Ireland has become an attractive fund industry domicile for UK and US fund managers seeking access to the EU market, explains Andrea Lennon, country head – Ireland, Crestbridge.
The Irish funds industry is a well-established leading European domicile and a natural fit for UK and US fund managers distributing across Europe. The 2021 Monterey Ireland Fund Report recorded 383 UK managers and 305 US managers utilising Irish-domiciled funds.
Ireland has always punched above its weight for an island of just 5.1 million people. Its attractiveness is nothing new; the fund industry has developed over 30 years, and key to its success is the 17,000 fund professionals, tax transparency and efficiency, common law system and innovative client first close-knit fund community which continuously seeks to evolve and enable fund managers to launch new strategies that reach the 500 million consumers across the EU.
There are indeed particular triggers for this more recent growth; for example, Brexit has acted as a significant trigger. UK and US asset managers looking to maintain access to the EU market moved their UK AIFMs to Ireland or Luxembourg. More broadly, almost half (41%) of the UK’s biggest financial services firms have relocated and are considering relocating or adding staff and operations to Europe since the Brexit referendum in 2016, according to EY figures. Of the 222 firms in scope, 90 have confirmed the move. Dublin is the most popular destination for 36 firms, while Luxembourg comes second with 29 firms.
Over recent years the significant growth in investor allocation to the PE/RE fund sector has seen other major European fund domiciles struggle to keep up with the demand. However, given Ireland’s experience servicing non-domiciled funds, the industry has been able to adapt and redirect servicing of these funds to Ireland quickly.
“Over recent years, the significant growth in investor allocation to the PE/RE fund sector has seen other major European fund domiciles struggle to keep up with the demand”
Achieving continued growth and retaining its reputation for high service standards and professionalism comes down to factors including a deep pool of talent, ever-evolving skillset such as risk and compliance, the use of English as its first language, a high level of general education, and a legal system and working culture similar to that of the US and UK.
These factors aren’t just bringing in more fund managers but the people needed to staff them and the work they provide the industry. As the cost-of-living crisis bites across the world, these factors bring back Irish ex-pats and foreign nationals, such as those in the UK and the US, which may be coming to work and living in Ireland for the first time. Ireland is attracting financial services professionals, along with other qualified professionals like lawyers, doctors, nurses and teachers, in search of lower cost, good quality housing and a generally better standard of living.
The influx of individuals with specialised financial skills has led to the expansion of Ireland’s financial services offerings. Historically, Ireland’s financial system was primarily focused on back-office operations. Still, the addition of expertise in private equity waterfall calculations and valuations has enabled Ireland’s industry to offer more middle-office services to clients in the UK and the US. This trend has become increasingly pronounced in the last year. After this has become even better established, Ireland’s next wave of innovation will be centred around front-office jobs.
This fact is the foundation for this increased attraction to Ireland, especially amongst the Anglosphere’s fund management industry. This is because asset managers of all sizes feel they can entrust the work they need to be done to the Irish financial services industry. Similarly, in the public markets, several world-class companies are based in Ireland, and in the private sector, many top-performing life science and technology firms are headquartered here.
“The influx of individuals with specialised financial skills has led to the expansion of Ireland’s financial services offerings”
Part of this trust comes down to the regulatory strength of the Irish market and the sensible measures and frameworks the Central Bank of Ireland (CBI) has put or is putting into place, establishing a good balance between investor protection, ensuring broader economic stability in Ireland and offering managers an attractive framework in which to operate.
One prime example of this is the changes to the Irish ILP structure. The ILP Act 2020 improved competitiveness as a fund domicile by allowing the creation of umbrella funds with sub-funds of segregated liability and improving the operation of the ILP, aligning with regulatory and legal developments. It also allowed for majority consent for LPA amendments, limits LP liability and allows for the migration of LPs in and out of Ireland.
Another more recent example is the CBI’s November 2022 macroprudential measures for Irish-domiciled property funds, which include proposed leverage limits and liquidity guidance for those funds. These measures aim to ensure the stability and resilience of the Irish fund industry and provide a level of protection for their investors.
As we move into 2023, I expect the CBI will continue to prioritise managing liquidity risk, valuations, oversight by fund management companies, implementing additional Sustainable Finance Disclosure Regulation (SFDR) disclosures, enforcing the Senior Executive Accountability Regime (SEAR) and enhancing outsourcing and operational resilience.
As the last few years have shown, as Ireland’s fund sector continues to grow, it is becoming increasingly more difficult for asset managers worldwide to ignore the potential of Ireland as a domicile.
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