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Wednesday, 17th April 2024
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The dramatic growth of Ireland's funds industry Back  
Tara O'Reilly charts the rise of the Irish investment funds business and looks at the challenges ahead.
Ireland's International Financial Services Centre (IFSC) was established in 1987. Two years later, 1989 saw the introduction of the UCITS Directive to Ireland and the launch of the first Irish UCITS fund. From these seedlings a thriving industry has grown. Ireland is now a well recognised world class centre for financial services, servicing domestic and non-domestic funds with assets under management of over $1 trillion and employing over 8,000 people in locations now expanded beyond its initial Dublin base. Ireland now boasts over 4,000 domiciled funds with assets in excess of E700 billion. UCITS constitute approximately 60 per cent of all Irish domiciled funds with over 2,300 UCITS funds and assets of over E583 billion. Non-UCITS funds number 1,744 with assets of over E147 billion. By far the largest category of non-UCITS funds is the Qualifying Investor Fund, introduced in 1996, with currently 815 funds with assets in excess of E92 billion.

From its early days, Ireland proved attractive as a location for many of the world's largest asset managers and has been extremely successful in attracting international service firms to locate here. There are a number of factors that have led to this success: our reputation for an attractive regulatory environment, a stable economic and supportive political environment, a highly skilled, educated workforce and low cost structures. How have these factors developed over the 20 years?
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The regulatory environment has proven to be a critical component of the Irish story. From the outset, the Financial Regulator adopted a principles-based approach to regulation and, while discharging its responsibilities for consumer protection, has been approachable, responsive, open to product innovation and accessible to industry. While structures and processes have changed since the first fund was authorised, the Financial Regulator remains committed, as outlined in its Strategic Plan 2007-2009, to its fundamental principles-based approach to supervision while fostering an environment that allows for innovation and competitive financial services and to striking a balance between the advantages of regulation and the constraints it imposes on financial services providers. This environment has allowed Ireland to be innovative in its meeting of market demands and continues to allow the development of the broad range of product structures domiciled here.

Innovation meant Ireland was well placed to be the first regulated jurisdiction to consider alternative funds. As the number of alternative funds grew, so did servicing capabilities, and Ireland is now the largest centre in the world for the servicing of alternative funds. Innovation in other products has also led to significant market segments developing and Ireland is now the largest centre for European domiciled money, market funds and the largest service centre for European exchange traded funds.
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There has been an explosion of financial services regulation both at an EU and global level over these first 20 years and the pace of regulation and responsiveness to market development has improved significantly over the period. It took over 15 years for the first substantive changes to the original UCITS Directive. UCITS III was introduced in 2003 and already we have the EU Commission's White Paper and consultation process on possible adjustments to the UCITS Directive moving toward further UCITS enhancements with ongoing guidance being issued by the Committee of European Securities Regulators (CESR). Integration of the European financial markets is driving EU legislation with the Financial Services Action Plan (FSAP) seeking to progress the creation of a single market for financial services in Europe. 39 of the initial 42 initiative issues on foot of the FSAP have now been implemented. While regulation is increasing, its creation of increased cross-border capacity provides Ireland, with its existing specialised and expert service capabilities, with continued opportunities to act as the European platform for many global financial organisations.

The political environment that initiated the IFSC continues to support it. In September 2006 the Government published its Building on Success review, which confirmed its support for this industry and set out initiatives to be undertaken. Some of these have already been implemented, such as the new 24-hour authorisation process for Qualifying Investor Funds. With this initiative, an approved promoter can bring a regulated product to market as quickly as an unregulated off-shore product, allowing Ireland to compete with some of the unregulated jurisdictions on a level playing field in terms of speed to market. The Government continues to focus on the IFSC industries to ensure the right supports and policies are in place to promote its continued growth.
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Ireland has always produced a highly educated workforce that has become the pool of industry expertise that gives Ireland its brand for excellence. The 20 years of the IFSC have seen Ireland move from net emigration with many of our skilled graduates leaving Ireland to seek work, to a position now of net inflow of workers. Despite that, the availability of resources to service this thriving industry has tightened. Ever responsive, the industry has recognised the need to maintain and improve its pool of skilled employees and has addressed this with its own innovation. Focus has been created in various educational centres on relevant courses in this area to develop a larger pool of potential resources. Service providers have located outside of Dublin close to those educational centres and are attracting both local staff and existing staff interested in relocating outside Dublin. Outsourcing of certain functions, such as high volume, back office operations to new centres such as India, is also forming part of the solution to keep Ireland as a well resourced value centre.

William Fry has been a long term participant in this market and has seen its own significant growth. Starting in 1992 with a team of two, the Asset Management and Investment Funds Unit in William Fry now has six partners and supports a growing team of over 20 specialists with various industry backgrounds. As of June 30th 2006, William Fry acted for funds with in excess of E158 billion under management and a client base of many of the world's leading traditional and alternative managers domestically and from the US, Europe, the UK and Asia. We have established product from UCITS AAA money market funds to innovative new UCITS III product, various alternative funds including new pension solutions such as liability driven funds, leading many policy initiatives with the Financial Regulator on the way. William Fry is an active participant in this industry and we believe that the cooperation of peers and competitors in the Industry in support of Ireland Inc is a significant factor in the continued success of this jurisdiction as a domicile and service centre for investment funds.

There are challenges ahead for Ireland and we need to maintain our competitiveness, responsiveness and innovation but with the spirit that brought us to this successful place still alive, Ireland is well placed to maintain its position as a centre of excellence for the global funds industry and to be celebrating another 20 years of growing.

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