Michael Stapleton of the Industrial Development Agency and Kieran Fox (pictured) of the Irish Funds Industry Association discuss the ongoing attraction of Ireland as Europe’s leading hedge fund centre and how their joint promotion work is helping attract ongoing FDI opportunities…
HW: Can you provide a quick introduction on the roles of the IDA and the IFIA?
MS: The IDA is a government agency at the front end of Ireland’s inward foreign direct investment program. We are interested in the substance of FDI; the investment itself and the jobs that are created, both directly and indirectly, from a given sector. That may be biotech, the funds industry, banking, insurance.
The IFIA is a trade organization representing the wider asset servicing industry and is concerned with keeping Ireland at the forefront as a viable jurisdiction for fund services.
Between us we look in two different directions. One eye is trained on making sure Ireland keeps its house in order to remain competitive in the international fund industry (IDA). The other eye is trained on promoting Ireland as an attractive jurisdiction to the global funds industry (IFIA).
KF: The IFIA represents the international funds industry here in Ireland. We are comprised mostly of companies that service the funds industry. Of our 80 or so member companies, roughly 40 are fund administrators and depositaries. The other half are law firms, auditors, consultancies and specialist providers of services, as well as a number of asset managers.
Part of our role is technical advocacy, working with regulators and government policy setters. The other key role we have is promotional, positioning Ireland as a location of choice for investment managers to domicile funds and have them serviced to support international distribution.
HW: And presumably the hedge funds serviced out of Ireland are a mix of onshore and offshore funds?
KF: Yes, there are a couple of different points to consider. Firstly, the servicing of non-Irish funds. From our own information and that provided by the Central Bank of Ireland, Ireland services approximately 43% of the world’s hedge funds. The majority of those are non-Ireland domiciled funds (e.g. Delaware, Cayman, BVI funds) who have chosen Ireland for the expertise and experience it has developed in servicing hedge funds. Secondly, is the servicing of Ireland-domiciled hedge funds; Qualifying Investor Funds (QIFs).
Since the first raft of AIFMD regulation was published by the EU Commission in 2009, assets in Irish QIFs have increased by more than 150%. The number of funds has likewise increased.
HW: Looking at the figures, AuM has increased from EUR94 billion in 2008 to EUR229 billion through September 2013. Fund numbers have, over the same period, increased from 1115 to 1824.
KF: We believe that some of that growth has been a pre-emptive response to the AIFMD and we think it will continue for the foreseeable future. Post-AIFMD here in Ireland, the Central Bank of Ireland has already authorized four or five AIFMs.
MS: Yes, Ireland was the first European jurisdiction to authorize an AIFM. That was BlackRock.
HW: So Ireland has established not only the first AIFM, but what is likely to be one of the largest AIFMs as well.
KF: From day one the AIFM established by BlackRock was able to passport its funds into 15 European markets. So the passport works. The BlackRock AIFM has approximately 150 AIFs underneath it.
HW: Final point on QIF growth. Do you anticipate this to continue now that the AIFMD has been transposed across Europe?
KF: For hedge funds generally, Ireland has an excellent reputation. This has been helped by the success of the QIF, which was the first regulated hedge fund product in Europe when it launched in 1995. The Central Bank in Ireland has a good reputation and a good understanding of hedge fund strategies. It was the first central bank in Europe to publish its detailed rules on AIFMD. It was then the first central bank to start accepting applications from AIFMs, so all of this has helped enhance Ireland’s reputation as a hedge fund centre. It augers well for future growth of QIFs.
HW: Where are the majority of IFIA’s clients based?
KF: Around 80% of our clients are based in the UK and the US so we are well placed to pick up new hedge fund business. As to why so many of the funds serviced in Ireland are from New York and London compared to other European jurisdictions, it’s really down to historical reasons. Ireland has a legacy as a hedge fund centre. We speak the same language, we have the same legal system, we are in the same time zone (for UK managers), and we have a similar business culture to the US and UK.
MS: It is also true that for FDI generally, the US and the UK would be our biggest sources of investment here in Ireland.
HW: Could you expand a little on the FDI landscape in Ireland?
MS: Given the source of investment and activity on the ground we are dealing primarily with US asset servicing companies and other professional service providers. The FDI landscape in Ireland is dominated by US investment, generally speaking. Large companies tend to dominate, such as BNY Mellon, which has a substantial alternatives practice, but we have seen smaller boutique firms that have popped up post-crisis.
By virtue of the critical mass of the funds sector here, Ireland is on the list of places to do business at an early stage for these smaller companies. The first decision they tend to make is to establish an international presence in Ireland. We’re here to support that. The big players are getting bigger but a number of boutique firms are also growing rapidly, albeit from a lower asset base.
HW: Any examples you could provide?
MS: HedgeServ is a good example. They’ve grown from being a start-up fund administrator in New York in 2007 to employing over 400 people in Ireland today.
HW: Are you seeing business growth beyond Dublin?
MS: It’s been a long-standing government policy and IDA policy to have regional spread in response to FDI.
The historical location of the Irish funds industry has focused on a relatively small site in Dublin; the International Financial Services Centre (IFSC). Earlier this century, when the Celtic Tiger economy was roaring there were costs pressures on both people and property in Dublin and a number of larger asset servicing companies selected non-Dublin locations to expand their footprint. BNY Mellon are in Cork with north of 300 employees, State Street are in Kilkenny with around 500 employees, Northern Trust in Limerick has north of 400 employees and there are many other examples.
In total there are 12,000 people working in Ireland’s fund industry, spanning 11 out of 26 counties so there’s a fair spread.
HW: Could you explain the joint work IDA and IFIA are doing to promote Ireland internationally?
MS: At a high level, the IFIA and IDA complement each other well. From the IFIA’s perspective, the IDA has assets and infrastructure that are very useful to them. We have 20 international offices in places such as London, New York, Frankfurt but also in some jurisdictions that are less obvious such as Brazil, India and China, Russia.
There is a growing emphasis on emerging markets and I think that’s very beneficial to the IFIA without at all ignoring the historical and ongoing flow of business from traditional markets.
KF: That’s exactly right. From our point of view, the IDA has been very helpful. It allows us to have people on the ground on a permanent basis covering a much wider global spread of locations then we would perhaps be able to provide ourselves. That’s brought some good success in terms of linking up and working together on promotional events in different jurisdictions.
MS: The confidence in Ireland as an ongoing business proposition has never been better. The assets under administration are a clear manifestation of that.
HW: Yes, they’re EUR2.5trillion as at Q3 2013, up from EUR2.199trillion in 2012.
KF: Pre-crisis assets totaled EUR1.6trillion. We have a solid pipeline of business, particularly on the hedge fund side with managers interested in launching new funds post-AIFMD. Momentum is certainly building in obtaining AIFMD marketing passports and that’s one to watch for the months and years ahead as managers increasingly avail themselves of the QIF structure.
HW: Which markets do you feel represent good areas for growth in Ireland’s fund industry on the back of the joint promotion work you’re doing with IFIA?
MS: Latin America and Asia, in particular China, are important markets within a wider FDI context. The IDA in recent years has invested in the BRIC countries but I’d be surprised if we weren’t still getting 80% of our business from developed markets. In five years time I don’t expect that to have changed too substantially because of the business and cultural affinities between the UK , the US and Ireland.
We are starting from a much lower base in the BRIC countries without any prior societal awareness of who we are. Nonetheless, we recognize the economic powerhouses they’ve become and that’s something we’re going to work on diligently over the coming years. We are keen to work with industry associations like IFIA to give that blend of government support and technical expertise on how particular businesses operate here.
HW: Any particular FDI growth areas this year that you can comment on?
MS: The insurance sector is quite strong at the moment. We are also seeing Ireland carving out a niche in mobile (in particular card payment) technology. And then the funds industry itself continues to grow. As mentioned, the numbers of hedge funds – and ETFs – are growing substantially in Ireland.
What is also helping is that the price level for employing entry-level financial graduates has dropped from the high twenties (EUR28K) to the low twenties. Larger companies have looked at eastern European and Asian countries to locate back office facilities but those jurisdictions are now experiencing high wage growth, high turnover rates and don’t necessarily have the depth of experience or expertise.
We are seeing funds industry employment in Ireland becoming a lot more ‘sticky’.
HW: Ireland is now home to some 12,000 funds, 850 fund promoters, over EUR2.5trillion in assets and, of course, has the world’s lowest corporate tax rate at 12.5%. What is your key message for why companies should consider Ireland?
MS: We have established critical mass and a significant presence in the funds industry based around the talent that is available and the pro-business stance of the Irish government. Aside from the global promotion of Ireland, we and other associations like the IFIA spend a lot of time working internally within Ireland, developing a dialogue with the regulator etc, to ensure we stay competitive. One eye is fixed on the product, that is Ireland, while the other eye is fixed on the global market.
In terms of companies’ plans to invest here in technology, real estate and people, we are very excited by the FDI growth opportunities in 2014 and beyond.
