The Irish economy might still be coming to terms with
the effect of a crippling recession, but those managing the large
asset flows handled by the country’s financial services sector have
already seen an upturn. Paul Golden finds that Ireland’s wealth
industry could be well placed to benefit in the transparent
post-crisis environment.
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As offshore centres face increasing
scrutiny and rush to sign tax exchange agreement, highly-regulated
environments are an appealing prospect to investment managers and
investors. Ireland is not on any tax haven grey or black lists, has
an extensive tax treaty network and promotes itself as a highly
regulated and reputable offshore jurisdiction – an ideal mix at a
time when transparency is paramount.
Kieran Fox, director of business
development at the Irish Funds Industry Association (IFIA) agrees
Ireland is well perceived internationally.
“There are many fund centres around
the world, but Ireland is bound by European directives and the
reputation of the financial regulator when it comes to investment
funds has always been and continues to be very good, especially
compared to other jurisdictions,” says Fox.
Increased focus on tax rules
internationally has also benefited Ireland, while the regulator has
developed what Fox describes as “an excellent relationship” with
the industry and managers and promoters looking to set up Irish
funds.
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By GlobalData“Managers and promoters feel the
regulator understands the issues they face,” he adds.
Assets drop, recovery
begins
Fox acknowledges there was a drop
in assets that were domiciled or serviced in Ireland (whether
domiciled there or not) as a result of redemptions during 2008 and
2009. Funds that were deemed to have riskier strategies had money
taken out of them, but the diversity of the fund industry meant the
impact of outflows was not as severe as it might have been.
While the industry took a hit
during 2008 and 2009, with the value of funds serviced falling from
$1.93bn in June 2008 to $1.37bn in June 2009, according to figures
from Lipper, there were early signs that this downturn might be
short lived. Fund assets began to recover in mid-2009, most notably
for equity and bond products, according to Ed Moisson, director of
fiduciary operations at Lipper, which publishes the annual
Ireland Fund Encyclopaedia.
Despite the fall in the value of
the funds, the number of funds remained above 6,000 and the number
of promoters actually increased from 353 to 358. Statistics from
the Central Bank of Ireland and the Irish Funds Industry
Association (IFIA) suggest that by the first quarter of this year
assets under administration had already returned to peak
levels.
Private wealth
maturing
According to Rory Quinlan, head of
HSBC Private Bank Ireland, the private banking sector is also in
pretty good shape. Even though asset values have fallen there is
still plenty of wealth out there and a lot of liquidity in the
market with many clients having gone to and stayed in cash since
late 2008.
The majority of these clients are
Irish residents, but the tax structure is favourable for
non-residents managing corporate and family office wealth, explains
Quinlan.
While a shift from wealth creation
to wealth preservation is typical of most countries, Ireland is
still at an early stage of the wealth generation cycle, he
adds.
“There are a lot of families
transferring wealth from the first generation where the matriarch
and patriarch are still in place. This represents a great
opportunity for the wealth management sector to help these families
with the inter-generational issues they are facing for the first
time,” says Quinlan.
“There has been a lot of talk about
family offices and while there are very few in Ireland as yet,
their day will come,” he adds.
Optimism
returns
PricewaterhouseCoopers partner Pat
Wall, who is also a member of Dublin’s international financial
services centre (IFSC) clearing house group, says the Irish funds
industry has weathered the crisis quite well.
“Numbers employed fell very
slightly and recruitment has already started,” he says. “Ireland is
benefiting from a flight to quality as funds sponsors respond to
the changing regulatory and tax environment.”
Staff employed rose slightly in
2008 before falling by 7% last year. However, Fox says there is
evidence that employment is rising again with expectations of a 1%
to 2% rise in employment this year.
Financial services remain an
important contributor to the Irish economy and an industry the
country is keen to accommodate. Fergus Murphy, chairman of
Financial Services Ireland, which represents the companies that
operate within the IFSC, estimates these businesses generate more
than one-fifth of all corporation tax revenue and 7.5% of GDP. Add
payroll taxes from the 25,000-30,000 employees and the annual
contribution to the Irish exchequer is probably in excess of €2bn
($2.55bn).
Any discussion of Ireland as an
offshore jurisdiction inevitably turns to the sustainability of its
low corporate tax rate. But despite opposition from several
quarters within the European Community, minister for finance Brian
Lenihan gave an assurance at the last budget that there were no
plans to raise Ireland’s corporate tax rate from the current level
of 12.5%.
In the longer-term there is an appreciation that Ireland needs
to work hard to remain competitive and think carefully about what
sectors it wants to compete in, but all the indications are that it
remains an attractive place to do business.
|
IRELAND’S ASSET |
|
|
Ireland’s largest service |
|
|
Administrators |
|
|
Net assets ($bn) |
|
|
BNY Mellon |
262.5 |
|
State Street International |
196.3 |
|
JP Morgan |
129.4 |
|
Northern Trust |
120.2 |
|
Citi |
96.7 |
|
Custodians |
|
|
Net assets ($bn) |
|
|
BNY Mellon Trust Company |
241.3 |
|
State Street Custodial Services |
207.3 |
|
JP Morgan |
144 |
|
Northern Trust |
102.7 |
|
Bank of Ireland (BOISS) |
73 |
|
Notes: All funds serviced in Ireland |
|
