compelling. Ten years from now we could be looking at a very different story. 'At industry level, we administrators continue to engage with the regulator because while great steps have been made to encourage the establishment of Irishdomiciled hedge funds, we can go even further. For instance, discussion is now taking place about the concept of an unregulated hedge fund that would have the key features of Irish domicile but not necessarily the full regulation it currently entails.'
Mannion adds: 'The users of an Irish domicile remain very blue-chip institutions. We'd like to be more open for the boutiques, the non-bank hedge fund managers, to choose us as a domicile rather than Cayman, which remains I suppose the default choice where there's no requirement on the part of the investor.' Deloitte's Ronan Nolan argues that there is an 'interesting tension' between Ireland's regulated fund regime and the desire to be flexible enough to lure funds that would otherwise be set up in Cayman. He adds: 'Service providers are fairly neutral as to whether funds are domiciled here. The key offering is the service centre capability, and while domicile might be nice, it's in no way essential. It all goes back to the investor
profile and whether the regulated environment is viewed as significant.'
One area in which Dublin suffers by comparison is the time it takes to have a fund approved by the regulator. Says Sean Flynn of UBS: 'For a lot of start-up hedge fund managers time to market is important, and set-up in places like Cayman is significantly faster than in Dublin. If it wants to become a domicile of choice for hedge funds, the issue will be to see how to maintain regulatory oversight while shortening the lead time for fund launches.'
Adds Clara Dunne of Caceis Investor Services: 'We lose out on some business that could be domiciled in Dublin because it takes six to eight weeks to have a fund approved, whereas a Cayman und can be approved much more quickly. The way round that is to put additional resources into the regulator, so that they can approach things in a speedier manner while not having to skimp on oversight.'
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