Growth and substance in troubled times

By A Paris – The Irish funds industry has demonstrated its resilience as it continues to navigate the Covid-19 pandemic with its head held high. Despite the global market turbulence, Ireland continued to benefit from the Brexit fallout as large global managers chose to open operations in the jurisdiction and Ireland’s commitment to ESG growth is sustained.

Cohen & Steers and M7 Real Estate announced the launch of their Dublin offices in May this year, joining other global names like Eaton Vance, Mediolanum Group and Manulife, which opened their Dublin doors at the back end of 2019.

In a statement, John Murnaghan, Head of UK and Ireland at M7, says: “Ireland has been one of the strongest performing economies in Europe over the last few years and a key market for M7.”

According to Cohen & Steers, the establishment of its Irish contingent strengthens its European presence. “The company will expand Cohen & Steers’ capability to distribute the firm’s European fund range in the EU while ensuring uninterrupted service for its European institutional and wealth management advisory business post-Brexit,” the firm announced.

The cautious optimism seen across the funds industry, as fund sales “bounced back” between March and May 2020, is echoing in the broader Irish economy. Commenting on the results of the Grant Thornton International Business Report (IBR), Michael McAteer, Managing Partner of Grant Thornton Ireland, said: “Encouragingly a small number of Irish firms anticipate a positive impact of Covid-19 on their 2020 revenues (16.4%) with a further 19.7% not expecting to see any change at all in their revenue this year and just 23% predicting a revenue decrease of 20% of more. While there has undoubtedly been a decline in revenue and profit expectations, and it will not be an easy year ahead as the economy emerges from lockdown, it is reassuring to see Irish business retains some optimistic outlooks.”

The IBR provides insight into the views and expectations of more than 10,000 businesses across 29 economies.

“Investment funds, the largest part of Ireland’s non-bank financial sector, have increased their balance sheet more than six-fold since the end of 2008. In mid-2019, such funds had assets under management of EUR2.6 trillion (around 8 times annual GDP),” according to the OECD Economic Survey: Ireland 2020.

The organisation advised: “Given the wide variety of entities and activities in the non-bank sector, the authorities must continue to invest resources in monitoring developments and enhancing their capability to conduct robust stress tests of the sector. In doing so, care should be taken not to introduce excessive regulatory burdens that would hold back the development of innovative financial solutions providing alternatives to bank financing.”

Brexit opportunity

Covid-19 notwithstanding, the outlook for the funds industry remains one centred on growth, particularly in light of European substance rules. As of December 2019, the Central Bank of Ireland had received 100 license applications from UK-based firms looking to set up in Ireland.

As Esma doubles down on the need for ‘substance’ across fund jurisdictions, meaning an office needs to have a number of people physically present, the Irish industry could see a boon in staffing as these licenses are issued and firms need to hire professionals in their newly minted Dublin contingent.

Andrew O’Callaghan, PwC Global Asset and Wealth Management Advisory Leader and Partner, PwC Ireland Asset and Wealth Management Practice comments: “With over 100 new asset managers already having relocated to Ireland over the last 18 months, Ireland has a clear opportunity to be a leading centre for high value funds and FinTech activity in a post-Brexit world. 

“And the allocation of additional resources by Ireland’s CBI has undoubtedly helped asset and wealth managers accelerate potential activities. With an English-speaking, highly skilled workforce and ease of access to over 400m EU consumers, Ireland can continue to capture significant growth opportunities.”

Adrian Hilderly, Head of FSI Ireland, First Sentier Investors, formerly First State Investments, remarks: “Something that has been quite noticeable is the move from Ireland being seen as a centre for fund servicing to one where companies are creating and adding to management substance.  This is beneficial to the Irish funds industry as it broadens the mix of skills required, and enables fund companies to develop and grow their presence.

“Irish substance requirements have increased through existing regulatory standards.  If further substance is required by ESMA then this is likely to lead to a rise in employment.  However, there is a risk that this increases the cost of access to the EEA, which may impact overall fund management growth in the region.”

Capacity constraints could also throw a spanner in the works and according to Eoghan Harney, Head of UK Fund Operations and Client Services at IQEQ, Northern Ireland could form a key part in the solution. He comments: “Currently, the Central Bank of Ireland (CBI) requires two locally resident directors for Irish-domiciled funds. However, this rule has caused capacity problems. Allowing individuals who are resident in NI, with the skills and experience, to be regulated by the CBI as local directors of Irish funds, would greatly alleviate current capacity problems.”

Outlining further potential for the Irish funds industry, O’Callaghan stresses that Ireland has the capacity to be the natural domicile for funds in emerging growth areas such as ESG investment: “Capable of offering superior financial performance, Ireland’s fund management industry has a great opportunity to become a centre of excellence for ESG investment.”

Forging ahead with ESG

Echoing O’Callaghan’s outlook, the potential of ESG growth within the Irish funds industry has come under the spotlight even further this summer as Irish Funds responded to the European Commission consultation on the renewed sustainable finance strategy.

In its July response, Irish Funds highlighted the potential for strong investor demand for ESG products, the European Green Deal and the correlation between ESG products and return. “The way that these products are managed, the long-term value they add, their resilience and performance are all correlated, which validates the mainstreaming of sustainability,” the association notes.

In the association’s view, the challenges with bringing sustainability into the mainstream relate to availability of high quality, consistent ESG data reporting, the ability of investee companies and the wider economy to transition (as financial services do not operate in isolation from the real economy) and the practical implementation of the EU sustainable finance regime. 

Irish Life Investment Managers and First Sentier are the most recent signatories to ESG Ireland. The independent knowledge centre is focused on delivering thought leadership on the practical application of responsible investing for trustees and investors.

When announcing the firm’s membership, Kathy Ryan, Head of Responsible Investing, Irish Life Investment Managers, said: “Our clients trust us with their investments and to deliver on our core promise to help them build better futures. The sustainability of investments is a key issue and needs to be considered by all investment managers.”

Hilderly at First Sentier outlines: “Ireland is a relatively late adopter, however ESG is bringing a focus on governance standards and social utility across the industry value chain. The Central Bank of Ireland in partnership with the EU and the broader asset management industry, with special mention to Irish Fund’s work both in Ireland and Brussels, has already established governance standards that should be recognised as progressive and supportive in what we aspire to for our industry in this regard.” 

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