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Irish fund industry to top USD2trn by end-2008, says Deloitte

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Fund assets under administration in Ireland are set to reach USD2trn by the end of 2008, according to the 2007 Deloitte Fund Administration Survey, which also indicates that very few Irish

Fund assets under administration in Ireland are set to reach USD2trn by the end of 2008, according to the 2007 Deloitte Fund Administration Survey, which also indicates that very few Irish fund service providers expect to see any impact on the industry from the credit crisis.

Following the substantial growth enjoyed by the industry in Ireland over the past year, which saw assets under administration grow by 35 per cent to USD1.6trn, three out of four fund administration firms in Ireland expect revenue growth levels greater than 20 per cent next year, the survey finds.

Deloitte says there is widespread optimism about the future growth of the industry in Ireland, with 75 per cent of survey respondents expecting revenue growth to exceed 20 per cent in the current year as well. By contrast, 90 per cent of respondents think there will be little or no impact from the credit crunch in the short term and 95 per cent see little or no long-term impact.

The survey finds that growth in fund servicing business has come from a variety of sources, with hedge funds being the main driver, followed by Ucits retail funds. However, this year has seen a strong upsurge in private equity servicing, with more than 40 per cent of respondents placing private equity funds among their top three growth areas.

Against this backdrop of phenomenal growth levels, cost containment and productivity was identified by respondents as the most important issue facing administrators, with 75 per cent of respondents identifying this as a major challenge.

‘The funds industry is the biggest success story since the inception of the IFSC and the industry expects that growth to continue,’ says Deloitte financial services partner Brian Forrester. ‘This success does, however, create challenges for the industry, the major one being the need to reduce costs while at the same time increasing productivity. Administrators will have to look at business process redesign initiatives which look at process standardisation, staff training and regionalisation, automation and offshoring to address this.’

Managing growth was the second most significant issue identified, having been the top issue in the previous year’s survey. Some 70 per cent of respondents said managing internal expansion or the ability to scale the business in response to the growth of recent years is putting large strains on administrators, specifically in relation to resource and talent management and operational gearing.

This problem is reflected in an increase in the number of personnel servicing each fund, with 80 per cent of administrators reporting growth in the number of staff per fund. The resulting squeezing of the available workforce exposes the Irish fund market to the competitive threat posed by other jurisdictions, Deloitte says, although few rival fund services centres are immune to the pressures experienced by Dublin.

‘To address this gearing issue, the vast majority of respondents said that regionalisation and offshoring will be high on the agenda in order to cope with demand, and some 72 per cent of respondents expressed a desire to move towards a global operating model,’ Forrester says. ‘To achieve this will require the financial regulator to consider the issue of minimum activities, which continues to be the main regulatory issue facing the industry.’

A number of fund administrators have already opened offshore centres in locations such as Krakow in Poland and Bangalore in India. Regionalisation has been a key feature over the past three years with fund administrators opening operations in Cork, Kilkenny, Limerick, Galway, Dundalk, Waterford, Navan and Newry to tap into local labour pools.

‘This year’s survey once again shows that fund administrators are coming under pressure to maintain the level of service they provide,’ Forrester says. ‘As the administration industry matures, the operating models that support the industry need to keep pace with this development. Respondents noted concerns about the ability to recruit appropriate-level resources and to maintain them, with the inflationary wage pressure making it attractive for staff to move between firms.

‘The funds industry now needs to adapt to this new stage in its life cycle in Ireland. The positive thing is that the industry knows where the challenges lie and is making progress in addressing them. We are confident that this is an area that can continue to grow significantly within Ireland’s financial services industry.’

Deloitte first carried out a survey of the fund administration community in Ireland in 2006 to obtain an understanding of the key business issues facing the industry, and repeated the survey this year to examine how these issues were being dealt with and to determine whether further issues have arisen.

Carried out in October, the survey received responses from 25 companies that currently providing fund administration for USD1.3trn of assets, about 80 per cent of the total industry. Deloitte provides audit, tax, consulting and financial advisory services in Ireland through more than 1,000 people at offices in Dublin, Cork and Limerick.

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