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Wednesday, 17th April 2024
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Dublin is well positioned to manage next wave of leveraged credit vehicles in the ABS market Back  
The changing landscape of banking in Ireland, and developments that were occurring in the international capital markets encouraged a number of asset-backed securities (ABS) investors and issuers to join in the initiative spearheaded by Financial Services Ireland (FSI) and the Irish Bankers Federation (IBF), to highlight and promote the securitisation industry in Ireland. In 2005, the Irish Securitisation Forum (ISF) was formed, to better represent the Irish securitisation industry. The Forum is chaired by Deirdre Somers, director of listings at the Irish Stock Exchange (ISE), and has two working groups – the service provider group headed by Darina Barrett, a partner with KPMG, and the investor/issuer group, headed by Neil Ryan, the former managing director of Naspa Dublin. In this article Ryan reviews the growth in the sector form an issuer/investor perspective, and writes that by developing Dublin further as a major centre for specialist securitisation investing and trading, by promoting and marketing the skill base, the track record and Dublin’s internationally recognised ABS investment hub or ‘cluster’, Ireland can become the premier location for the next wave of ABS issuing and investor vehicles.
The development of Dublin as a centre for the management of ABS was due to a number of unique factors:

Framework: the growth of the IFSC and, indeed, the focus on international business by leading domestic banks, was the catalyst for the increasing amount of assets under management.

Timing: Irish banks became one of the first movers in the rapidly growing ABS market towards the end of the 1990s. These institutions realised the potential for this market and seized the opportunity to invest in ABS.

Skills base: the presence of the relevant skills, and the availability of experienced personnel, facilitated the growth of ABS on the balance sheets of the institutions. As products in the ABS market became increasingly sophisticated, the Irish ABS community adopted new approaches to the market and, once again, committed to ABS as one of the core asset classes in their portfolios.

Reputation: the Irish ABS community is now firmly on the European map. Besides the size of assets under management, a large number of Irish investors and issuers are represented as speakers every year at IMN’s annual Global ABS conference in Barcelona.

While the banking model formed the basis for growth, over the past five years, the Irish market’s evolution has continued apace. A number of the banks established other vehicles for investment such as conduits, asset management companies or fund managers in order to better manage their capital or exploit market opportunities. In a growing number of cases, these innovations have led to managers establishing their own vehicles for investment. This development represents the international trend that we are increasingly seeing in financial markets of specialist niches developing in the credit and leveraged credit markets.

Issuers and investors
The ABS sector is an important segment of the European capital markets. According to public data, in 2004 there was a total of €255 billion of public issuance in European ABS, which grew in 2005 to some €385 billion. The continuing growth of the market is a function of increased demand and increasing sophistication of the products being offered. Ireland has been a significant player in this market and has, in a number of cases, contributed to a number of the significant innovations in the European ABS market over the past 10 years.

The investor/issuer group currently estimates that the aggregate amount of ABS investments managed by Irish based investors to be €100 billion - to put this in context, this is equivalent to almost 60 per cent of Irish Gross National Product (as estimated by the Central Bank of Ireland for 2006).

Informal investor surveys over the years have variously estimated the size of the total ABS funds managed in Dublin to be around €6 billion in 1999/2000, and €30 - €35 billion at the end of 2003. These surveys clearly illustrate an explosive growth in ABS assets under management over the past five years.

In 2005, Alexander Batchvarov, head of international structured product research at Merrill Lynch, in his presentation for the Finance Dublin Securitisation conference last November, stated that he believed Dublin ranked second only to London (and ahead of Frankfurt and Paris) as a centre for ABS investment.

Ireland’s growth as an issuing market is also growing with more domestic banks accessing the ABS market and the new asset or fund managers becoming increasingly visible.

The ISF
The Deloitte Study on the Future of the International Financial Services Sector in Ireland in September 2004 stated that, ‘Ireland needs to use what it has as a springboard to the next level of creating a financial centre devoted to debt financing and trading. If Ireland is to move up a gear and become a primary centre for specialist debt and financing products we must streamline the processes for issuing debt and trading debt. There is a real opportunity here for a world class centre. We are at a stage in our development where we can grasp this opportunity and make it our own. There is a great enthusiasm, desire and belief in the industry that this is a tangible vision’.

Given the current scale of investment undertaken in Dublin, the skills and the development of the Irish market, we have made, via the ISF, a very strong argument that Ireland is an ABS or securitisation investment hub where a cluster of investors and originators results in a concentration of ancillary services and a higher level of service for the Irish market relative to other centres in Europe.

Working with the professional services companies here in Ireland through the ISF and, importantly, establishing a dialogue with the Financial Regulator, where we are beginning to make progress, we hope to bring the Irish ABS market to the next level. An engagement process has started with the public sector stakeholders and we would hope for government support, in all its form, for the securitisation industry in Ireland.

The IFSC investor base believes the sentiments in the Deloitte Report to be correct and that further emphasis could also be placed on the significant skill base that has developed in ABS investing and trading. By developing Dublin further as a major centre for specialist securitisation investing and trading, by promoting and marketing the skill base, the track record and Dublin’s internationally recognised ABS investment hub or ‘cluster’, Ireland should be advertised as the premier location for the management of the next wave of ABS issuing and investor vehicles.

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