The changing landscape for fund service providers
By Don McClean and Gavin Byrnes – Service providers in Ireland have consistently provided the asset management industry with the sophisticated solutions required to support the continued development of the business. As the industry has developed and matured over the past 20 years, Ireland has evolved from a small jurisdiction specialising in servicing niche strategies to the market-leading jurisdiction for offshore and domestic alternative funds.
Ireland has also established itself as a leading domicile for the establishment of Ucits funds thanks to a favourable corporation tax regime attracting global service providers, strong government commitment to the fund industry, a progressive and pragmatic regulatory framework, a highly educated workforce and the emergence of a support industry alongside the core service providers.
Today, however, many challenges face the asset management industry as a whole in the face of product innovation and growing regulatory pressures. Legislation such as Ucits IV, AIFMD, Fatca and Dodd-Frank is forcing fund managers to rethink their business models and operating conditions, prompting them to seek further support from Ireland’s service providers to meet the changing dynamic of their business.
In the past service providers in the alternative space have been largely confined to back office services, but their role is changing as fund managers increasingly seek to outsource middle and front-end solutions as well. This will complicate the business model of certain service providers as further investment is required to keep pace. The challenge lies in creating a scalable solution for clients that can be intelligently developed across the value chain; the business is becoming truly integrated.
All of these changes also affect how service providers interact with their clients. An integrated business is difficult to achieve in a scalable way, and within a ‘process silo’-orientated organisation this will be a greater challenge still. The aim for Ireland’s service providers will be to make the necessary investments in the technology and people required over the medium term to offer clients a far more sophisticated platform with a client service model that adds enhanced value to a fund manager’s experience.
This challenge will affect service providers in different ways. Smaller participants may struggle to make the necessary investments to keep pace with regulatory changes and product innovation, while larger participants face challenges with the developments required to integrate the internal workings of their business.
The institutionalisation of the investor base within the alternative fund industry also brings further pressures on managers to source new and innovative ways to meet demands specifically in the areas of enhanced corporate governance, transparency and liquidity. This has led to the emergence of Newcits and a proliferation of managed account platforms geared toward helping hedge fund managers to meet these investor requirements.
In conclusion the future looks very promising for Ireland as a jurisdiction, which currently has more than EUR1,828bn in assets under administration in approximately 11,500 vehicles; Irish-domiciled funds exceeded the EUR1trn mark last year, an impressive milestone.
Ireland has consistently demonstrated a commitment in the areas of investment and innovation to support the asset management industry, and will certainly face these new challenges head on. The country has positioned itself strongly to continue this growth into the future, and the core fundamentals contributing to the development of the industry are stronger than ever.
Don McClean is head of UBS’s Fund Services business in Ireland and Jersey and Gavin Byrnes is head of business development for the UK
Please click here to download a copy of the Hedgeweek Special Report: Ireland Hedge Fund Services 2012
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