Well placed to take advantage of the new normal

The economic fallout from the Covid-19 pandemic has presented a range of challenges for the global, as well as the Irish, investment fund and asset management industry over the past months. However, as markets stabilise the emerging new normal may present opportunities for the sector according to Niamh Murray, senior associate with Pinsent Masons.

She says an important consideration for the Central Bank of Ireland is to "seek to ensure that the industry here comes through the crisis in as strong a position as possible, having protected the value of investors' holdings to the greatest extent possible in volatile markets, and with its reputation intact as a well-regulated jurisdiction, with robust supervisory processes which promote shareholders' best interests".

“Responsible and effective liquidity management has been a key focus of the Central Bank as the industry plans for Brexit, but the Covid-19 emergency has meant the issue has taken on an even greater significance,” she adds.

In a recent communication to the industry the Central Bank emphasised the importance of ongoing, effective liquidity management for investment funds. “Fund boards need to ensure portfolios are sufficiently liquid to be able to meet investors’ potential redemption demands and must engage in regular stress testing to ensure this remains the case in the current volatile market environment,” Murray explains.

In a further step aimed at bolstering investor protection, the Central Bank has issued guidance providing that where a particular risk, which may materially affect an investment, is not already covered by existing prospectus disclosures, a fund should consider the extent to which it should be brought to the attention of investors in prospectus documentation.

According to Murray, the Central Bank is taking a somewhat pragmatic approach in “focusing on pressing issues which could pose an immediate problem for the health of the industry” with other projects such as updates to legislation and regulatory guidance being put on hold to be addressed later.

Looking to the future she says there may be increased opportunities in certain asset classes. “Given recent market turbulence and resulting losses for some investors, the importance of the selection by investment managers of specific securities which have the potential for outperformance in a dislocated market will likely come ever more to the fore in investors’ minds. This could represent an opportunity for more active investment management generally.”

In particular, alternative managers may be positioned to access opportunities arising due to current Covid-19 challenges, she believes. Possible areas of focus could be investment in securities with exposure to the healthcare, IT, life sciences, edtech and fintech sectors.

“In addition, ESG and sustainable strategies will undoubtedly continue to be pushed further and further up the agenda by investors,” says Murray.

Remote working

Legislative developments such as the proposed update to the investment limited partnership legislation should make Ireland a “much more attractive proposition” for those asset managers wishing to establish private equity, real estate, infrastructure, venture capital or credit funds.

“If appropriate legislation is enacted, such funds could be used to raise capital for the development of key investment areas such as renewable energy projects and strategic infrastructure in order to advance the green agenda and help boost the economy generally post-Covid,” she notes.

The Irish funds industry’s response to the Covid-19 crisis will add to this country’s attractiveness. “The sector has continued to function well throughout the emergency, facilitated by a smooth transition to remote working by the vast majority of the approximately 16,000 funds industry workers in Ireland,” she points out.

"Remote working, including virtual meetings, is now considered acceptable in many more circumstances than would have been thought possible just a few short months ago. Building on this, one would hope that technology such as Microsoft Teams and Zoom can be utilised for building relationships with asset managers and potential investors globally where previously only face to face meetings would have been acceptable. These technologies should also help in the further expansion of the sector beyond Dublin and the potential redeployment of jobs to regional cities and towns."

Actions by the regulator have also helped. “The Central Bank’s strong and regular engagement with industry during this difficult period has demonstrated to the wider global industry the importance it places on its supervisory role and on ensuring regulated entities continue to serve investors and other stakeholders well,” she adds. “It would appear that the Irish asset management industry is well positioned to assist in the economic recovery needed post-Covid as markets negotiate the path to the new normal, whatever form that may take.”