The title of the recent Irish Funds publication, Why Ireland?, posed more than just a rhetorical question for the global alternatives industry.

The numbers quoted by the report are impressive: $6.1trn in total assets under administration; more than 1,000 fund promoters; 13,677 total funds, with 8,870 Ireland-domiciled funds and 21% of those funds focused on alternatives. Ireland was the first regulated jurisdiction to provide a regulatory framework for the alternatives industry, and Irish funds are sold in 90 countries across Europe, the Middle East and Africa, the Americas, and Asia-Pacific.

Beyond the numbers, however, Ireland’s role in the alternatives industry is expanding in critical ways, as fund managers, trusted service partners and fintech companies seize opportunities and address the rapid transformation of asset servicing and fund administration.

With a strong educational system, highly skilled workforce and 17,000 funds professionals already working, Ireland is increasingly the location of choice for global firms establishing management companies and operational centres to oversee existing funds or launch new ones, whether they are domiciled in Ireland, Luxembourg, or other European Union countries.

Fintech hubs

We’re seeing a significant increase in fintech hubs developing products to address new risk, regulatory, reporting and compliance demands across global jurisdictions. Ireland’s Fintech Steering Group, launched in 2020, has promoted innovation, spurred cross-border discussions and collaboration and helped shape policy regarding the development and broader use of fintech.

There are significant opportunities and support for smaller, nimble fintech firms delivering products, including blockchain and digital asset services, digital banking and payments, and cross-border payments. With further support from Enterprise Ireland, it’s likely these firms will continue to get the support they need to deliver change.

Exploring the potential for AI remains a priority for the EU and Ireland-based firms. As part of the European Commission’s Digital Europe Programme to shape digital transformation, four European Digital Innovation Hubs are operating in Ireland. The hubs are supporting digital transformation by encouraging the adoption of cybersecurity technology, AI and high-performance computing, as well as providing access to technical expertise, innovation services, training and skills development. 

Ireland’s Fintech Steering Group, launched in 2020, has promoted innovation, spurred cross-border discussions and collaboration and helped shape policy regarding the development and broader use of fintech

The European AI Act has flagged concerns about AI applications that carry risks for safety, livelihoods and rights of EU citizens. It’s not yet clear if the EU will drive global standards similar to the US and UK, which have put growth and innovation at the centre of their AI strategies. It’s clear that fund managers and their partners – including MUFG Investor Services – already are well down the road to identifying ways to use AI to improve operational efficiency, reduce risk and cost, drive greater value and improve results. 

Staffing challenges

Ireland’s rapidly growing reputation as an operations centre also presents significant challenges, primarily in recruiting, training and retaining staff. With more than 200 management companies in Ireland, competition for experienced employees is intense considering the country’s low unemployment rate and competition from larger firms or fintech startups.

And as the industry becomes more automated and data-driven, few objectives are more important than hiring colleagues who can manage those systems, identify potential failure points and create solutions. Increased training is vital to retain those colleagues and remain competitive. 

What next?

Given the increased role of funds and growth of the financial services industry in Ireland, the natural question becomes: What happens next?

Along with the Why Ireland? report, industry stakeholders have been closely reviewing the Update to Ireland for Finance, released in March by the Irish government. The report identifies six themes to improve the environment for financial services and improve competitiveness: sustainable finance, fintech and digital finance, diversity and talent, regionalisation and promotion, and operating environment.

While the report provides a solid long-term view, there are short-term steps that can be taken to bolster Ireland’s presence in alternatives. Ireland was at the forefront of providing a regulated framework for alternatives and leads the way in ETFs, but it has struggled to attract flows in alternatives compared to Luxembourg, its biggest competitor in Europe, where GPs are launching more alternative structures than any other jurisdiction. In fact, Luxembourg benefits from flexible structures on offer – either regulated or unregulated products to meet the needs of GPs and LPs – and Ireland lags in providing similar solutions.

The Investment Limited Partnership (ILP) was launched several years ago and although it was a move in the right direction, uptake has not been as forthcoming as with Luxembourg fund products. ELTIF 2.0 may give Ireland a better chance to compete, although the majority of ELTIFs launched to date have been domiciled in Luxembourg.

Looking to the future, one of the keys to expanding the number of Ireland-domiciled funds – in particular, an increased share of the alternatives market – will be increased collaboration between industry firms and Irish regulators to find a regulatory balance that protects investors while also giving the industry greater flexibility to introduce and support new products.

David Rochford is co-location head for Ireland and global head of public markets at MUFG Investor Services