The scale and global importance of the Irish funds industry are quite simply breathtaking. The numbers involved are almost mind-boggling: €5 trillion in assets under management; €3 trillion in assets in almost 8,000 funds domiciled in Ireland; and €770 billion in 3,000 Irish-domiciled alternative investment funds.
At a level slightly more down to Earth, a 2019 study carried out by Indecon on behalf of the Irish Funds Industry Association estimated the industry’s total tax contribution at €837 million. Direct employment in the industry stood at 16,000 and this figure doubles to 32,000 when indirect employment in service providers in areas such as law, accountancy and custodianship are taken into account.
The study put expenditure on wages and salaries at €1.5 billion for funds industry-related staff and €2.1 billion on the purchase of non-labour business inputs in Ireland during 2018.
Those figures are more remarkable when it is considered that the industry is just more than 30 years of age. According to Martina Kelly, director of funds with the IOB, a key factor behind this success is the implementation of the European Union UCITS directive in 1989, which allowed funds authorised in Ireland to be sold across the EU.
Other factors include the favourable tax regime, a responsive and engaged regulator and a highly-skilled English-speaking workforce. “These factors continue to be important but there are others now which are as significant,” Kelly says. “The sophistication of the industry over the years, for example, resulting in large numbers of experienced service providers and specialist advisory firms. Comprehensive legislative and regulatory regimes which allow for the authorisation of a broad range of investment funds, from those marketed solely to retail investors to funds restricted to professionals and which engage in complex strategies.
“And the fact that, post-Brexit, Ireland is now the only English-speaking country with passport access to European markets. Training and upskilling have and continue to be very important.”
Strength in location
Eve Finn, managing director for Legal & General Investment Management, agrees that Ireland is well positioned to capitalise on the UK’s departure from the EU. “A huge number of new funds have come here since Brexit,” she says. “There have been nearly 120 new authorisations for companies since 2018. That’s a huge number. A lot of the big names in the top 25 globally are choosing Ireland as a funds domicile. That says something about the strength of Ireland as a location. We are the only English-speaking financial centre with a common law legal system in the EU.”
Ireland’s regulatory environment has also played an important role, according to Tara Doyle, who heads up the asset-management and investment funds department at Matheson. “We did a study with the Economist Intelligence Unit some years ago which looked at Ireland’s competitiveness compared with other EU domiciles,” she says. “We asked what works when it comes to choosing a domicile and the really strong message, which is still applicable today, is that a strong regulatory environment is very important. They don’t want light-touch regulation. They are looking for the opposite. They want clear and prudent regulation and they want certainty.”
The Central Bank offers that certainty, clarity and prudence, she says: “Funds is one of the areas where the EU tries to have a common market and someone has to regulate it. In this case the central regulatory authority, the European Securities and Markets Authority, is a regulator of regulators – with the Central Bank of Ireland responsible for regulating funds and the people who service them in Ireland.
“The industry needs to have confidence that the regulator will apply the rules in a prudent and certain manner and that any discretion is applied sensibly. They also want to be able to have an open dialogue with regulators.”
DMS investment management services director, Vanora Madigan, agrees: “Having a strong, robust and independent regulator with efficient and robust approval processes has been very important.”
She also points to the strong framework of support services which has grown over the years. “The industry is supported by a very strong ecosystem of interdependent parts and collaboration between a range of public and private stakeholders. We got here as a result of successive generations working hard to make Ireland a funds industry hub over the past 30 years.”
But the industry is nothing if not dynamic and international competition continues to intensify. “The Government’s Ireland for Finance strategy is very important in that regard,” says Madigan. “It aims to support the continued growth of the financial services industry in Ireland. The new Investment Limited Partnerships [ILP] Act was an action point in the strategy. It will make Ireland more attractive for investments in areas like private equity, sustainable investments and closed-ended alternative funds. Funds that might previously have gone to Luxembourg might now come to Ireland as a result. That’s really exciting.”
The importance of that piece of legislation is also highlighted by James Casey, a partner with KPMG’s asset-management practice. “A partnership structure is often used for investing in private equity-type assets and, more recently, green assets,” he says. “Until the signing of the ILP legislation, it was not possible to host these assets in an Irish fund and, as a result, much of the business in this space ended up in Luxembourg. The signing of the legislation will allow Ireland to compete with Luxembourg for these funds and create more jobs.”
Talent will be another key factor in future. “Investment in the next generation is really important,” says Patricia Johnston, who leads PwC’s asset and wealth management practice in Ireland. “We need people with the knowledge and expertise to work with much more complex asset classes. Training and education are hugely important for the future of the industry here.”
Continued industry growth will make the talent issue even more pressing, according to Finn. “There were 16,000 people employed in the industry in 2019 and I would expect that to have grown considerably since, as a result of Brexit and other facts. To continue to grow it will need the right support around it. We already have really good structures and services in place in terms of audit, Big Four, legal services, custodians, depository and other support firms.
“The talent there is fantastic but there is still a lot of upskilling to be done. We need to promote careers in the industry and get people to think about financial services careers very early on. That’s where Government and industry associations can really help.”
Remaining market-led will also be a must. “The industry needs to continue to focus on the key topics which influence demand,” says Kelly. “From an investor perspective, this includes value for money and a strong focus on ESG [environmental, social and corporate governance] factors in their investment choices. From a service provider perspective, entities must ensure that they are alive to investor concerns while also complying with the increasingly-complex regulatory environment.”