Business has "never been busier" for securities services organisations in Ireland says Paul Daly, managing director of BNP Paribas Securities Services in Dublin. "It may sound like a cliché, but in the past year BNP Paribas as well as our competitors have been busy with organic growth as well as a number of new entrant fund managers that have decided to launch Dublin-based products," he says.
Among these new entrants was Australian boutique investment manager Perennial Investment Partners, which launched a new Dublin fund in March last year. "Perennial was attracted by Dublin as a location for its European products mainly because it has a similar culture, but they also liked the jurisdiction and regulatory environment. We have also been working with new Spanish, Italian and Swiss clients who are all looking for service providers for their Dublin products."
The most recent employment figures for Ireland's financial services sector, published in Finance Dublin Yearbook in June last year showed the sector had created 1,485 new jobs in 2005, bringing total employment in the banking, funds and insurance sectors to 19,095, up 8.4%on the previous year.
Given Daly's comments it is likely this growth would have continued in 2006. Northern Trust announced in September last year that it was opening a second Irish fund administration operation in Limerick, which potentially would create more than 300 jobs.
Northern Trust set up its first fund services division, Northern Trust (Ireland), in Dublin in 2000. It employs more than 400 people. The scheduled Limerick opening has been described as a "growth centre for Northern Trust in Ireland in mutual fund administration, CCF (Common Contractual Fund) administration and alternative fund administration".
ne month earlier, Northern Trust brought its two Dublin-based fund administration offices together under one roof in central Dublin to support its continued business growth. At the time, Vic Holmes, managing director of Northern Trust Ireland said: "Northern Trust currently employs over 400 people in Ireland - more than double the number at the start of 2005 as a result of the acquisition of Baring's Financial Services Group last year - and we are now administering over 550 funds from Dublin, with approximately €70bn in assets under administration."
In July last year, Northern Trust set up a dedicated private equity fund administration team to offer a complete range of services for private equity funds and private equity related fund structures domiciled in Dublin. The custodian claimed to be a "first mover" in Dublin by forming a specially dedicated, full-service team. Paul Guilbert, head of private equity fund administration at Northern Trust, said: "By replicating the range of services we have been offering in Guernsey for over 20 years, our aim is to capitalise early on opportunities opening up in the Dublin market. We are already serving private equity clients in Dublin and are seeing a lot of interest in our solutions."
Harley Murphy, country manager and head of offshore administration at Mellon Financial Corp in Dublin, says the bank's business in Ireland has grown well during 2006. "Up to the end of October, the Irish market had recorded 26% growth in funds, while we achieved a 48% increase in assets, which was a combination of growth in existing funds and also some new funds joining. There was also a great deal of restructuring of funds, driven by the introduction of Ucits III. We are seeing a lot of more complex funds being set up, which are using absolute return techniques only seen before in the hedge funds business."
Murphy says there is no reason to believe this trend will not continue into this year, and he expects money market funds to grow as Basle II capitalisation requirements mean that AAA rated money market funds qualify as full capital. "A lot of European institutions were not really interested in these before, but they have been growing quite significantly in the past year and I think we will see new ones being launched all the way through 2007."
ublin tends to have majority of money market funds because Luxembourg imposes a small tax in relation to the fund on an annual basis, says Murphy.
"That is important, because money market funds tend to be limited in terms of absolute returns, so it is vital to keep expenses very low."
One area that has experienced less than stellar growth in Ireland in the past few years is the CCF market. Set up in 2003 as a Ucits collective investment scheme for pension funds, the Irish government extended the concept in June 2005 to
asset pooling and non-Ucits funds.
"CCFs are very complex to set up," says Murphy. "One of the reasons take-up has not been as rapid as expected is that there is a long lead time between a pension fund deciding to establish a CCF, depending on where the various pension funds are in Europe that will be part of the pooling. There are different levels of difficulty in getting agreement from the different tax authorities and this all takes time."
Murphy says the market underestimated the amount of time it would take to set up the CCFs. "There will be an increase in the number of CCFs being launched in 2007, but there won't be an explosion in growth."
BNP Paribas' Daly agrees that CCFs are complex vehicles that require a great deal of work before they are launched. "CCFs have to be of a certain size to make them viable. I think the market will plod along steadily with perhaps one or two being launched every six months. These can take three years to set up fully, but the consulting firms are still very much pushing them forward."
In November last year, the Irish Association of Pension Funds said alternative assets such as hedge funds, private equity and currency were "generally unpopular" with the trustees of defined benefit pension funds in the country.
In a report, ‘Investigation of trends in pension scheme investment', the association said: "A lack of understanding in investment and risk concepts may be restricting the ability of many pension schemes to manage their assets in the most appropriate manner. The general lack of understanding of investment issues includes some trustees of defined benefit schemes who appear reluctant to get involved with more complex, modern investment strategies, such as investing in alternative assets. Such alternatives could benefit their schemes by helping to maintain overall returns of their pension fund whilst at the same time improving their level of risk diversification."
Murphy says the reluctance stems from the fact that alternative investment funds have strong custodial responsibilities in terms of the security of assets and monitoring. Because hedge funds deal with prime brokers, this introduces an extra party, making monitoring of assets more difficult. "The pension trustees see the governance bar being raised, while the complexity of the asset base and parties requiring monitoring increases."
In general, there has been a huge increase in hedge fund activity in Dublin over the past year, says Daly. "The Dublin market is now looking after 30-40% of the world's alternative funds. There is great expertise here in Dublin and Cayman Islands products. Dublin has built up a significant infrastructure to administer these funds."