With over 3,000 listed funds, the Irish Stock Exchange (ISE) is one of the leading stock exchanges worldwide for the listing of investment funds, particularly alternative investment funds including offshore funds and Irish regulated products or QIFs.
Managers are listing their funds as a way to reassure potential and existing investors that the fund meets certain standards, both initially and on an ongoing basis, as well as widening the net of potential investors to institutions such as insurance companies and pension funds. Gerry Sugrue (pictured), Listing Manager, Investment Funds at the ISE explains: “So far in 2011 we’ve seen over 300 new funds list with us. About half of that business would be considered onshore, that is Irish regulated funds.”
There is no doubt that Ireland attracts global interest. Whilst its own domicile is naturally a key market, approximately 45 per cent of the ISE’s listed funds are domiciled in offshore centres such as the Channel Islands and the Cayman Islands. Drill down further, and one finds that with respect to where these funds are managed, the two most important centres are the UK and the US. Approximately 44 per cent of funds are managed out of London, the most important investment management centre for Irish listed investment funds, with US hedge fund hot spots such as New York and Connecticut accounting for 30 per cent.
That’s not to say that the ISE has experienced stellar growth this year. Numbers are at the level seen in 2010 but, as Roseanne Kelly, Head of Investment Funds, points out, “we’re seeing new funds being established and that’s a positive for us, particularly in the environment we’re in. Numbers are nowhere near as high as pre-2007 but to have a flow of new business is something we’re happy with.” There has also been a lot of activity with well-established managed account platforms as they add new managers.
With the AIFMD rumbling on, more managers are turning to regulated products to satisfy investor demand. One thing that has noticeably changed within the hedge fund industry, post 2008, is the increasingly institutional nature of investors allocating assets. Ireland was the first EU domicile to embrace a regulated alternative structure in the form of a QIF and it has certainly given the country a competitive edge over other markets.
“The QIF product is popular. It’s aimed at institutional investors and this drives a lot of ISE listings as these investors often have limitations on investment into unlisted securities. Since February 2007, QIFs can be authorised by the Central Bank of Ireland within 24 hours of receipt of the documentation. The ISE has matched that turnaround time. We review QIFs efficiently which allows issuers to move to market quickly,” says Sugrue. QIF assets grew by 35 per cent last year to EUR153billion and of the funds listed in 2011 to date around 15 per cent are QIFs.
If a US manager wants to access European investors then establishing a QIF, which has the characteristics and flexibility of a typical hedge fund product, is an obvious route. However a UCITS structure may suit certain managers depending on their target market and investment strategy. Irish domiciled UCITS assets stand at EUR4.9 billion as at July 2011 and 35 per cent of the funds listed on the ISE year-to-date are UCITS.
“I think the bigger story here is we are seeing an increasing trend in the establishment of QIFs and the listing of those products. This route satisfies the need for a regulated product from an investor perspective, and crucially the QIF is already meeting many of the pending regulatory standards being agreed at EU level, such as those in AIFMD,” comments Kelly. Sugrue believes that this growth trend is likely to continue into the future.
As the regulatory landscape changes in Europe under AIFMD, the likelihood is that the establishing and listing of QIFs and UCITS in Ireland will grow in popularity. After all, Ireland has been servicing global investment funds for over 20 years and is a centre of expertise for hedge fund administration. Figures produced by the Irish Fund Industry Association show over 11,000 funds and total assets under administration at the end of 2010 reaching an all time high of EUR1.88 trillion. Collectively, Ireland’s service providers now handle an estimated 43 per cent of the world’s alternative investment funds assets.
“There are over 388 fund promoters here from more than 50 different countries. It certainly complements our business. We deal with a variety of major fund domiciles and I think the key reason why business continues to flow here is because we have the connectivity and expertise in alternatives,” explains Sugrue. Ireland’s long-standing relationship with managers could well strengthen it as a location, particularly for managers who’ve chosen Ireland for administering their offshore funds and who decide they want to launch AIFMD-ready onshore products.
The alternatives business is really part of Ireland’s DNA. Quite simply it gets it, understands the pertinent issues and challenges facing managers. “We keep our listing requirements under constant review and ensure they are updated to take account of regulatory developments in the industry” says Sugrue. As to whether the ISE can fully capitalise on the AIFMD, Sugrue believes: “There will be opportunities for the establishment of a QIF while delegating the portfolio management function to a third country manager located in markets such as the US.”
For managers considering listing a fund on the ISE, the process is straightforward. The streamlined listing process for an Irish fund typically begins as the fund is close to being authorised. “This is done through a local legal adviser via a listing sponsor who, at the final stage of authorisation, will send over the documents to the ISE. We’ll review within a matter of 48 hours – it’s very efficient,” says Sugrue. “We have the capacity to list an Irish regulated fund within five working days,” adds Kelly.
For offshore funds the process is equally straightforward with an initial review taking no longer than five working days. A local listing sponsor typically deals with the law firm or investment manager appointed to the fund and liaises on its behalf with the ISE.
The cost of listing a fund is quite low relative to set-up costs – annual fees are just EUR2,000. This includes the publication of the NAV on the ISE’s website but what’s even more important is that there’s no cost per class. “We have a flat ‘one size fits all’ fee per fund and we have very large umbrellas with multiple classes listed which still pay this flat fee. I think that’s an advantage we’ve seen over other exchanges,” says Sugrue.
It’s also remarkably straightforward for managers, who might already have a fund in existence and have begun trading, to list on the ISE, perhaps after discovering when marketing to an institutional investor that the investor is limited as to how much they can allocate to unlisted securities.
Sugrue says the ISE often gets last minute requests. “A phone call to a listing sponsor who can turn the existing legal or marketing documentation into listing documents will submit them to the ISE for review.” Adds Kelly: “Investors are now more aware of their own investment constraints. The listing moves a fund into a different investment bracket that may allow an investor to allocate into the product.”
The ISE’s listing offering complements Ireland’s unique position globally as a centre of expertise for the domicile and servicing of international investment funds. The listing provides a hedge fund with a classification which enables it to market more effectively whether domiciled onshore or offshore. The service levels, experience and expertise of the ISE means that it is in prime position to facilitate the growing hedge fund industry in 2012.
