The Irish funds industry is a global success story

One of Ireland’s greatest business success stories over the past four decades has been the funds industry. From a zero base back in the late 1980s, assets under management in over 8,800 Irish-domiciled funds now total almost €4 trillion, while a further €1.7 trillion worth of funds domiciled elsewhere are administered from here.

“Today Ireland is the third largest investment fund centre in the world and is regarded as a key strategic regulated international funds domicile by the world’s leading asset managers and funds service providers,” says Joy Kiely, CEO of BNP Paribas Fund Administration Services (Ireland). “Ireland provides a diversified choice of fund regimes and vehicles adapted to any strategy and distribution model, as well as an innovative and flexible environment for alternatives.”

The economic contribution is significant as well. “More than 100,000 people are working in financial services in Ireland, between 17,000 and 18,000 of them in the funds industry with the same number again employed indirectly in support services,” says Irish Funds Industry Association chairperson Colm McDonagh. “We carry out industry surveys every few years and the last one showed that the sector contributed €1 billion to the exchequer every year.”

McDonagh attributes much of the industry’s success to the foresight of some early pioneers. “If you go back to the beginning there was a small group of highly motivated people who saw the opportunity to get an early start on the UCITS (Undertakings for the Collective Investment in Transferable Securities) and AIFs (Alternative Investment Funds) which are marketable around Europe,” he says. “Over time the industry generated its own clustering effect and added new service offerings. That clustering effect has accelerated over the past seven or eight years. Part of that is due to Brexit. Part of it is the growing expertise in international financial services here.”

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Ibec Financial Services Ireland Group director Patricia Callan says the success and growth of the industry can be attributed to several key factors. “Effective implementation of EU legislation, such as UCITS and AIFMD, has created a favourable regulatory environment,” she says. “Additionally, Ireland has developed specialised skills and expertise in fund establishment, supervision, tax treatment, and management. The introduction of dedicated national legislation and tax policies, along with proximity to global technology and financial services industries, have further contributed to the industry’s growth. Finally, Ireland’s stable political environment, business-friendly policies, and strong legal framework provide certainty and predictability for investors.”

McDonagh believes the Irish industry’s success is celebrated more overseas than at home. “It’s a big success story internationally but that’s not as well known here,” he says. “It’s a massive export industry that a lot of people have never heard of. Funds domiciled in Ireland are distributed in over 100 countries around the world. If you go abroad you’ll find that Ireland is seen as a leading hub for the industry. The quality of regulation here is seen as pretty high. People can’t really define the asset management or funds industries very well. These businesses have grown up over more than 30 years. If you’re not involved in it day to day, you’re not really aware of it.”

Jorge Fernandez Revilla, head of asset management with KPMG in Ireland, says the industry’s success is as much about talent and cost competitiveness as anything else, but there is no cause for complacency.

“We have all the advantages here,” he says. “A great pool of talent, an open economy, very good universities, and what we do we tend to do really well. But we can never stand still, we need to continue to improve and move up the value chain. If we don’t someone else will.”

According to Fernandez Revilla, investment in talent, technology and the development of innovative new products are required for Irish to maintain and improve is competitive position globally. “If we are going to move further up the industry value chain different skills will be required. We need to invest in upskilling our people.”

Investment in technology will be required both to support faster settlement cycles and other changes to the trading landscape. It will also be needed to facilitate the administration of digital assets.

“We will see mortgages and other assets replaced with tokens,” he says. “To support that we need to start trading in digital currencies. That will ensure that everyone understands and is proficient in the use of digital assets. You need to start somewhere. This is the reality.”

He also calls for the introduction of new fund structures such as the Reserved Alternative Investment Fund (RAIF), an investment fund that can invest in all types of assets and which is seen as far more flexible than other fund structures. It is only available in Luxembourg but can be marketed to well-informed investors across the EU.

“RAIFs have been extremely successful for Luxembourg and we need something similar here,” says Fernandez Revilla.

Another innovative fund type is the European Long-Term Investment Fund (ELTIF). This allows investors to put money into companies and projects that need long-term capital. It is aimed at investment fund managers who want to offer long-term investment opportunities to institutional and private investors across Europe. ELTIFs will shortly be available in Ireland. “These vehicles are needed to support in infrastructure and the energy transition,” he says.

Callan calls for a number of measures to be implemented to maintain the success of the industry here. “Continuous alignment of the regulatory framework with evolving EU directives and global standards is essential,” she says. “Investment in skills development and talent retention is crucial to sustain the industry’s growth. Embracing innovation and leveraging technology will help stay ahead in a rapidly evolving industry. Furthermore, enhancing collaboration between industry, government, and educational institutions is vital for driving innovation and addressing skills gaps.”

McDonagh agrees: “We need the same unity of purpose that helped to establish the industry here. That means industry participants working closely with the regulator and the government.”

There are some areas of weakness that need to be addressed, however. “These include tax clarity and predictability, infrastructure and digital connectivity, and the talent pipeline,” says Callan. “Addressing these weaknesses involves simplifying the tax regime, investing in digital infrastructure, including broadband and cybersecurity, and ensuring a continuous pipeline of skilled professionals through education and training initiatives.”