Our Investment Funds practice gives an overview of the primary trends it witnessed in the Irish funds industry during 2010 and its outlook for 2011.
Industry Trends in 2010
The primary industry trends which our Investment Funds practice witnessed in 2010 were:
- a further increase in interest in UCITS;
- additional attention to Ireland from promoters based in the Middle East;
- the first wave of fund redomiciliations to Ireland; and
- significant interest in Ireland's Qualifying Investor Fund ("QIF") arising from the finalisation of the Alternative Investment Fund Managers Directive ("AIFMD").
In relation to interest in UCITS, this was from both promoters currently managing offshore products and from those with existing Irish non-UCITS products. In particular, we advised on a number of non-UCITS to UCITS conversions during the year.
In addition, there was significant interest in late 2010 in the establishment of third party fund platforms, particularly as UCITS, arising from new regulation allowing managers to clearly brand their product within the platform. Such platforms enable promoters to allocate specific portfolios within a structure to specific managers. The managers, in turn, get to manage a product without having to be the entity to set it up. They can develop a track record in managing assets of a regulated fund and then may, in the future, decide to set up their own vehicle. This is of particular interest to hedge fund managers looking for exposure to UCITS products and we are currently advising on a number of such projects.
The Central Bank of Ireland entered into Memoranda of Understanding with regulators in a number of countries during the year, including Bahrain and the United Arab Emirates. This reflects the Irish regulator's commitment to facilitating asset managers from the Middle East in setting up Irish domiciled funds, which we witnessed when we represented The National Investor, the first Abu Dhabi promoter to be approved by the Central Bank, in the establishment of its Irish UCITS platform.
Redomiciliations were the subject of significant interest, following the commencement of Irish legislation which provides for a new efficient mechanism to redomicile corporate funds to Ireland from various key offshore centres. Most promoters decided to hold off on any move pending certainty regarding the AIFMD and the Central Bank's guidance, which issued in late December 2010. We are now witnessing the first wave of redomiciliations of both corporate funds and trust vehicles to Ireland.
In relation to service providers, the ongoing mix of consolidation of existing players and the establishment of new entrants continued. For example, in 2010, we acted both for LaCrosse in its acquisition of Bank of America Merrill's Irish fund administration business and also in relation to the establishment of new fund administration businesses in Ireland.
Outlook for 2011
We anticipate another strong year of growth for the Irish funds industry in 2011. In particular we expect to see continued interest in UCITS, particularly as UCITS IV is implemented during the Summer, with a wave of reconstructions forecast later in the year when managers will be able to take advantage of the additional structuring opportunities it will afford. Separately, we also anticipate further interest in QIFs from alternative managers in general but in particular those currently managing offshore products. Given that the QIF is automatically largely compliant with the AIFMD and stands to benefit from its passporting provisions from 2013, we expect to see strong growth in this sector and for it to further consolidate its position as the leading European hedge fund product.