PwC: Gathering assets, people and jobs

Almost 500 global asset management leaders will gather in Dublin’s National Convention Centre over the next two days for PwC’s European Asset Management Conference. Coinciding with The Gathering, the decision to hold the conference here and the size of the attendance are confirmation of Ireland’s status as a global centre for asset management.

"This is the best globally attended conference we have ever held here from an asset management perspective", says Damian Neylin, leader with PwC's Asset Management Practice. "People have been drawn to it by the nature of asset management as a global industry and the fact that Ireland is now an acknowledged international centre for the domicile and administration of funds."

And this reputation is backed by the numbers which are so large they almost boggle the mind. In June of this year, total investment fund assets in Ireland reached €1.27 trillion having increased by 4.1 percent since the previous year. The significant majority of this – €998 billion – was accounted for by UCITS (Undertakings for Collective Investment in Transferable Securities) which comply with a set of European directives allowing them to operate freely throughout the EU on the basis of authorisation by a single member state such as Ireland.

And the consistent growth in the level of fund assets is equally impressive. Total assets in June had grown more than threefold since the end of 2001 and had almost doubled since 2008.

"This has been the most resilient of the services sectors since the downturn began in 2007," says PwC asset management tax partner Marie Coady. "It's right up there with technology and I think the target of 10,000 new jobs in the Irish international financial services sector set by the Minister for Finance is very achievable. Only about 10 per cent of European assets are invested in funds at the moment, so there is a market there and Ireland is well placed to succeed in it. This is not a false optimism.

“The fact that we are holding our European Asset Management Conference here and the numbers we have coming to it are great signs of the recognition there is for Ireland’s position as a global funds leader.”

The conference will hear from a range of speakers drawn from both the domestic and international arenas who will address the continued growth in the sector and the increased opportunities it presents for Ireland.

"It is an international business and people continue to invest in assets, they just change the type of asset", Neylin notes. "Ireland has such a diverse range of funds it is well placed to capitalise on any trends in the future. For example, passive vehicles like exchange traded funds (ETFs) have been very attractive to investors of late and Ireland's offering in this area, backed by the very efficient and internationally respected tax regime for them, has been particularly successful. Ireland is the leading ETF domicile in Europe with over 60 percent of ETF players globally having products in Ireland which are sold into 70 different markets around the world. Our success in this area is based on our strong regulatory regime and international confidence in the products which are domiciled here. We see this side of the business continuing to grow."

Another driver of growth will be the Alternative Investment Fund Managers Directive (AIFMD) which came into force on July 22nd last. At its most simple this directive will bring the same clarity and uniformity of rules currently enjoyed by UCITS funds to the area of alternative investment funds. Alternative investments are not, as their name might suggest, exotic punts on wildly risky ventures but are investments outside of the usual asset classes of stocks, bonds and cash. They range from very traditional investment areas such as commodities to the much more recent phenomenon of hedge funds.

“This was introduced by the EU following the financial crisis of 2007 and 2008 and the perceived role of hedge funds in exacerbating the crisis,” Coady explains. “Its scope covers all non-UCITS funds including non-UCITS retail schemes, investment trusts, private equity, real estate and hedge funds. It regulates the fund managers of all these non-UCITS funds but not the funds directly, and it gives fund managers regulated under it access to a marketing passport for their investment funds.”

It is this last point which is the most important. “AIFMD will be the choice for institutional investors and the passport it offers will mean that funds based in Ireland can be marketed throughout the EU,” Coady adds. “We are starting to see the potential benefits of AIFMD and we can see it becoming a second global investment brand alongside UCITS.”

PwC has also been engaged in what Neylin describes as "crystal-ball gazing" in order to look beyond the immediate future and anticipate the asset management landscape which may exist in 2020. Along with the continuing rise of emerging economies in Asia and Latin America, one of the most profound changes will come about as a result of the influence of new distribution technologies and channels.

"New entrants to the investment industry from left field could disrupt a structure that has been in place for two or three decades," he notes. "The most likely source of disruption will come from social media or technology companies, which may combine their reach, knowledge and influence with banking alliances to provide compelling asset management propositions. A social media firm could, for example, provide front-office services, and partner with or even buy a back office servicing firm to create an integrated asset management structure. Equally, a payments servicing specialist such as Amazon or Paypal could provide an operating-model challenge in the back and middle offices."

Considerable resources
This will lead to distribution opportunities and channels in 2020 which will be markedly different from the ones that exist today. "The current model is predominantly focused on relatively experienced and sophisticated investors in developed markets," Neylin points out. "Tomorrow's clients will be younger and based increasingly in South America, Asia, Africa, and Middle East (SAAAME) countries. This shift will take place so fast and across such large geographical areas that distribution strategies will have to evolve markedly to keep up. This will demand that asset managers devote considerable resources to planning and revising their overall strategies, combining innovative technology with boots on the ground. And Ireland is well placed to lead the charge."