Global ambitions for admin
The value of the funds industry in Ireland is nearing the $1trn (e827bn) mark, according to analysts Lipper Fitzrovia. The company’s annual Dublin Fund Encyclopaedia, stated that growth of 23% in the year to 30 June 2005 had resulted in a market worth $950bn.
The rich pickings that are to be had in the Irish funds market have attracted all of the major securities servicing companies, with more than 40 organisations having set up shop in the country. US custodian State Street has the largest market share for assets under administration ($141.2bn) and assets under custody ($139.6bn), says Lipper Fitzrovia.
“Every global fund services provider is operating in the Dublin market,” says William Slattery, head of State Street’s investor services business in Ireland. “There is an ebb and flow and consolidation of third party services providers will continue during 2006, but at the same time new independent providers will be established. It is a very competitive market.”
Peter Mac Giolla Riogh, head of business development at AIB/BNY, agrees that Dublin continues to be a competitive and growing market. “The top five administrators are servicing around 50% of the overall assets under administration. All of the leading custodian banks have a significant presence in Dublin offering fund administration, trustee and custodial services.”
A joint venture between AIB and BNY was set up in 1994 and is now the number two service provider in Ireland with $162bn in assets under management across 366 funds or 55 client relationships, says Mac Giolla Riogh. Assets under custody total $120bn. The venture is one of the largest employers in the International Financial Services Centre (IFSC) in Dublin.
In 2005, AIB/BNY announced plans to build new operations in Cork. The €13.5m move will create 200 new jobs in the southern city. The office will open in April 2006.
David Dillon of legal advisers Dillon Eustace, says that while the Lipper Fitzrovia figures are a “continuing encouragement to the industry”. Dublin is at a “watershed” in terms of global and European regulation. “We must devote our attention in Ireland to sensible proportionality incase we strangle its achievements.”
The government is keen to sustain the growth of the country’s funds industry and last year introduced the Investment Funds, Companies and Miscellaneous Provisions Bill 2005. Supporting the continued development of the industry, it allows for the non-UCITS Common Contractual Fund (CCF). This is an Irish authorised and regulated investment fund structure that will enable assets to be pooled.
The government hopes that the UCITS CCF will attract multinational companies looking for an investment fund structure to pool the assets of a number of individual pension funds. The legislation also provides for segregated liability and cross-investment for investment fund companies.
Slattery says regulatory change was a major theme during 2005. “There have been a number of external regulatory and tax-driven changes during the past year. UCITS III, the EU Savings Directive, changes in German and Austrian tax regimes and the adoption of IFRS all resulted in significant operational and process changes.”
The government’s support for the industry gives it a “great competitive edge”, says Slattery. “Ireland is an economy that has undergone a great deal of growth. The government needs to ensure that all elements of the public sector infrastructure, touching our industry, can continue to deliver such support.”
Frank Roden, location head of BNP Paribas Securities Services Dublin, says Ireland’s core strengths will not be eroded. “Culturally and geographically, Ireland is well placed as an entry point to Europe for US and UK-based promoters. Ireland has embraced Europe but also has a very strong Anglo-Saxon work ethic. o ther advantages include an English common Law structure and a convenient time zone.” Lipper Fitzrovia found that of the 296 fund management companies with funds domiciled in Dublin, US fund management companies account for the largest proportion by total net assets ($264.9bn).
Roden says the CCF investment vehicle will be key to the development of a pan-European pension funds business, although “a true pan-European business is still some way off”. The Irish Government, regulators and the industry itself have pushed the concept of asset pooling and have created a strong profile of Ireland as a centre of excellence. “I think there are some exciting years ahead,” says Roden. “We have an exceptionally strong base in Ireland and are not afraid to shout about it.”
The implications of the EU’s UCITS III directive are being played out in the Irish market. UCITS III funds represent well over 50% of total assets under administration, says Roden. “Ireland has built a significant UCITS offshore franchise that will continue to grow as the industry can generate more efficiencies compared to a domestic market.”
Slattery says State Street is examining how the UCITS III environment will mature. “We see significant potential for derivatives-based products for example,” he says.
“It is clear that the European distribution model requires complex multi-jurisdictional distribution and service models and this is where our scale and global reach comes into play.”
The hedge fund and alternative investments industry is also fuelling Dublin’s growth. Roden points up that Dublin services around €400bn of alternative investment funds, which is about 25-30% of the global industry. “I think it will be difficult for any other location to displace Dublin’s market share,” he says.
Last year Northern Trust won a mandate to provide custody and fund administration for Swiss Capital Group’s entire fund of hedge funds range, comprising 15 funds with a value of €1bn. Jonathan Quigley, director of technical sales for alternative asset administration at Northern Trust in Dublin says: “As the funds of hedge funds market place continues to grow in both size and complexity, this is creating more opportunities for full service administrators that have the expertise and experience in this area to be able to provide a high level of operational risk management and world class servicing to this type of client.”
AIB/BNY’s Mac Giolla Riogh says the ability to offer hedge fund administration services has become an important part of the overall custody and fund administration offering. “In addition to timeliness and accuracy of services, hedge fund clients are looking for value added services and the ability of service providers to move with them.” The ability to reduce custody fees through facilities such as commission recapture and securities lending is also important. “Core custody charges can be significantly reduced by taking on these value added services.”
Marie O’Connor, lead financial service partner with PricewaterhouseCoopers in Ireland, says: “Ireland has been hugely successful it establishing itself as a global centre for administration of Irish domiciled and non-domiciled assets. However of particular note is the growth of hedge funds where more than 35% of the hedge funds assets in the world are now administered from Ireland, a great example of Ireland capitalising on the expertise developed here during the past 10 years.”