You are on page 1of 16

GLOBAL FUNDS IRELAND

Investor Services Journal Supplement, May 2009

First Word
Brian Lenihan

Annus horribilus
Eoin Ryan MEP

Twenty 20 Vision
Gary Palmer, IFIA

Alternative lifestyles
- the risk landscape

Post
Apocalypse
GFI 203x267 final.indd 1 10/06/2009 19:55
Global Funds Ireland ISJ Investor Services Journal

First
word Brian Lenihan,
Finance Minister

“ Globally, the financial services industry has


experienced its most difficult year for generations,
if not ever.
The Funds Industry in Ireland has not been immune to
is the only international location of significance not to be
included in the many lists of “offshore” jurisdictions. I might
add that the Irish Government has recently re-affirmed its
commitment to retain the 12.5% Corporation Tax Rate.
these turbulent times but it has the knowledge and experi- The industry includes in excess of 12,500 experienced
ence that will be vital to enable it to take advantage of the professionals who, through professional expertise and in-
opportunities that will inevitably arise. novation, have added considerably to the global Industry’s
Ireland is one of the most significant international invest- capabilities.
ment fund jurisdictions in the global investment funds
industry with in excess of 10,000 funds (including sub-funds)
and a net asset value of EUR1,400 billion being serviced by
“The Irish Funds Industry
the international investment funds industry in Ireland,
The Irish Funds Industry is an industry which has been
has consistently
built on the pillars of openness, transparency and investor
protection. Therefore, Ireland has the potential to be a sig-
demonstrated its
nificant centre of excellence for the global investment funds
industry
resilience over the years”
Recent events in financial markets have questioned the
operating model of many sectors of financial services. Solu- While Ireland has laid a significant claim to be the domicile
tions are being sought to align the demand for transparency, of choice for investment funds; in the administration of in-
regulation and openness with the desire for flexibility and vestment funds the industry’s credentials are well established
speed to market. With close to 20 years of significant achieve- and Ireland is often referenced as the world’s leading centre
ment, the industry in Ireland has been successfully addressing for investment fund administration.
these tensions so as to achieve a balanced outcome. I was heartened by the recent announcement by a global
The prevailing regulatory environment is one of the most consortium which chose Ireland as the domicile for a new
important factors in choosing an international jurisdiction Exchange Traded Funds Platform because it “..stood out with
for the domiciling of an investment fund. The regulatory its highly regarded and globally recognised financial services
environment in Ireland enjoys a considerable reputation for infrastructure and its international position at the forefront
determining and leading international best practise in the of the funds regulatory regime…a strong service and support
funds sector. The signing of a Memorandum of Understand- infrastructure across the industry made Ireland the natural
ing between the Financial Regulator and the Chinese banking choice over other competitive fund centres.”
and securities regulators was a very significant positive event The Irish Funds Industry has consistently demonstrated its
in a year which provided us with many other less positive resilience over the years. Its ability to react to market devel-
memories. opments will allow it to continue to identify and exploit the


An acknowledged open and transparent tax regime, Ireland opportunities that arise.

GFI 203x267 final.indd 2 10/06/2009 19:55


General Company Ad

We can...

...see the wood


At Dillon Eustace our many years of experience mean we can For more information contact:
provide clear, focused advise, without ever losing sight of the
Mark Thorne.
bigger picture. We offer national and international corporates,
banks, asset managers and insurers our expertise in: Dillon Eustace,
33 Sir John Rogerson’s Quay,
• ABS/Funds Listing • General Commercial
Dublin 2.
• Asset Management • Investment Funds
• Banking • Labour Law Tel: +353 1 667 0022
• Commercial Property • Litigation Fax: +353 1 667 0042
• Corporate Finance • Maritime/Aviation
mark.thorne@dilloneustace.ie
• Cross Border Insurance • Regulatory Compliance
• Defamation • Securitisation
• Financial Services • Tax

GFI 203x267 final.indd 3 10/06/2009 19:55


Storm

Global Funds Ireland ISJ Investor Services Journal

Twenty 20
vision
On the 20th anniversary UCITS, Gary Palmer,
chief executive of the IFIA looks at the
achievements and the way to maintain them.


When the investment funds industry was being over the world to re-assess its operations and priorities. During
established in Ireland 20 years ago, the concept was this re-assessment some of the key issues being highlighted
to develop an industry that would partner the grow- include: supervision and regulation; safety and custody; liquid-
ing international model of multi country distribu- ity; transparency for investors and independent valuation. As
tion from one manufacturing/servicing centre of excellence. such, consideration of the prevailing regulatory environment is
Ireland provides this through an industry built on the pillars of the most important factor in choosing an international juris-
openness, transparency and investor protection. These pillars, diction for the domiciling of an investment fund. Within the
now the virtues and qualities sought by the global industry, debate on fund regulation at both EU and international fora
provide Ireland with the potential to be the most significant the participation of the Irish Financial Regulator is regarded
manufacturing/servicing centre of excellence for the global as one of the most informed and the regulatory environment
industry. With significant achievement over the last 20 years in Ireland is seen as leading international best practise. Ireland
the regulatory environment in Ireland enjoys a considerable has been chosen as a domicile for investment funds by many
reputation for determining and leading international best international companies because of its reputation for strong
practise. An acknowledged open and transparent tax regime, regulation.

“Ireland must ensure


Ireland is the only international location of significance not to
be included in the many lists of “offshore” jurisdictions. The

that it continues to
industry includes in excess of 12,500 experienced professionals
who through the provision of expertise and thought leader-

provide solutions and


ship have added considerably to the evolution of the global
Industry’s capabilities.

deliver efficiencies”
With in excess of 10,000 funds (including sub-funds) and
a net asset value of EUR1,400 billion being serviced by the
international investment funds industry in Ireland, it is one of
the most significant international investment fund jurisdic- As the industry looks forward, solutions are being sought
tions in the global investment funds industry. While Ireland to align the demand for transparency, regulation and open-
has not only laid justifiable claim as the domicile of choice, ness with the desire for flexibility and speed to market. Given
but in the administration of investment funds the industry’s that the environment in Ireland has always been focused on,
credentials are well established and Ireland is often referenced openness transparency and investor protection together with
as the world’s leading administration centre. This reputation, the market need for flexibility and efficiency, the industry in
which is evidenced by the scale of activity, has been maintained Ireland has been continuously addressing these often seen as
by the development of best practice and thought leadership. conflicting requirements. Given that the original concept on
Recent events in financial markets have questioned the which the industry was established is more important than
operating model of many sectors of financial services and the ever, Ireland must ensure that it continues to provide solutions


investment funds industry has clearly not been immune from and deliver efficiencies as the partner of choice to
such challenges. These events have required the industry all the international industry.

GFI 203x267 final.indd 4 10/06/2009 20:00


Storm Advert 203x267 May 09:Dublin Advert 2008 13/5/09 17:01 Page 1

Navigating the storm


A global professional services boutique focused
exclusively on the asset management industry
Kinetic Partners provides a full range of forensic, corporate recovery,
technology, corporate finance, consulting, tax, and audit and assurance
services to the asset management industry. Our relationships with many
of the world’s fund managers enables our highly specialised professionals
to provide bespoke solutions ensuring clients receive the best advice.
Operating as one seamless team, and structuring our business around
client needs, we are well positioned to provide innovative solutions to
the entire asset management industry through our global positioning in
London, Dublin, Grand Cayman, New York and Geneva.

Protecting your fund


■ finding the right prime broker
■ dealing with large redemptions
■ liquidity analysis
■ internal audit
Operational risk
■ implementation of operational risk frameworks
■ benchmarking operation against industry guidance (MFA, PWG and HFSB)
■ SAS 70 reporting
Growing your fund
■ making the fund attractive to marketeers and institutional investors
■ adopting industry best practice
■ reviewing the fund’s practices against the prospectus/fund documentation

Raymond O’Neill
t: +353 1 475 0530
e: raymond.oneill@kinetic-partners.com
John Hamrock
t: +353 1 475 0540
e: john.hamrock@kinetic-partners.com
Killian Buckley
t: +353 1 475 0534
www.kinetic-partners.com
e: killian.buckley@kinetic-partners.com LONDON ■ DUBLIN ■ G R A N D CAYMAN ■ NEW YORK ■ GENEVA

GFI 203x267 final.indd 5 10/06/2009 20:00


Global Funds Ireland ISJ Investor Services Journal

Contents Stats, facts, and market acts


While we were away... the key events affect-
2 - First Word ing the Irish market in 2009
by Brian Linehan, TD. September 2008 two Irish-listed investment compa-
Minister of Finance 15th – Lehman Brothers collapses nies and passed on for investment
in what became the world’s biggest purposes to Bernard Madoff and his
bankruptcy, hitting stock markets. companies.
4 - Twenty 20 Vision Irish banks’ shares plummeted
Gary Palmer Chief executive before a brief recovery. February 2009
28th – Employment group Ibec
of the IFIA looks at the 20th Anglo Irish Bank fell 21.6%, closing calls on the government, the main
Anniversary of UCITS and 7.7% down. Irish Life & Permanent opposition parties and other related
beyond ended the day down 13.3%. AIB parties to agree a national
fell 15.6% and Bank of Ireland 13% economic recovery plan.
- their lowest same-day trading
6 - Stats, facts and market levels of recent years. March 2009
30th – Taoseach Brian Cowan warns
acts - the last year in the 30th – AIB announces a bank guar- that the economic recovery in
market antee scheme. Ireland could take five years. He
said the country was fighting to
October 2008 “survive a very painful recession”.
7 - Annus horribilus 29th - Hedge fund managers get
by Eoin Ryan, MEP burned from Porsche proposed April 2009
takeover of Volkswagon. 29th April – The European Com-
- Memorandum of Understanding mission releases its draft of the
8 - 20th Anniversary between the Irish Financial Regula- ‘European Directive On Alternative
Messages tor and the Chinese banking and Fund Managers’ to the European
securities regulators signed. Parliament and the Council. The
Directive stipulates that all manag-
14 - Alternative lifestyles November 2008 ers who oversee more than EUR100
5th - AIB publishes a management million of non-UCITS products must
the risk landscape statement and becomes the first be subject to a common set of
Irish bank to issue a trading update licensing and supervision rules in
17 - Philosophy of to the stock market. exchange for enhanced distribution
opportunities for their funds.
consultation December 2008
Carne Global CEO John Bernard Madoff, a New York fund May 2009
manager, is arrested over his engi- 7th – The European Central Bank
Donohoe gives his market neering of a USD50 billion ‘Ponzi’ cuts its interest rate by 0.25%
view scheme that sucked in banks, to 1%
hedge funds and retail investors. He
is eventually sent to prison on 12th 20th – A report by Ernst & Young,
March to serve 150 years, pleading the auditor, found that Ireland was
guilty to perjury, money-laundering ‘technically in a depression’, predict-
and fraud. ing that it will contract by as much
as 8% of GDP.
January 2009
The Irish arm of banking giant The Irish government sells EUR1
HSBC tells the Commercial Court it billion in five-year and 10-year
is waiting to see if competing claims bonds as part of its pledge to raise
will be brought over sums of more a record EUR25 billion of state
than EUR1.2 billion given to it by borrowing required for 2009.

GFI 203x267 final.indd 6 10/06/2009 20:00


ISJ Investor Services Journal Global Funds Ireland

Annus horribilis

Eoin Ryan MEP

The past year has been one of unprecedented, unexpected proportional, effective and evidence-based. In recent weeks
and radical changes in financial services. While an annus this balanced and pragmatic approach has been reflected in
horribilis for many in the European financial system, I be- the European Commission proposal brought forward on
lieve that those financial actors that emerge from this turmoil hedge funds, private equity and other alternative fund manag-
will do so stronger and more robust than previously. ers.
We have heard time and again that the funds in- The European Commission has been clear in stating
dustry was not responsible for the crisis, and that the crisis that it does not want to drive the funds industry out of Eu-
originated not in Ireland or Europe but across the Atlantic. rope or to create burdens out of proportion to risks. Howev-
Though true, this is largely immaterial. What started as sub- er, there has been a global consensus - as witnessed at the G20
prime crisis in the US quickly spread across the globe and meeting this year - that EU and global leaders should engage
has impacted on all financial actors. Financial markets and more in a regulatory manner on this issue.
financial institutions are so closely linked that all must face In my time as a politician and policy-maker I have
the implications of the crisis and address the challenges of the seen that the best results come from cooperation and coordi-
future. nation. In acknowledgement of this the European Commis-
The assets under management by the global funds sion proposal on funds adopts a “carrot and stick” approach,
industry reached nearly EUR2 trillion in recent years. While creating the opportunity of a European passport as well as
perhaps a small amount in relation to the balance sheets of setting down common and specific rules for managers that
the conventional banking sector, it is clear that the funds will apply across the EU.
industry is an important actor in today’s financial world and Earlier in the year the European Parliament ap-
can impact significantly on financial markets and actors. proved a revision of the UCITS Directive aimed at cutting

“Best results come


red tape and simplifying and improving a funds market that
is worth nearly EUR7trillion. The revised UCITS directive
aims to ensure that investors receive appropriate cost and
from co-operation” performance information and to simplify procedures and to
implement cost savings for the industry.
As a member of the European Parliament’s Econom- It has indeed been a very difficult year for the funds
ic and Monetary Affairs (ECON) Committee the three words industry. 2008 was the worst year on record for hedge funds.
that have appeared constantly in debate and when amending Nonetheless, much of what I wrote for this publication last
legislation are: transparency, regulation and supervision. The year holds true.
financial crisis has reinforced the realisation of the need for Ireland’s funds industry will continue to be a success
enhanced European and global cooperation, especially in story, will continue to create employment in Ireland and will
the area of supervision, and this realisation has coloured the continue to play an important role in growing our economy.
legislation on the funds industry that has originated from the I believe that European regulation will ultimately strengthen,
EU institutions this year. restore and increase confidence in the funds industry.
There was always the danger that the turmoil on the The future for financial services in European and
financial markets would engender knee-jerk reactions among Ireland is one of cooperation and mutual trust, where indus-
policy-makers. Indeed, when the first draft of a report on try and policy-makers work together for sustainable growth.
Hedge Funds and Private Equity was presented to the ECON I believe that the future is bright for Ireland’s funds industry,
Committee last year this appeared to be the case. However, and in years to come this period will be remembered not as an
long months of negotiation and compromise ensured that the annus horribilis but as a time when the foundation was laid
final European Parliament recommendations were balanced, for lasting and sustainable growth and cooperation.

GFI 203x267 final.indd 7 10/06/2009 20:00


1989 - 20
2009
The 20th Anniversary of the European Union UCITS (Under-
takings for Collective Investment in Transferable Securities)
directives adoption in Ireland falls this year. At a time when
the fund industry faces both cyclical and systemic challenges.
However, recognising the enormous achievements of the past
two decades GFI are proud to publish the following organisations
expressions of support for the Irish Funds industry.
General Company Ad

The Future of
Fund Administration We can...
Details are our business – so you can focus on growing yours

For more infomation contact:


...see the wood
John Bohan Anthony O’Driscoll At Dillon Eustace our many years of experience mean we can For more information contact:
Managing Director Managing Director provide clear, focused advise, without ever losing sight of the
Mark Thorne.
bigger picture. We offer national and international corporates,
Apex Fund Services Apex Fund Services banks, asset managers and insurers our expertise in: Dillon Eustace,
(Ireland) Ltd. (Malta) Ltd. • ABS/Funds Listing • General Commercial
33 Sir John Rogerson’s Quay,
Dublin 2.
• Asset Management • Investment Funds
: + 353 21 46333 66 : +356 21 3113 30 •

Banking
Commercial Property


Labour Law
Litigation
Tel: +353 1 667 0022
Fax: +353 1 667 0042
: info@apexfunds.ie : anthony@apexfunds.com.mt • Corporate Finance • Maritime/Aviation
mark.thorne@dilloneustace.ie
• Cross Border Insurance • Regulatory Compliance
• Defamation • Securitisation
• Financial Services • Tax

www.apexfundservices.com
Apex Fund Services (Ireland) Limited is regulated by the Financial Regulator. ©2009

Bermuda • Bahrain • Cyprus • Dubai • Hong Kong • Ireland


Isle of Man • Malta • Mauritius • Singapore • USA

GFI 203x267 final.indd 8 10/06/2009 20:00


In Ireland, Ernst & Young’s Asset Management practice is a Kinetic Partners is a global professional services boutique fo-
leading provider of audit, tax and advisory services to asset cused exclusively on the asset management industry. We provide
management companies, including mutual funds, offshore a full range of audit and assurance, tax, consulting, forensic, cor-
funds, group trusts, hedge funds, variable annuity separate porate recovery and corporate finance services. Operating as one
seamless team and structuring our business around client needs,
accounts, unit investment trusts, partnerships and business
we are well positioned to provide innovative solutions to the
trusts. With over 300 audit professionals, our strong market entire asset management industry. We advise over 750 clients,
position means that we have the people, experience, technol- including many of the world’s largest hedge funds and traditional
ogy and business insight to meet our clients’ needs. asset managers. Established in 2005, Kinetic Partners now
In addition to audit and tax services, we also specialise operates out of London, Dublin, Grand Cayman, New York and
in the provision of advice on specific areas of business risk Geneva. Our unique focus makes us less susceptible to conflicts
within the funds industry including: of interest and enables us to deploy highly experienced profes-
· SAS 70 sionals in a targeted, efficient yet flexible manner. A global firm,
we operate as a seamless team with a single point of contact for
· Internal audit clients, reacting rapidly while avoiding duplication of effort.
· Anti-money laundering & fraud prevention/ For our experienced project leaders, quality of service delivery
investigation is paramount, ensuring that only appropriate personnel are
· Information security deployed and that communication is emphasized. This has
· Regulatory and risk management been recognised through our award for ‘Best Consulting Firm in
· Fund rationalisation and cost reduction Ireland and Cayman’.
As a firm with a recognised international capability in the Our multi-disciplinary team of senior professionals is drawn
from regulators, financial institutions and major professional ser-
investment funds industry, Ernst & Young provides a truly
vices firms around the world. It consists of experts in all aspects
global service to our clients. of fund operations & distressed situations, including:
• Regulatory consulting and compliance
Des Quigley, Partner, Head of Financial Services Markets • Stock Exchange Listing & corporate finance advice
Tel +353 (0)1 221 2550 • Audit and accounting • Tax advice
Email des.quigley@ie.ey.com • Operational risk and governance
Donal O’Sullivan, Partner, Financial Services Tax • Forensic accounting and investigation
• Litigation support and expert witness
Tel +353 1 221 2455
• Liquidation/restructuring
Email donal.osullivan@ie.ey.com
For further information visit www.kinetic-partners.com
Cormac Murphy, Partner, Financial Services Risk Advisory Iveagh Court, Floor 5, Block D, Harcourt Road, Dublin 2
Tel +353 1 221 2750 t: 353 1 475 0520 f: 353 1 475 0376
Email cormac.murphy@ie.ey.com w: www.kinetic-partners.com e: info@kinetic-partners.com

Phoenix Fund Services was established in 1998 and now


provides investment managers with a complete suite of ser-
Mason Hayes+Curran,
vices covering investment operations outsourcing through to
South Bank House, Barrow Street, administration of a wide range of traditional and alternative
Dublin 4, Ireland structures.
Within our alternative funds services business, our compre-
Mason Hayes+Curran is one of Ireland’s leading hensive range of administration services covers single strat-
business law firms. With offices in Dublin, London, egy funds, multi strategy funds, fund of funds, private equity
and New York, the firm represents a large proportion of vehicles and managed accounts. Our investment operations
international enterprises establishing or doing business outsourcing platform has been developed in close conjunction
in Ireland and is experiencing strong growth in with alternative managers and with a particular focs on start up
investment funds and banking & financial services. hedge fund managers.
The investment funds group advises on all aspects Our services are supported by a team of experienced and
of investment fund law and regulation. In particular, relationship focused management and staff and an underlying
we advise fund promoters on structuring, establishing flexible technology model.
operations in Ireland and provide ongoing legal advice as Ireland & the Americas
their business develops. With many years experience in Mr Gavin Gray
industry and private practice, our lawyers have specific gavin.gray@phoenixfundservices.com
expertise in developing innovative products and struc- t: +353 1 845 8161
tures for fund promoters, particulary ain the area of
UK
hedge funds and other alternative investments. Mr Steve King
steve.king@phoenixfundservices.com
Contact: t: +44 1245 398 962
Mr Fionan Breathnach, Partner,
Mr Stuart Mathieson
Head of Investment Funds Unit
stuart.mathieson@phoenixfundservices.com
Tel: 353 1 614 5000 Fax: 353 1 614 5001
t: +44 1245 398 985
Email: fbreathnach@mhc.ie
7 St. James’s Terrace, Malahide, Co. Dublin
Website: www.mhc.ie Tel: +353 1845 8160, Fax: +353 1 816 8741
Website: www.phoenixfundservices.com

GFI 203x267 final.indd 9 10/06/2009 20:00


Global Funds Ireland ISJ Investor Services Journal

Alternative lifestyles
As liquidity, risk and transparency form the
holy trinity for institutional investors’ due
diligence, the alternative fund industry
in Ireland, as globally, has had to adapt with
haste. GFI examines the new risk landscape.
The international pressures on the hedge funds will generally have 60-90
alternative fund sector in the latest days notice that the investors need to
chapter of the financial crisis are par- provide to get their money back.”
ticularly prominent in Ireland. As both He anticipates outflows
a home of innumerable hedge funds through July 2009 as a result of re-
and the base for around a third of the demption requests in the last few
world’s hedge fund asset servicing, the months. The time delay to retrieve
alternatives money that once flowed funds says much about the original
through the IFSC as strongly as the motive for the outflows. Liquidity has
Liffey River has been draining of late. climbed the agenda for the majority of
Funds of hedge funds, in portfolio managers, and the viability of
particular, have seen redemptions locking money in the relatively illiquid

“The view of from institutional investors and high


net worth clients, according to Pete
world of alternative funds is dimin-
ishing. Townsend points towards the

a few hedge Townsend, head of global fund services


operations for alternative investments
“liquidity balance” for funds of hedge
funds – weighing up the liquidity to the

funds is that at BNP Paribas. He points out that the investor to the liquidity of the funds in
process of retracting money that may which they invest. It’s a challenge for

the market rally


have started in October last year is now any fund of hedge funds manager, he
coming to conclusion. “If you have out- adds.

will be short
flows from funds of hedge funds, they High net worth clients have
need to get their investment from single been the main area to remove their
money in such a way. Though institu-
lived”
hedge funds. When everything became
volatile at the end of 2008 the funds of tional investors such as pension funds
will also have liquidity and risk on their
minds, they are more likely to remain in
alternative investment funds to comply
with their investment mandate.
The demand for a freer move-
ment of money, along with the wider
requirement for transparency, has
further bolstered UCITS, the interna-
tional fund brand that Ireland has been
a leader in promoting and accom-
modating. Another strength of the
country has been in the half-way house,
of sorts, between alternatives and the
Pete Townsend more mainstream UCITS – hedge fund
BNP Paribas replications. Hedge funds’ march into

10

GFI 203x267 final.indd 10 10/06/2009 20:00


ISJ Investor Services Journal Global Funds Ireland

the UCITS world to bolster assets under through the worst. “The view of a few ing from funds, the volatility in the
management has been a prominent of the hedge funds that I’ve spoken with Euro-USD foreign exchange rates
development in 2009. Townsend says is that the market rally may be short [many funds of hedge funds are
the manager’s strategy is key to their lived and they may look to the economy Euro-denominated but invest in USD
success to cross the fund Rubicon. to see the signs,” he says. underlying instruments] along with
“It’s a little easier for the He adds that some manag- the market volatility as a whole created
Global Macro managers to do this,” he ers will be successful regardless of the a huge challenge and many managers
says. “Instruments such as exchange- economic circumstances – some global may be looking to consolidate their
traded derivatives, for example, are macro funds, he gives as an example, service providers. So instead of having
acceptable within UCITS, as long as the returned 14-15% last year, “and are still different service providers for liquidity,
underlying mix of instruments within taking in money”. custody and administration, they bring
the derivatives contracts creates a diver- The track record is vital for the it all together.”
sified portfolio.” fund provider too. Townsend stresses Dublin’s recent strength in
Despite the chance of greater that it is the more diversified service alternative asset management and
volatility with listed derivatives, it is providers that will come out of this servicing closely links it with fund
the kind of volatility that hedge fund downturn “leaner and meaner” than centres such as Cayman and Bermuda.
managers like, he adds. The power is before, maintaining service levels to all These islands were under consider-
with the investor, too, which adds to domiciled managers able scrutiny in March following the
the concessions made by hedge funds. “Our business in Dublin is a London meeting of the G20, part of the
Townsend cites examples of institu- good microcosm of the BNP Paribas so-called “shadow banking system” that
tional investors approaching Cayman Securities Services business as a whole. includes opaque and structured prod-
domiciled hedge fund managers with We administer 50% long only and 50% ucts and credit rating agencies. It resur-
an ultimatum: “They say: ‘I will provide hedge funds. We have some large insti- rected the debate around ‘light-touch’
X million, but only if you launch it as tutional cash funds and we see those regulation, and the effect on a domi-
an Irish or Luxembourg UCITS rather funds as the perfect bell weather of the cile’s revenue if more stringent regula-
than offshore’.” Further, a hedge fund market: when you see money flowing tory oversight – such as the increase
manager may have to get used to pro- out of alternative strategy they flow into witnessed in the UK – is introduced.
ducing longer investment objectives in the cash funds. So we think we have a Townsend says that light touch
line with UCITS. good idea as to how things are going domiciles will be there for as long as
He adds that alternative assets simply by the inflows and outflows the investors are willing to accept them.
aren’t just a group of securities class – from these funds.” “Although these domiciles will have to
they also represent a type of investment He adds that service providers respond to the statements made by the
manager. You may have a long only that can give a daily NAV are very well G20 and the European Commission’s
absolute returns strategy that’s been in situated as the UCITS model continues calls for more regulation, I believe they
a UCITS structure for years, he argues, its ascendancy. A custodian should be will respond, but it really does come
viewed as long- only. Similarly, a long- able to provide a manager with fact down to the investor.”
only Cayman-domiciled fund could sheets that they could send to their For the future, Townsend says
be managed as a hedge fund. “What’s investor base on the original books and it is difficult to predict if Ireland will see
more important is manager selection. records of the funds. This compares significant alternative asset growth. The
The better performing managers will favourably with hedge fund managers great amount of convergence between
get the majority of the allocations - as systems, which generally wouldn’t be alternative and traditional partly obfus-
opposed to the investor just looking to general ledger-based systems. “A lot of cates any statistical forecast. But UCITS,
have ‘exposure to alternative funds’ and the managers have their own risk sys- he argues, is a significant strong point
taking the recommendation of their tems but we can provide the transpar- for the country, and as with managers
consultant.” ent view and performance data that’s and service providers, a country’s repu-
But the hedge fund industry, driven by the books and records of the tation is perhaps itsthe most valuable
in its classic form, is not entirely cowed fund.” asset. “It’s not just that we’re putting
by redemptions, de-leveraging and close Such services are therefore our flag up now as a domicile with
regulatory scrutiny. Though the US increasingly outsourced to the major great flexibility; we’ve been doing it for
pension and endowment funds overall asset servicers in the city. But Townsend 20 years and have built up a strong core
have been more staunch in their al- sees another trend, largely driven by the of people working in the fund services
location to hedge funds, there are signs need to cut servicing fees: the consoli- business. So - while it’s difficult to draw
that the institutional investors’ retreat dation of the service providers. the line between the two different fund
from hedges in Europe have slowed. “In October there was a types – we are best placed to continue
Townsend believes the sector may be perfect storm. Investors were redeem- to service the different products.”

11

GFI 203x267 final.indd 11 10/06/2009 20:00


Global Funds Ireland ISJ Investor Services Journal

Philosophy of
consultations
John Donohoe, CEO of Carne Global, explains
the changing funds market in Ireland from
the perspective of a leading consultancy firm
to Ben Roberts .
Carne is an independent consultancy they had to raise money.”
established by investment professionals A decline in market per-
to provide tailored solutions and ad- formance for hedge funds should be
visory services to asset managers, fund viewed in context, however – some
directors and their service providers. traditional long-only managers have
In addition to its bases in Dublin, struggled along with their alterna-
London, Switzerland and Luxembourg, tive counterparts. But in terms of the

“Exchange
2009 saw the opening of offices in investor perception of hedge funds and
Cayman and Dubai. Jon Donohoe, funds of funds, Donohoe says it is note-

traded
CEO, says that this breadth of offices, worthy to distinguish between Europe
combined with its close relationships and the US.
The US has a longer history in this
derivatives
with the managers, gives the firm a
“good view of the market”, as well as an area of alternative4 allocation, with
insight as to what the leading managers more endowments and foundations
are acceptable are thinking.
The firm aims to be at the cutting
that have a greater loyalty to hedge
funds and their model, he explains. In
within UCITS” edge of product development, including
fund structures and investment policies
this way they might be more reluctant
to redeem money.
across multiple fund domiciles ( such Europe, by contrast, is a more recent
as CCF, pooling, multi-manager funds, entrant to alternative funds, and s more
hedge funds, and UCITS III) as well institutional based. This includes a
as current market issues surrounding greater proportion of high net worth
the investor appetite for risk, liquidity, clients.
transparency and portfolio balance. Other differences are also prominent
Donohoe has witnessed the money in today’s market. “European investors
flowing from funds of hedge funds and don’t particularly want a huge amount
other, less liquid vehicles. This is partly of leverage. Investors want liquidity,
a reaction to performance, he says, par- and to make sure [the strategy] matches
ticularly if absolute returns had been with their expectations and require-
promised. Other institutional investors, ments.”
he adds, might not have understood the However, there are signs that liquid-
strategy that the manager employed, ity is becoming a prominent issue for
and might have evacuated funds of US funds. CalPERS, for example, the
funds before gates were imposed. influential USD167 billion Sacramento-
“To an extent you’re trying to pre- based retirement scheme, considered a
empt a bad situation, which sometimes re-evaluation of its asset allocation – in-
led to the next investor putting in re- cluding the portion going into alterna-
demptions,” he says. “Some funds with tives – along the lines of liquidity.
a six-month notice period, although Part of the liquidity challenge for
they didn’t want to redeem, thought institutional investors stems from the
that there was an opportunity that hedge funds themselves. Donohoe says
wouldn’t come round for another six that the width of a hedge fund’s asset
months. Others just needed liquidity, or allocation – from private equity to

12

GFI 203x267 final.indd 12 10/06/2009 20:00 sec-len


The North American
Securities Lending Forum
Presented by

GSL |
Global
Securities
Lending

LIQUIDITY
RISK
REGULATION

Limited places available Four Seasons Hotel


Register now at New York
www.securitieslendingforum.com Wed June 10th 2009

Sponsors

sec-lending-forum-ad_nv.indd
GFI 203x267 final.indd 13 40 05/04/2009 20:00
10/06/2009 19:38
Global Funds Ireland ISJ Investor Services Journal

commodities - can create problems of products with the UCITS tag. The want more regulated products. I think
assessing liquidity levels and valuation. resulting product, he said, is sufficiently investor demand has changed but I
He says this is less of an issue if a small structured so that it would count not think that European politicians have
amount of the fund is in the very illiq- be classified as part of the hedge fund become more hard-lined in wanting
uid securities, but the added complexity allocation on the books of pension more regulation. The proposed Euro-
brought about by the mix of liquid and schemes. pean Directive on Alternative Invest-
illiquid instruments is a challenge for “If a fund manager is looking to put a ment Fund Managers says if you’re a
the investor, who in turbulent market product into a UCITS fund, one of the European manager, you’re going to have
may prioritise the ability to move in key criteria is it has to provide at least to be regulated and your products are
and out of a position. twice monthly dealing. Managers have going to have to hit certain minimum
“The pricing of the fund comes out to be aware it is liquid. standards in terms of structure which
of the liquidity; if something is liquid “Part of the UCITS ‘revolution’ is will make them more akin to regu-
and is traded quite a bit its easy to get a people should see it as a risk manage- lated professional funds. That’s where
price,” he says. “Investors want most of ment vehicle – it is designed to ensure European regulation want to drive it,
their money in something they can get people have liquidity, that there is risk principally down to the response to the
out of; it’s not that they are not will- management in place. If you look at all economic circumstances.
ing to take risk, but perhaps less than the restriction in UCTS and take the The proposed directive in its current
before.” exposure to companies that are related. form will therefore result in a number
For many, exchange traded funds – When you added up how the exposure of challnges to existing hedge funds, he
passive vehicles that track indices or comes – derivatives, paper, bonds – the adds. “For instance, one requirements
sectors and trade on exchanges like maximum exposure to group counter- would be that the funds must have a
shares - has satisfied the demand for parties is 20%.” custodian – if that comes in it will be a
liquidity. Dublin has been a key recipi- significant change.
ent in the growth in the European ETF
industry, which reached EUR91.228 “Part of the “Most hedge funds utilise multiple
brokers – it will be a challenge to find
billion in assets under management at
the end of 2008, according to data from UCITS revolution the right operational models. So there
are a lot of challenges for the directive
Lyxor Asset Management.
“Investors are attracted to ETFs as is that people in its current form.”
For the future, Donohoe returns to
they can be bought and sold from a
broker and the underlying assets are should see it as the ETF boom and hedge funds en-
trants into UCITS as areas of significant
liquid,” explains Donohoe. This is not
always the case, however, and he identi- a risk manage- potential – as well as the competitive
tax treaties what I’ve seen over the
fies corporate bond ETFs as an exam-
ple: “The bid offer spread on corporate
bonds widened worldwide, so naturally
ment vehicle” last six months is because of some tax
treaties. “Dublin has more ETF s than
almost any location – we’re seeing quite
the sprtead on the corporate bond ETF a lot fo the larger banks setting up ETFs
widened as well.” as well.
Importantly, Donohoe stresses that Carne works in this way with many “It’s still relatively new as an industry
investment in hedge funds and ETFs is of the key players in asset management, – in reality less than a decade old. But
not an ‘either/or’ scenario for investors. such as Credit Suisse and BGI, and adds there are a lot of banks have ETFs in the
The choice to invest in ETFs is often a very important extra service. Once pipeline that will be coming out over
made following a comparison of net a fund is set up, he says, Carne will the next few months. So thee will be a
return with a traditional, actively man- provide independent directorship. This, lot more ETF managers promoting the
aged fund. like third party administration and ac- industry with more investor interest.
“A lot of the money [into ETFs] is a counting, is climbing investors’ agenda Dublin is winning most of that busi-
reallocation of institutional money out – here there is an independent element, ness because trying to track the indices
of the traditional long- only manage- there is a greater perception of comfort is more important in an ETF, so every
ment into those products. There are and security. He adds that Carne has basis point counts.
also more private wealth managers been approached by US hedge funds “A lot of fund managers use Dublin
setting up ETF-like products, so there is seeking this independence. for their base for
more money being allocated from this Donohoe ponders carefully the ques- administrators, there are obviously a lot
sector.” tion as to whether light touch regula- of ties between Ireland and UK manag-
Carne plays a key consultancy role tion is a good or bad thing for the Irish ers. So we’re seeing Ireland is winning a
for hedge funds that seek to launch market. “European investors usually lot of business.”

14

GFI 203x267 final.indd 14 10/06/2009 20:00 GSL


Annual
Global Funds
Conference
2009
27th May
Four Seasons Hotel, Dublin, Ireland

BOOK EARLY TO SECURE YOUR PLACE


at www.irishfunds.ie or www.nicsa.org
or telephone ifia (+353-1-670-1077) or
nicsa (+1-508-485-1500)

Speakers include: IAN MORLEY, Chairman, Corazon Capital


ROB AGNEW, Managing Director, Matrix Hong Kong JOHN PERLOWSKI, Managing Director, Goldman Sachs
ROLF BACHNER, Vice President, The Bank of New York Mellon Asset Management
CHARLES BEAZLEY, President, Nikko Asset Management Europe CHARLIE PORTER, Chief Executive Officer, Thames River Capital
STEVE FOSTER, Chief Operating Officer, Single Manager Hedge Fund TOM RAMPULLA, Managing Director Europe, Vanguard
Group, Credit Suisse Alternatives JEAN SCHAEFFER, President, ReFlow Management
DEBORAH FUHR, Managing Director, Barclays Global Investors ANDREW SHRIMPTON, Member, Kinetic Partners
PAUL FREEMAN, Managing Director, BlackRock EMEA JERVIS SMITH, Managing Director, Financial institutions Group,
MOHAMMED HANIF, Chief Executive Officer, Citigroup
Insparo Asset Management JULIAN TREGONING, Director, The Bank of New York Mellon
ROBERT KROESE, Principal, GreenBay Asset Management SETH WEINSTEIN, Managing Director & CEO, Morgan Stanley
PAUL MACK, Partner & Chief Operations Officer, Iveagh Fund Services
KRYSTAN MCSTAY, Managing Director of Capital Markets, ROBERT WILLIAMS, Business Development Director,
Key Capital Skandia Investment Group

For further information please contact


IFIA +353-1-670-1077
NICSA +1 508 485 1500
www.irishfunds.ie/conference
www.nicsa.org

GFI 203x267 final.indd 16 10/06/2009 20:00


conf_ad_2009.indd 1 05/05/2009 12:53:43
GSL Summit| Global
Securities
Lending

Back to school
The need for a reappraisal of the DaTe
methods and presentation of Thursday,
Securities Lending has become 10th September 2009
obvious in the past months. The
latest GSL Summit in our quarterly
LocaTion
series will debate at the legal
Four Seasons Hotel,
documentation, technology and best
practice the industry needs to adopt
canary Wharf, London
to move forward.
GSL invites readers to an 1:30 Pm
informative afternoon to discuss Registration/coffee
this topic along with wider issues of
transparency, risk and returns at this 5:00 Pm
important time. Drinks Reception

For speaking and sponsorship


opportunities please contact:

Jon Hewson
jon.hewson@2i.tv
Tel: +44 (0) 20 7299 7700

Please visit GSL.TV to register

28

GFIGSL
203x267 final.indd
Summit3 Back to15
school.indd 1 10/06/2009
22/05/200920:00
22:47