Dealing with the costs of success
Although there are some very successful,indigenous hedge fund managers in Ireland and their numbers and success grow every year, Ireland's real claim to fame is as a centre of excellence for service providers,predominantly, hedge fund administrators. Over the past 12 months, the three main issues for Irish administrators have been regulatory creep, increased costs, and outstanding growth throughout the industry,but especially in Ireland.
Most of the new regulation has been of European or US origin and therefore has affected hedge fund players in other jurisdictions to a similar extent as in Ireland, and the country's new anti-money laundering guidelines, issued in March 2005, mirror tighter AML regulations in other jurisdictions. In my view, as regulation continues to increase, system and compliance costs will inevitably grow until either the pendulum swings back and life will become easier - which is unlikely - or service providers will tire of absorbing all these costs and they will be passed on to the customer.
The second factor that has hit Dublin in particular is the increase in costs generally, but particularly labour and real estate. As Ireland has grown more prosperous, property prices have rocketed. This has made it very difficult for first-time buyers to get on the property ladder in Dublin, and it should be remembered that most staff employed in hedge fund administration are 25 years old or less.
Add this to increased demand for qualified staff, and inevitably the forces of supply and demand come into play. This situation has been alleviated to some extent by firms tapping into regional pools of labour by setting up satellite offices in such places as Cork, Drogheda, Galway and Naas. In addition, there has been a huge influx of foreign labour, mainly from the new EU member states. As an illustration, the 108 Dublin-based staff of my own firm, Custom House Administration, between them speak 16 languages.
These factors have been exacerbated by the growth of the hedge fund servicing sector in Ireland, which reflects vigorous growth in the industry worldwide. A survey by the Dublin Funds Industry Association found that alternative investment and hedge funds with net assets totalling nearly USD475bn were serviced in Ireland at the end of June 2005, approximately 37 per cent
of the global total and an increase of 138 per cent since March 2003.
According to the DFIA, in mid-2005 more than 2,000 people were employed in 39 Irish companies providing services to these funds, of which around 61 per cent were hedge funds, 31 per cent were funds of funds and the balance private equity, venture capital, property and other alternative funds. Of the hedge funds serviced in Dublin, only 14 per cent were Irish, with the rest domiciled in the Cayman Islands, BVI and other offshore centres.
One can say with confidence that Ireland's place in this market is well established and, providing it does not become complacent, it should be able to maintain or even increase its market share in the years to come despite competition from Luxembourg, the Channel Islands and other jurisdictions. ■
Dermot Butler, council member for Ireland, AIMA
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