ireland 2016

/
HFMWEEK
S P E C I A L
R E P O R T
IRELAND 2016
TECHNOLOGY
A significant investment in
technological solutions
REGULATION
The impending arrival of Ucits V
VISION
Clear goals for international
success
FEATURING Apex // Arthur Cox // Dillion Eustace // Maples & Calder
// Quintillion // SS&C GlobeOp // SuMi TRUST Global Asset Services
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INTRODUCTION
IRELAND 2016
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T
he past 12 months has seen considerable momentum
for the funds industry in Ireland, as we continue to
strengthen our current position as one of the world’s
leading fund domiciles. We remain Europe's leading
onshore hedge fund jurisdiction and have seen
growth in several fund types and structures.
As of year-end 2015, total assets under
administration in Ireland stood at €3.86trn,
from over 6,200 authorised funds, with Ireland
administering a 40% share of the world’s hedge
funds. In 2015, there was €31bn in net inflows into
Qualifying Investor Alternative Investment Funds (QIAIFs) and a 16% increase
in assets during the year. This notable growth has been driven by a number of
factors.
Specifically, we’ve seen a strong uptake in the Icav corporate structure, which
launched in March 2015, continuing to allow global fund managers access to
European investors. This was led by US-based fund manager Permal Group,
which was the first firm to launch an Icav, with a suite of Irish domiciled funds.
In September, new redomiciliation legislation also saw UBS Hedge Fund
Solutions become the first investment manager to redomicile a Cayman fund as
an Icav in Ireland.
As an industry we have continued to build an extensive network of
relationships with fund managers in the US, UK, Europe and Asia with strong
business and cultural links. From a regulatory perspective, the global industry
recognises that the CBI is highly capable in understanding fund manager
priorities and in providing sensible and practical regulation when it comes to
alternative fund strategies.
Over the next year, we’re working on a number of wider market
developments and regulatory changes. We expect to see a gradual shift away
from offshore fund jurisdictions to onshore, regulated Europe and Ireland
expects to attract most of these managers. Thus far, the majority of Icavs
have been new fund launches, with only a small number being conversions
from existing plcs. Throughout the year, we expect to see a greater number of
conversions and most new fund launches using a corporate structure will likely
use the Icav.
Irish Funds also has extensive work planned as we seek to enhance Ireland’s
private equity product offering. With this in mind, we are assessing the
Investment Limited Partnership Act and considering ways in which we can
increase its efficiency, while also looking to attract private equity fund managers.
An additional area of interest for Ireland and certainly from a long-term
perspective, is the Capital Markets Union (CMU). The CMU has been
designed in an attempt to ensure greater harmony across financial regulation in
the EU and to increase efficiency and consistency across its capital markets. If
successful, the CMU will make it simpler and more efficient for institutions to
invest in alternative assets and in turn better manage their long-term liabilities.
Looking ahead, we’ll be continuing our work and further developing
the foundations we’ve built over the past 25 years as the official trade body
representing the international funds industry in Ireland.
Pat Lardner
HFMWeek is published weekly by
Pageant Media Ltd ISSN 1748-5894
Printed by The Manson Group
© 2016 all rights reserved. No part of
this publication may be reproduced
or used without the prior permission
from the publisher
is CEO of Irish Funds, the representative body for the
international investment fund community in Ireland.
Pat has worked in the investment management industry
for over 20 years, is a past council member of the Irish
Association of Pension Funds and former director of the
Irish Association of Investment Managers.
H F M W E E K . CO M 3
CONTENTS
IRELAND 2016
06
FUND MANAGEMENT
IRELAND’S FUND EVOLUTION
13
Colin Keane of SS&C highlights the immense changes which Ireland’s
fund industry has been subject to and offers his predictions on the
future of Ireland
09
FUND MANAGEMENT
IRELAND SETS NEW STANDARDS IN FUND
GOVERNANCE
Adam Donoghue and Aaron Mulcahy of Maples and Calder examine
how a more streamlined and meaningful corporate governance
regime will impact Irish funds and management companies
11
ALTERNATIVE INVESTMENT SERVICES
PROSPEROUS FUTURE
Ken Somerville, head of business development for Quintillion,
explores the background of Ireland’s thriving financial sector and how
it looks set to expand even more
4 H F M W E E K . CO M
ADMINISTRATION SERVICES
ELTIF: A NEW FUND PRODUCT FOR THE LONGTERM?
Dara Harrington and Andrew O’Connor of Arthur Cox discuss the key
features of the new European long-term investment fund
15
ADMINISTRATION SERVICES
GROWTH AND CHALLENGES OF FUND
ADMINISTRATION IN IRELAND
Charles Bathurst, sales consultant for SuMi TRUST Global Asset
Services, reflects on the key drivers that have continued to shape
the Irish Asset Servicing industry. He also highlights the impact
of AIFMD and Ucits V on the Irish Fund Administration industry/
depositary market and offers thoughts on the immediate future
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IRELAND 2016
IRELAND’S
FUND EVOLUTION
COLIN KEANE OF SS&C HIGHLIGHTS THE IMMENSE CHANGES WHICH IRELAND’S FUND INDUSTRY HAS BEEN SUBJECT
TO AND OFFERS HIS PREDICTIONS ON THE FUTURE OF IRELAND
Colin Keane is
the country head of
SS&C Ireland and leads
its European Managed
Account Platform division.
He has over 16 years’
experience in the fund
administration industry.
Colin specialises in
European regulated
investment vehicles and
recently completed a
research masters on the
impact of regulation on
returns across offshore
and European Alternative
Investment Funds, and
Ucits platforms.
6 H F M W E E K . CO M
HFMWeek (HFM): What is the outlook for the funds
industry in Ireland?
Colin Keane (CK): The Irish funds industry continues
to thrive, staying strong in both domestic and offshore
Alternative Investment Funds (AIFs). Funds continue to
grow at exponential rates with assets doubling to €3.6trn
in the past five years.
In response to low interest rates and volatile market
conditions, investment products and strategies seek to
offer absolute returns to investors. Institutional capital
continues to increase, and alternative Ucits and 40 Act
funds have grown significantly in recent years. Even traditional strategies that follow relative returns deploy tactical diversification to mitigate market risk, and derivatives
are commonly used by managers. Since the G20 commitment to transparency in the derivatives market, fund
managers face increased regulatory scrutiny.
The 2013 transposition of European Market Infrastructure Regulation (EMIR) into Irish law increases
regulatory responsibility for investment managers.
Timely confirmation, portfolio reconciliation, dispute
resolution, and transaction reporting are a few of the
obligations imposed by EMIR. In 2016, EMIR will
bring mandatory central clearing and the widely discussed collateral margin requirement for non-cleared
OTC derivatives.
HFM: How is the role of the fund administrator
changing?
CK: There are significant synergies between the fund
manager’s growing regulatory obligations and the service offering of the very best fund administrators. For
instance, transaction reporting to trade repositories
requires aggregation of data from multiple sources, reconciliation, and reporting. By leveraging middle office
technology and process expertise held by administrators,
managers can overcome the data, governance, control,
and transparency challenges posed by transaction reporting requirements. Early indications that brokers would
assist fund managers have proven unfounded in the case
of EMIR, with many clearing brokers distancing themselves from the reporting requirements.
The regulatory services group at SS&C GlobeOp
has grown significantly in recent years, with more than
70 highly skilled professionals in the group today, and
continued growth expected in 2016. Our Annex IV solution currently covers 19 EU jurisdictions and client filings have been completed in 15. Our regulatory services
model operates effectively either as part of a broader
service offering, or as a standalone solution, with data
taken from multiple sources.
HFM: What has made the regulatory services at
SS&C so successful?
CK: SS&C understands requirements and data normalisation; expertly engages with clients, industry groups,
and regulators; continually invests in proprietary technology that provides full process transparency and insight
While most managers have been able to meet the Annex IV requirements, the sophistication of the solutions
are varied. As a result, it is expected that many fund managers will reassess their regulatory reporting processes in
2016. Deployment of multiple systems and data warehousing to support different regulations is costly and
inefficient and many will look to the leading outsourced
solutions to save money and increase efficiency.
HFM: Is there an ideal outsourcing model that managers should follow?
CK: There is no ‘one-size-fits-all’ blueprint when it comes
to outsourcing. Managers must evaluate what best suits
their operational risk management approach, whether
that be full or component outsourcing. For example, one
SS&C GlobeOp client opted for a fully outsourced model instead of building out a large internal operations team.
The SS&C GlobeOp service blends seamlessly into the
client’s operation, with significant integration on both
sides and the SS&C task management solution provides
oversight of the entire process.
Other managers prefer to receive a particular solution or service on a standalone basis. The middle and
back office solutions from SS&C are used by asset managers, insurance companies and even a sell-side bank
which, if required, can connect directly with third-party
administrators.
Outsourcing must be cost effective to provide value to
the manager, and the cost associated with regulation has
significant impact on returns. Cost pressures (e.g. money
spent on technology and human expertise) are felt across
the market and all managers are looking to become more
efficient and reduce the costs they pass on to investors.
The desire to increase efficiency also drives organisations to outsource. SS&C GlobeOp is continually
focused on the digitisation of its operational and valuation processes. For example, SS&C has automated the
entire NAV lifecycle, from the OMS delivery and reconciliation interface, through to valuations. The SS&C
FUND MANAGEMENT
proprietary platform, eNav, completely digitises workbooks, making reliance on Excel a thing of the past.
Exception management is a crucial component to complete and accurate reporting. Data is available to SS&C
clients through both the SS&C GlobeOp portal and on
mobility apps.
HFM: How is SS&C GlobeOp positioned to meet the
growing demands on administrators?
CK: Data is fundamental to the service provided by fund
administrators and technology drives data management.
Some fund administrators have proactively partnered
with fintech companies to bridge the internal technology
gap and meet client demands. Other administrators who
were late to react now face the consequences as the gap
between their service offering and that of their competitors – and the expectations of their clients – grow.
SS&C GlobeOp has a distinct advantage: its parent
company, SS&C Technologies, is a NASDAQ-listed financial technology company. As such, SS&C GlobeOp
owns all of its technology and develops it directly in line
with clients’ requirements, supported by a significant
percentage of SS&C’s software revenues. Data normalisation and complete, transparent and secure reporting are
core to the SS&C GlobeOp offering.
HFM: What are the wider trends happening in Ireland?
CK: Data integrity and security is a key industry focus.
As a technology company, SS&C has a large, dedicated
cyber security team and a strong culture of awareness
and vigilance. Cyber threats are a continual focus for all
employees.
Another area of interest this year is investor data. The
adoption of the Common Reporting Standards (CRS)
and the Foreign Account Tax Compliance Act (FATCA),
have prompted questions around the collection and
storage of investor information. Faxes seem an archaic
approach to modern traders and investment managers,
but they remain prevalent in investor services for alternatives funds. E-Investor by SS&C GlobeOp is an online
subscription service that combines significant flexibility
for each subscription document and the ability to gather
FATCA and CRS investor data.
There have been a number of iterations of Central
Bank of Ireland’s Fund Management Company Effectiveness criteria since the original 16 management functions
were released in the AIF rulebook in 2014 and it remains
very topical in the market. Since Consultation Paper 86
and the last iteration in November 2015, the managerial
functions have consolidated into six core areas: regulatory compliance, fund risk management, operational
risk management, investment management, capital and
financial management and distribution.
SS&C GlobeOp leveraged its existing technology to
develop an online task management system that provides
digital oversight. Each managerial function has its regulatory requirements embedded into its online checklist to
ensure compliance. Time and owner stamps provide full
transparency into each outstanding task and where the
responsibility for completion resides, as well as an audit
trail of historical actions. Q
H F M W E E K . CO M 7
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Irish depositary to support both AIFMD and UCITS V.
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For further information please contact:
IRELAND
LONDON
TOKYO
Colm Geary
Colm.geary@sumitrustgas.com
Charles Bathurst
Charles.Bathurst@sumitrustgas.com
Hiroyuki Takano
Takano_Hiroyuki@smtb.jp
IRELAND 2016
FUND MANAGEMENT
IRELAND SETS NEW STANDARDS
IN FUND GOVERNANCE
ADAM DONOGHUE AND AARON MULCAHY OF MAPLES AND CALDER EXAMINE HOW A MORE STREAMLINED AND MEANINGFUL
CORPORATE GOVERNANCE REGIME WILL IMPACT IRISH FUNDS AND MANAGEMENT COMPANIES
O
Adam Donoghue is a
partner in the Investment
Funds Group in Maples
and Calder’s Dublin
office. He has broad
experience advising on the
establishment, authorisation
and operation of various
types of Irish regulated Ucits
and AIFs, with particular
focus on the alternatives
space.
Aaron Mulcahy is a
senior associate in the
Investment Funds Group in
Maples and Calder’s Dublin
office. He advises on a
wide variety of legal and
regulatory issues associated
with the establishment and
operation of Ucits and AIFs
in Ireland.
ne positive legacy of the financial crisis
(and the Madoff and Weavering scandals)
is a heightened global focus on corporate
governance and oversight of delegates by
fund boards. In particular, the increase in
the numbers of pension funds, insurers and
other institutional investors allocating to alternative funds
over the last five years has resulted in greater scrutiny on
the adequacy of investor protection measures and robustness of fund governance.
Ireland was already ahead of the curve in this respect, introducing a well-regarded industry corporate governance
code in 2011, along with the fitness and probity regime imposed by the Central Bank of Ireland (CBI) for directors
and other control functions of Irish funds.
However, the Ucits and AIFMD frameworks have substantially increased the regulatory obligations to be discharged by Irish funds. Over the last 18 months, the CBI
therefore carried out a root-and-branch review of the Irish
governance model, through a series of thematic inspections and industry consultations. The main output of that
review is the CBI’s paper on fund management company
boards (the paper), incorporating feedback on its consultation paper on fund management company effectiveness
and guidance on a range of governance matters.
As the paper applies to a broad range of Irish regulated
entities (Ucits management companies, AIFMs, selfmanaged Ucits and internally-managed AIFs, collectively
ManCos), we summarise below the key implications for
managers of Irish fund structures.
STREAMLINING OF KEY MANAGERIAL FUNCTIONS
Previously, the CBI required every ManCo to demonstrate
how it discharged a range of key managerial functions: 10
for Ucits management companies/self-managed Ucits, and
16 for AIFMs/internally-managed AIFs. In a welcome development, the paper provides for the reduction and alignment of those parallel but often-overlapping requirements
into six key managerial functions: regulatory compliance,
fund risk management, operational risk management, investment management, capital and financial management
and distribution. The CBI’s rationale is to make it easier for
ManCos to organise their oversight of delegates in a clear
and efficient manner without duplicating activities or lines
of responsibility. Granular detail on the scope of these new
functions is still being finalised by the CBI, with additional
guidance expected in the coming months.
ORGANISATIONAL EFFECTIVENESS
The paper introduces a new ‘organisational effectiveness’
role, to be fulfilled by an independent director who may
not carry out any of the six key managerial functions. The
role involves ongoing monitoring of how the ManCo is organised (including considering board composition).
INCREASED FOCUS ON ‘DESIGNATED PERSONS’
One key theme throughout the paper is the CBI’s emphasis on the importance of the role of the ‘designated person’
in the discharge of managerial functions. The designated
person role should now be treated as entirely distinct from
the role of a director (including separate letters of appointment). Directors are involved in controlling and directing
the ManCo, whereas designated persons perform the dayto-day specific managerial function(s) which they have
been assigned and escalate issues identified in accordance
with the ManCo’s escalation procedure. The paper encourages ManCos to ensure that their designated persons
have the requisite skills, experience, support and resources
available to them to discharge the role. While the CBI will
continue to permit a director to also assume managerial
functions, it clarifies/ warns that in that case, “he or she is
consenting to becoming involved in the fund management
company on a day-to-day basis”.
The paper recognises that ManCos may use a number of
different resource models (including the use of designated
directors, designated persons, employees and secondees)
and that there is no ‘one-size-fits-all’ approach to resourcing. Nevertheless, given the paper’s expectations that managerial functions require ‘day-to-day’ involvement, we have
already seen a clear trend of directors of Irish ManCos decoupling their additional designated person roles. In some
cases, the result has been the appointment of additional
promoter/manager-related directors who have the specialist skills (often investment management or risk management) and can commit the time needed to carry out those
functions on a day-to-day basis. The more common trend,
H F M W E E K . CO M 9
FUND MANAGEMENT
IRELAND 2016
however, has been to engage third-party professional firms
to provide designated person services on a secondment
basis, creating a distinct second rank of ‘substance’ beneath
the ManCo board.
DIRECTORS’ TIME COMMITMENTS
Finally, and in parallel to CP86, the CBI carried
out a separate themed review to consider the impact on Irish fund governance of a small number
of individuals holding multiple directorships. The
resulting guidance on directors’ time commitments provides that the CBI will treat any director who has more than 20 directorships, combined
with a high aggregate number of professional time
commitments (more than 2,000 hours), as a risk
indicator warranting further consideration. ManCos will need to review current board composition, document directors’ aggregate annual time
commitments and be satisfied that each director
can commit sufficient time to his/ her role.
OVER THE LAST 18
MONTHS, THE CBI CARRIED
OUT A ROOT-AND-BRANCH
REVIEW OF THE IRISH
GOVERNANCE MODEL,
THROUGH A SERIES OF
THEMATIC INSPECTIONS AND
INDUSTRY CONSULTATIONS
TIMEFRAME
The new rules apply immediately to any new ManCos (those authorised since 1 November 2015).
For any ManCos existing prior to that date, the
CBI has committed to publish further draft guidance by
the end of Q1 2016, following which existing ManCos
will have at least a six-month transitional period. Realistically, therefore, existing boards will have until Q3 or Q4 of
this year to effect any necessary changes and amend their
AIFM programme of activities/Ucits business plans to the
extent relevant.
BENEFIT OR BURDEN?
So are these enhancements a net positive or negative for
the Irish industry? One unavoidable downside is the additional time that managers will need to devote at the
fund set-up stage in selecting a balanced mixture of appropriately qualified directors, and which directors and/or
outsourced designated persons will need to devote to discharging the day-to-day managerial functions. For existing
funds, extra one-off work may also be required to come
into compliance (for example a gap analysis and possible
restructure of existing board arrangements).
However, this is countered by a few clear positives. Firstly,
the steps taken to reduce concentration of fund directorships in the industry should result in a wider and more diversified community of directors (in theory having more
10 H F M W E E K . CO M
time to commit to their individual roles). We expect that the
CBI’s more granular guidance on its expectations regarding
delegate oversight and the effective discharge of the managerial functions will also create new standards of best practice
and uniformity across the industry, which can only
serve to enhance investor protection and correspondingly boost Ireland’s brand as a fund domicile.
Secondly, there is no doubt that the CBI’s distillation of six streamlined AIFM/Ucits managerial
functions removes the scope for duplication and
allows for greater operational and reporting clarity and certainty. This alignment of requirements
will make it easier for managers to establish Irish
Ucits/AIFM dual-authorised ‘super-mancos’, as it
removes the need for distinct (yet frequently overlapping) AIFM programme of activities and Ucits
business plan documents and allows for a single
unified framework for both regimes.
Finally, it adds meaningful operational substance
to the delegation model employed by most Irish
funds. AIFMD and Ucits regimes both prohibit
an authorised AIFM/Ucits management company
from delegating functions to such an extent that it
is a mere ‘letterbox entity’. Owing to the ambiguity
of what constitutes a letterbox entity, and the varying standards of AIFMD implementation across Europe, it
is likely that the scheduled review of the AIFMD regime in
2017 will include consideration of the extent of delegation
across the industry.
Of course, the CBI’s existing requirements as regards
retained substance, delegation oversight and clear reporting channels already fully comply with the letter and spirit
of the Ucits and AIFMD regimes. However, by (a) putting
more substantive flesh on the bones of what effective oversight and control of delegates must mean in practice and
(b) indirectly injecting further substance into Irish ManCos (by effectively requiring either additional hands-on
executive directors or the use of professional outsourced
day-to-day ‘designated person’ support), the CBI has undoubtedly reinforced the prevailing Irish model ahead of
any wider European regulatory review.
In conclusion, any short-term inconvenience to adapt
into compliance with the new rules will be outweighed
by the clear benefits of a more robust, meaningful and
efficient corporate governance framework. In light of
the recent global, institutional investor-driven focus on
governance, that can only add to Ireland’s appeal as a
domicile. Q
”
A LT E R N AT I V E I N V E S T M E N T S E R V I C E S
IRELAND 2016
PROSPEROUS FUTURE
KEN SOMERVILLE, HEAD OF BUSINESS DEVELOPMENT FOR QUINTILLION, EXPLORES THE BACKGROUND
OF IRELAND’S THRIVING FINANCIAL SECTOR AND HOW IT LOOKS SET TO EXPAND EVEN MORE
Ken Somerville serves
as head of business
development for Quintillion,
an indirect wholly owned
subsidiary of US Bancorp.
Ken joined Quintillion as a
founder in 2006 and has
served in his business
development role since
then, managing the sales
and marketing for efforts
for Quintillion’s alternative
investment services.
HFMWeek (HFM): What are the key advantages of
operating as an Icav and how does the Icav appeal to
hedge fund managers?
Ken Somerville (KS): The two leading fund locations in
Europe are Ireland and Luxembourg. For a US manager there is
a closer affinity with Ireland, due
to a range of cultural reasons, although there is still a significant
challenge when establishing in
any jurisdiction outside of the US.
Ireland has consolidated its advantage with the new Irish Collective Asset-management Vehicle
(Icav).
The Icav comes with the key
benefit of having ‘check the box’
status making it a transparent
investment for US tax purposes.
This key advantage has immediate obvious appeal to US investors
despite being an offshore vehicle. With an Icav, a US manager can operate an offshore investment vehicle within
their own tax code. They can also do this with a ready ex-
pectation that their fund will be in a position to provide
US taxable investors with the appropriate form 1065/K1
reporting.
The format of the Icav is hugely important to US managers as they can use it immediately
to produce their own tax return.
Those additional features of the Icav
have made it a spectacularly attractive solution for managers who wish
to have a vehicle that isn’t tame and
that has broad appeal in Europe and
the United States. In the past nine
months all of this has made it the
go-to solution for US managers.
INVESTOR INFLUENCE
BECAME CENTRAL TO FUND
OPERATIONS VERY QUICKLY
AS THE DUST SETTLED IN
IRELAND DURING 2009
HFM: How have growth strategies developed and what have
been the key factors in this
advancement?
KS: In the post-credit crunch environment the range of direct lending,
loan and credit strategies has grown exponentially. We are
both a fund administrator and a loan administrator, thus
within Quintillion/US Bank we offer two components
”
H F M W E E K . C O M 11
A LT E R N AT I V E I N V E S T M E N T S E R V I C E S
IRELAND 2016
that are particularly useful to loan portfolio managers. The
fund administration unit takes responsibility for investor
services and NAV calculation, while our corporate trust
unit provides a comprehensive range of loan services.
By providing all of the back-office support and services
around the loans in a funds portfolio, the manager remains
free to focus on the core responsibility of portfolio management. These services combined are not universally offered by administrators and as a result we have seen a huge
amount of activity in the space.
The lack of availability of credit via traditional lenders
has created opportunities for investment funds and we are
absolutely observing that. Some of that effect is due to the
Icav structure being particularly conducive to US investors coming on board, but for us, the combination of both
corporate trust based loan servicing and hedge fund administration under one roof allowing clients to outsource
basically everything beyond the investment strategy to us,
is pivotal.
HFM: Can you highlight what obstacles US hedge
fund managers face when branching out to Europe?
KS: The first and most basic obstacle is the prospect of
operating in an unfamiliar environment. This is
the standard challenge for anybody seeking to
open an office or investment fund outside of their
traditional space. It is the same with European
managers seeking to expand in the US. There is
also an enhanced compliance challenge driven by
local legislation as there are a number of regulatory requirements for funds in Ireland that don’t
exist in the rest of the world. Funds are required
to appoint a depositary (historically a Trustee &
Custodian), in addition to the standard suite of
service providers. Even offshore funds with either
European managers or investors are now required
to have what is known as a depositary lite solution.
Setting up also requires the creation of the Ireland
or Luxembourg-based vehicle. There is also the
requirement to establish a European management
company, either directly or by joining a licenced
European platform.
The second obstacle is cost, both of the set up
process, plus the ongoing costs of the depositary
carried as fund overheads. Due to this, there is a distinct
sense that the economic operating size for a fund is now
significantly higher in Europe than in other locations.
$75m is a solid start figure or early stage capital figure for
an offshore jurisdiction. Today, it’s probably twice that in
Ireland meaning that the critical mass for funds is $150m.
If there is a more significant barrier that poses more difficulty than the rest, it is certainly cost.
of funds than the regulator. For example, with AIFMD
one of the key requirements of the legislation was to create a concept of the depositary lite and apply it across the
board. That has been the key change post-financial crisis
for hedge funds in this part of the world, with a number of
additional responsibilities for depositaries and for managers with respect to regulatory reporting.
However, there is a wholesale expectation on the part
of investors about how every facet of the management
company and fund is constructed and operated and this
is continually under consideration. This includes
who the service providers are, what range of work
is outsourced and what frequency of NAV is produced, plus the transparency with which reporting
was made available. Investors have exercised their
influence in a way that has a far more in-depth and
ongoing effect on how managers conduct themselves and as a by-product of that, how we, the
service providers conduct ourselves.
CRUNCH ENVIRONMENT
THE RANGE OF DIRECT
LENDING, LOAN AND
CREDIT STRATEGIES HAS
GROWN EXPONENTIALLY
HFM: What type of continued influence does due
diligence have on administration operations?
KS: Investor influence became central to fund operations
very quickly as the dust settled in Ireland during 2009. Investors effectively beat regulators to the start line in imposing change and today exercise a dominant position of
influence over how funds operate and how they conduct
themselves. They have been and continue to be far more
immediately effective at influencing the daily operation
1 2 H F M W E E K . CO M
”
HFM: How has Ireland’s financial market
grown in your time in the industry and how
different is it to its competitors?
KS: The core team at Quintillion have managed
several operations together over the past 20 years.
We have some very experienced colleagues who
have been here for a long time, some of whom began their fund services careers as early 1995 when
the financial sector in Ireland was in its infancy.
Today, there are over 10,000 direct employees
in the same location here in Ireland and international financial services have spread countrywide. During
that time, Ireland became so popular as a go-to location for
hedge funds services that financial services legislation had
to be altered to re-categorise the whole island as a dedicated financial services centre (it originally applied only a
small part of the Dublin docklands).
Presently, you can find top tier financial services companies throughout the major cities and towns across Ireland
and the country is now in a dominant position relative to
other locations.
The growth has been so grand that the industry is now
actively pursued as a career for university graduates, either
in the finance or accounting space. These academic qualifications are pursued with a view to joining international financial services whist remaining in Ireland. We are in a position to offer serious financial services careers to the best
quality graduates here in Ireland and that is absolutely unrecognisable as an environment relative to 20 years ago. Q
A D M I N I S T R AT I O N S E R V I C E S
IRELAND 2016
ELTIF: A NEW FUND PRODUCT
FOR THE LONG-TERM?
DARA HARRINGTON AND ANDREW O’CONNOR OF ARTHUR COX DISCUSS THE KEY FEATURES
OF THE NEW EUROPEAN LONG-TERM INVESTMENT FUND
T
Dara Harrington
is a partner in the Asset
Management and
Investment Funds Group at
Arthur Cox. He has acted in
a wide range of transactions
advising, investment
managers, QIFs/QIAIFs, Icavs,
funds of funds, closedended funds, hedge funds
and private equity funds.
he European Long-Term Investment Fund
(Eltif) is a new type of regulated investment
fund designed for investors wishing to invest
in long-term investment opportunities in
companies and projects that need long-term
capital.
By allowing for the creation of Eltifs, the European
Union’s stated aim is to increase the pool of capital available
for long-term investment in the EU economy and to help
stimulate employment and economic growth by tackling
barriers to such long-term investment.
In Ireland, the regulation governing the operation of Eltifs (the Eltif Regulation) came into force on 9 December
2015 and the Central Bank of Ireland is now accepting applications for alternative investment funds (AIFs) to be
authorised as Eltifs. In light of these developments and the
possible treatment of Eltifs under Solvency II for insurance
investors, it is timely for fund managers to consider whether
the Eltif offers a new structure to attract long-term capital.
This article considers the key regulatory requirements and
advantages of the Eltif.
•
•
•
•
•
STATUS OF THE ELTIF AND ITS MANAGER UNDER AIFMD
Only authorised EU AIFs may be authorised as Eltifs and
Eltifs may only be managed by an EU authorised alternative investment fund manager (AIFM). Eltif managers will
therefore be required to comply with the requirements applicable to AIFMD as well as the obligations applicable under the Eltif Regulation.
Andrew O’Connor
is an associate in the
Asset Management and
Investment Funds Group
at Arthur Cox. He advises
on the legal and regulatory
issues associated with the
establishment and ongoing
operation of investment
funds in Ireland.
MARKETING PASSPORT FOR RETAIL INVESTORS
Unlike other AIFs within the scope of AIFMD which may
only be marketed on a passported basis to professional investors, the Eltif will benefit from a marketing passport that
enables it to be marketed to retail investors across the EU.
Therefore, the Eltif offers certain of the marketing advantages available to Ucits when it comes to pan-European sales
to retail investors.
However, the marketing passport is not one that operates
in an ‘execution only’ environment. The Eltif Regulation
provides that:
• The AIFM will be required to establish a specific internal
process to assess whether the Eltif is suitable for marketing to retail investors
• When directly marketing an Eltif to a retail investor, the
AIFM must carry out an assessment as to whether investment in the Eltif is suitable for the investor
• An AIFM may only market directly to investors where
it has been authorised to provide the MiFID services of
portfolio management and investment advice in addition
to the ‘core’ AIFM functions
Where the portfolio of the investor is less than €500,000,
the AIFM or the relevant distributor must ensure that the
investor does not invest more than 10% of its financial instrument portfolio in Eltifs and that the initial minimum
amount invested in one or more Eltifs is €10,000
An Eltif that is marketed to retail investors must have a
key information document (KID) which will set out the
important features of the fund
Unlike other funds within the scope of AIFMD, the depositary shall not be permitted to discharge itself of liability in the event of a loss of financial instruments held in
custody by a sub-custodian and cannot exclude or limit
by agreement its liability where the Eltif is marketed to
retail investors
Unlike other funds within the scope of AIFMD, the rules
or instrument of incorporation of an Eltif marketed to retail investors may not provide for preferential treatment
or specific economic benefits for individual investors or
groups of investors
Retail investors must be permitted to cancel their subscription and receive a refund of the subscription amount
without penalty until at least two weeks after the date of
their subscription
WHAT CAN ELTIFS INVEST IN?
Eltifs must focus on alternative investments that fall within
a defined category of long-term asset classes whose successful development requires a long-term commitment from
investors. Specifically, an Eltif must invest at least 70% of its
capital in the following:
• Equity, quasi-equity or debt instruments that have been
issued by a ‘qualifying portfolio undertaking’ (broadly
speaking, unlisted companies or listed companies with
market capitalisation of less than €500m)
• Loans granted by the Eltif to a qualifying portfolio undertaking
• Units of other Eltifs, European Venture Capital Funds
(EuVECAs) and European Social Entrepreneurship
Funds (EuSEFs)
• Real assets with a value of at least €10m. A ‘real asset’
means any asset that has value due to its substance and
properties and may provide returns, including infrastructure and other assets that give rise to economic or social
benefit, such as education, counselling, research and development and including commercial property or housing only where they are integral to, or an ancillary element
of, a long-term investment project that contributes to the
H F M W E E K . C O M 13
IRELAND 2016
A D M I N I S T R AT I O N S E R V I C E S
THE ELTIF WILL BENEFIT
FROM A MARKETING
PASSPORT THAT ENABLES
IT TO BE MARKETED
TO RETAIL INVESTORS
ACROSS THE EU
”
EU objective of smart, sustainable and inclusive growth.
This definition of ‘real assets’ could operate as a significant limit on the types of real estate investments that an
Eltif could make
An Eltif will have up to five years (or half the life of the Eltif,
whichever is shorter) to meet this 70% investment threshold.
In the interest of efficient cash flow management and to
allow managers of Eltifs a certain degree of flexibility, an
Eltif may also invest up to 30% of its assets in assets which
qualify as eligible assets under the Ucits regime.
INVESTMENT AND BORROWING RESTRICTIONS
An Eltif is subject to certain investment and borrowing restrictions, including:
• It may not invest more than 10% of its capital in instruments of, or loans, to any single issuer
• It may not invest more than 10% of its capital in a single
real asset
• The 10% figure referred to in the two bullets above can
be raised to 20% if the aggregate value of assets held in
qualifying portfolio undertakings and individual real assets in which it invests more than 10% of its capital does
not exceed 40% of the value of its capital
• It may not engage in short-selling
• It may only use derivatives to manage risk and not for investment purposes
• It may not invest directly or indirectly in commodities
• It may not invest more than 10% of its assets in any single,
or 20% in the aggregate in, Eltifs, EuVECAs or EuSEFs
• It is subject to a borrowing limit of up to 30% of its assets
REDEMPTIONS, DISTRIBUTIONS AND THE LIFE OF THE ELTIF
The life of the Eltif must be sufficient in length to cover the
life-cycle of the individual assets of the Eltif. Investors in Eltifs will not, in general, be permitted to withdraw their investment until the specified end date of life of the Eltif. This
end date must be clearly disclosed to investors in the Eltif’s
prospectus or constitutional document, which may provide
14 H F M W E E K . CO M
for the right to temporarily extend the life of the Eltif.
However, in order to incentivise investors, Eltifs can offer
early redemption rights to its investors under certain conditions. For example, the overall amount of redemptions must
be limited to a percentage of the Eltif’s investments which
qualify as eligible assets under the Ucits regime. If redemption requests exceed this limit then redemptions will be processed on a pro rata basis.
The Eltif may distribute to investors any proceeds that are
generated by its assets unless the proceeds are required for
future commitments of the Eltif.
NEXT STEP – TECHNICAL STANDARDS
As part of the implementation of the Eltif Regulation,
ESMA issued a consultation paper entitled “Draft regulatory technical standards under the Eltif Regulation”, which
closed on 14 October 2015. In its consultation paper, ESMA
outlined its proposals covering:
• The circumstances in which the use of derivatives is permitted
• The circumstances in which the life of an Eltif is considered sufficient in length to cover the life-cycle of each of
the individual assets of the Eltif
• The facilities available to investors to make subscriptions
and redemptions and to obtain information which the Eltif is required to provide
• ESMA has not yet finalised these technical standards
The ability to market an Eltif on a passported basis to retail
investors across the EU offers a real advantage over other
types of alternative investment funds. However, the Eltif is
subject to significant limitations in terms of the types of assets that it may invest in and the diversification limits that
apply. Also, policies and procedures will need to be put in
place to confirm the appropriateness of the Eltif for investment by retail investors. It will be interesting to see whether
the potential benefits from a marketing perspective are considered by managers to be worth the additional investment
constraints and compliance burdens. Q
IRELAND 2016
A D M I N I S T R AT I O N S E R V I C E S
GROWTH AND CHALLENGES
OF FUND ADMINISTRATION
IN IRELAND
CHARLES BATHURST, SALES CONSULTANT FOR SUMI TRUST GLOBAL ASSET SERVICES, REFLECTS ON THE KEY DRIVERS THAT HAVE CONTINUED
TO SHAPE THE IRISH ASSET SERVICING INDUSTRY. HE ALSO HIGHLIGHTS THE IMPACT OF AIFMD AND UCITS V ON THE IRISH FUND
ADMINISTRATION INDUSTRY/DEPOSITARY MARKET AND OFFERS THOUGHTS ON THE IMMEDIATE FUTURE
I
Charles Bathurst,
sales consultant to SuMi
TRUST Global Asset Services
graduated from the Royal
Military Academy Sandhurst
in 1974, serving as an officer
in the British Army before
leaving to take a position
in the UK engineering
industry with GKN. During
his career, Charles has
been responsible for
initiating and managing to
profitability new businesses,
multiple product launches
and building distribution
channels in more than 40
countries globally.
reland has been subject to immense financial
change over the past decade and a key area of
growth has been the asset servicing community,
which has also had its own particular challenges
since 2008. As the fund management industry has
changed through funds merging or closing, investment managers looking to expand into new markets, the
relentless growth of regulation and the increasing emphasis on technology-based solutions, the Irish asset servicing community has had to adapt to these challenges
accordingly.
In conjunction with this, there has been significant
deleveraging and risk reduction by investment managers and the historic providers of liquidity and financing,
such as the prime brokers, have reduced their market
exposure. Administrators have had to respond to this
changing environment, develop more bespoke solutions
for clients and provide more than just a fund accounting
and shareholder service. The period since 2010 has also
seen the rapid increase of onshore Irish-regulated funds
requiring administrators to adjust their accounting and
NAV model to more frequent valuation periods and in
many cases daily.
The most significant change is the structure of the Irish
fund administration industry as a number of global banks
have moved away from direct ownership of fund administration companies, e.g. Butterfield, Citibank, Credit Suisse
and UBS among others. There have also been a number
of banks acquiring administrators to enter the market for
the first time with Sumitomo Mitsui Trust Bank (SMTB),
Japan’s largest Trust Bank and Asia’s largest asset manager
acquiring the Global Asset Services division from Daiwa
Securities in 2012. Two of the objectives of this transaction were to continue SMTB’s investments overseas, but
more significantly to provide an alternative fund administration solution to its client base.
Consolidation among the smaller sub scale administrators and the larger administration companies in Ireland looks set to continue and there are forecasts that the
number will further decrease from the 42 today to fewer
than 20 over the next few years. There is an increasing
trend for asset managers to place more reliance on their
administrators in terms of providing data for reporting.
This trend is requiring a significant investment in technology solutions across the spectrum which has led to
some firms withdrawing from the business. In addition,
as markets still encounter bouts of nervousness, asset
managers are closely monitoring the financial standing of
their administrators as well as their commitment to stay
in business for the long term.
THE KEY ISSUE TODAY
One activity that has seen one of the most significant
changes in the Irish fund administration industry in
recent times is the introduction of the depositary, enshrined in the AIFMD and Ucits V directives.
H F M W E E K . C O M 15
A D M I N I S T R AT I O N S E R V I C E S
IRELAND 2016
The arrival of Ucits V on 18 March 2016, which
had been in discussion for a number of years, but
whose true detail only started to become apparent
as recently as December 2015, is yet another challenge as this requires significant documentation
and operational change. The new Ucits V depositary activity mirrors that of the AIFMD and Ucits
V as it incorporates three new areas of focus: depositary services, remuneration and sanctions.
Ucits V is impacting the funds industry in
two principal ways: the role and liabilities of
the depositary and the impact of remuneration
guidelines for the investment manager. Many of
the Irish depositaries, including SuMi TRUST,
already have the systems in place for the AIFMD
but the big difference under Ucits V is, because
of its origins as a retail structure, the requirement
for the depositary to have full liability for the loss
of assets in custody with no offset to the sub custodian or investment manager as permitted under
the AIFMD. That means that depositaries are assuming greater risk and need to have a very strong balance sheet and risk management framework in order to
assume the additional risk on behalf of the Ucits funds
they service.
SuMi TRUST is being actively approached to support
administrators who do not have a depositary within their
group to assist them with the depositary services for the
AIFMD and Ucits funds they administer. SuMi TRUST
now works with an increasing number of third-party administrators to provide the depositary model. This is expanding the SuMi TRUST footprint in Ireland and gaining
recognition amongst investment managers globally, creating a series of high-quality relationships. This in a sense
proves the flexibility of the Irish asset servicing model with
companies collaborating to provide a seamless service for
fund managers.
Asset service providers need to actively provide quasi
consulting services to their clients and the investment
management industry at large, wherever they are domiciled, to identify the optimum solutions for investment
managers, whether under the AIFMD or Ucits. This may
also include advising on distribution. SMTB, the largest
distributor of internal and third-party investment funds in
Japan, working with some of the leading global asset managers specialised in long only and alternative investing, has
extensive experience of providing this advisory model and
is actively doing so with its clients.
OPPORTUNITIES IN THE NEXT 12 TO 18 MONTHS
Ireland has one primary competitor in Europe
– Luxembourg – and the two of them dominate
the fund administration and asset servicing business, supporting managers from all over the global
market. This competition provides for a healthy
environment and requires the regulators in both
jurisdictions to provide flexible solutions and support. Naturally, they both undertake this in different ways. However, Ireland has actively marketed
itself as a global centre with great success and in
particular growing its relationship with the North
American investment community and the UK.
The recent introduction of the Icav is proving a
great success. The Icav is a great example of the Irish
industry and the legislature working together to create a legal framework tailored to meet the requirements of Irish funds while continuing to provide
strong protection for investors. A key benefit of this
new structure means that the establishment and
amendment of funds structures/provisions are now
much more streamlined, focused and efficient.
Ireland therefore looks set for ongoing growth and recognition as an innovative, forward-looking, accommodating centre for global investment managers to domicile their
investment funds and be supported by a well established
administration and asset servicing centre, of which SuMi
TRUST is one of the longest-serving providers, a leader in
innovation and an integrated part of this specialist community. We look forward to the future with confidence.
THE MOST SIGNIFICANT
CHANGE IS THE STRUCTURE
OF THE IRISH FUND
ADMINISTRATION INDUSTRY
AS A NUMBER OF GLOBAL
BANKS HAVE MOVED AWAY
FROM DIRECT OWNERSHIP
OF FUND ADMINISTRATION
COMPANIES
16 H F M W E E K . CO M
”
SUMI TRUST OVERVIEW
SuMi TRUST Global Asset Services has been delivering
operational and administration support services to quality institutional asset managers in Europe, the US and the
Asian markets from their offices in Dublin, London, Tokyo
and the Cayman Islands since 1991, including the structuring, administering and servicing of dedicated funds
for Japanese institutional and retail investors. The SuMi
TRUST offers full administration services for offshore and
Irish-domiciled funds and has a long history of servicing
Ucits funds, AIFMD and Ucits V depositary, custody and
access to middle-office services. Our clients include long
only and alternative funds and fund of funds.
For more information on the full range of services provided by SuMi TRUST Global Asset Services, please contact
Colm Geary in Dublin: +353 (1) 603 9998 or colm.geary@
sumitrustgas.com. Q
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S E R V I C E D I R E C TO R Y
IRELAND 2016
Arthur Cox, Dara Harrington, Partner, Asset Management and Investment Funds // dara.harrington@arthurcox.com // T +353 1 618 0559 // Kevin
Murphy, Partner, Asset Management and Investment Funds // kevin.murphy@arthurcox.com // T +353 1 618 0515
FUND
ADMINISTRATION
LAW FIRM
Arthur Cox is one of Ireland's largest law firms. We are an “all-island” law firm with offices in Dublin and Belfast. The firm also has offices in London, New
York and Silicon Valley. Arthur Cox’s Asset Management and Investment Funds Group is a market leader, advising on all aspects of investment management
issues and the establishment and ongoing operation of investment funds in Ireland. Established in 1990, the Group consists of a highly experienced team
that produces thorough, well-rounded responses and continues to demonstrate its in-depth understanding of all types of investment funds, including
UCITS, qualifying investor alternative investment funds (“QIAIFs”), hedge funds, private equity funds and property funds. The Group’s reputation for expertise
and innovation is endorsed by an impressive client list which consists of many leading international financial institutions, investment banks and asset
management companies.
Quintillion, Limited, Ken Somerville, Head of Business Development // ken.somerville@quintillion.com // T +353 1 532 8003 // quintillion.com
FUND
ADMINISTRATOR
Quintillion is a specialist Dublin based provider of fund administration to alternative investment funds. We provide back and middle office services to a
diverse range of fund structures, strategies and domiciles supported by class leading technologies and our expert operations group.
Following our start-up or conversion process, funds are serviced by client-centric investor services and accounting teams delivering an accurate, timely and
transparent administration solution all within strict deadlines.
SS&C GlobeOp, Alex Kirkpatrick // T+44 (0)20 3310 3148 // akirkpatrick@sscinc.com // Colin Keane // T +353 1 514 9651 // ckeane@sscinc.com
FUND
ADMINISTRATOR
SS&C GlobeOp® is among the largest and fastest growing fund administrators in the world. We offer the deep expertise, independence, transparency, and a
comprehensive powerhouse of world-class technology that you won’t find at any other service provider. We own and maintain the best technology in the
industry. That’s why we can deliver the speed and agility to service any new market, instrument, asset class, or regulation in your future without having to rely
on third-party technology. Contact us at www.sscglobeop.com to learn more. We are the future. We are SS&C.
SMT Fund Services (Ireland) Limited, Kazuko Takashima // kazuko.takashima@sumitrustgas.com // T +44 (0) 207 826 4257
SuMi TRUST Global Asset Services has been delivering operational and administration support services to quality institutional asset managers in Europe,
the US and the Asian markets from their offices in Dublin, London, Tokyo and the Cayman Islands since 1991, including the structuring, administering and
servicing of dedicated funds for Japanese institutional and retail investors. The SuMi TRUST services encompass full administration services for both offshore
and Irish domiciled funds including a long history of servicing UCITS funds, AIFMD and UCITS V depositary, custody and access to middle office services. Our
clients include long only and alternative funds and fund of funds.
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