21 February 2012

Hedgeweek: Global regulatory changes boost appeal of Irish funds

Ireland's long experience of developing a regulated hedge fund industry is striking a chord with managers, as they respond to their clients by offering onshore products that are more transparent and subject to greater supervision.

Over the past year or so, macro developments such as sovereign debt problems in Europe and feeble-to-negative economic growth in many parts of the world have contributed to generally lacklustre performance on the part of most hedge fund managers and probably also dampened investor inflows, although many indicators suggest that allocations held up well considering the market environment. Traditional funds have also suffered from indifferent returns and a slowdown – or reversal – of capital flows.

True, the numbers were boosted by a surge in investor demand for money-market funds, which account for a substantial proportion of the jurisdiction’s in UCITS assets (€375 billion out of a total of €783 billion). However, the aggregate figure also included €182 billion invested in more than 1,300 QIFs, whose assets grew by 20 per cent in 2011 following an increase of 35 per cent the previous year.

“The industry has continued to grow because of the global nature of the Irish fund industry, and the fact that people recognise we have a regulator who understands the industry and areas of concern to promoters and investors”, says Shay Lydon, a partner in the asset management and investment funds group at Dublin-based law firm, Matheson Ormsby Prentice.

He notes that Ireland also benefits from the absence of any tax on fund structures (unlike the taxe d’abonnement, or subscription tax, imposed by Luxembourg, the other major international fund centre in Europe), along with the country’s long and growing list of double taxation treaties. “We have managed to tick all the boxes and do so in a way that has made us more successful than many competitor jurisdictions”, Lydon adds.

The regulator's policy has evolved over the years along with its ability to oversee alternative investments effectively and to understand hedge fund strategies. Today, Ireland accounts for almost 63 per cent of the assets of hedge fund assets domiciled in Europe. This gives a head start when managers that up to now have used offshore jurisdictions start thinking about whether they should have a regulated fund and where.

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