Unique structure among third-party ManCos creates synergies for value added services
05. May 2023
- Asset managers
The Irish fund market presents an opportunity for asset managers around the world. As the third largest fund market globally with distribution to over 90 countries worldwide, Ireland’s regulatory, tax and innovation dynamics offer significant growth potential.
In a Q&A Keith Milne, CEO of Universal Investment Ireland discusses the trends in the Irish fund industry. He explains why regulatory requirements have heightened the appeal of an independent third-party ManCo with deep knowledge and longstanding roots in the market.
Keith, what recent developments and trends do you see in the Irish fund industry and what's next?
The main trends in recent years has been the continued growth of the Irish industry itself (from EUR 2.4trn in Irish domiciled funds in 2018 to EUR 3.7trn in 2022) and the decrease in self-managed investment companies and smaller internally managed AIFs following the implementation of CP86, which have effectively consigned such structures to history. With increasing importance being placed on the role of the ManCo by the regulators, substance requirements for firms fulfilling this role have been increasing all the time. The CP86 framework, first published in 2014 by the CBI and brought to life in 2018, framed the regulator’s expectations for ManCos and made the need for substance in the Irish ManCo market very evident. With these substance requirements now clearly set out, many existing small or proprietary ManCo’s are considering the volume on their platform and whether it justifies maintaining their own ManCo or if it makes more sense to engage a dedicated third-party ManCo, such as Universal Investment, as a partner to perform this role. New entrants to the Irish market also tend to look for an external partner in a sector that is undergoing much change, and where the trend is towards a smaller number of larger third-party ManCos servicing the market in the future.
How important is it for a third-party ManCo and AIFM to have scale and critical mass?
In an environment where the scale and complexity of regulation is increasing all the time, delivering a quality and robust ManCo or AIFM service is, in particular for smaller ManCos and AIFMs, becoming more challenging; doing this in an economical manner makes it an even greater challenge. The trend in the marketplace, endorsed by regulators, around value for money and lower fees for investors has put pressure on all service providers to offer competitive pricing and deliver value for clients. Scale and critical mass for a ManCo or AIFM are therefore very important. Having scale on the platform delivers both economies and a broad level of expertise and it is this which enables the third-party Manco or AIFM to offer a comprehensive and robust service, at a price level that matches the drive for value for investors.
You have been with the company for over 20 years now, first at Metzler and since 2021 at Universal Investment. What has changed since you became part of Universal Investment Group in 2021?
Our long-standing and stable Irish team were early entrants to the ManCo sector. The Metzler entity was one of the first ManCos operating in Ireland and our 20+ years of experience acting as a ManCo has served us very well when we joined the Universal Investment Group, who were also similarly experienced in the sector, having a 55 year track record as one of the pioneers in the industry in Germany. Since joining Universal Investment, we have built up the team in preparation for the growth on the platform, and the senior personnel recruited with deep and broad industry experience has further increased our already existing substance and expertise. Our legacy in serving as a proprietary ManCo has given us much experience in delivering a quality service with supportive engagement to a highly valued partner. We have built on this core principal in how we operate, and we have developed a model to cater for growth and further clients on the platform fuelled by the support of the Universal Investment Group.
At an industry level, the period since joining the Universal Investment Group has seen a lot of activity in the ManCo space. Increasing regulatory focus on the sector (via CP86), a resulting trend towards the use of third-party ManCos and AIFMs and significant M&A activity, have all been features in the sector in the past two years.
Why is Ireland such an attractive fund centre and what needs to happen for Ireland to retain and build upon its position as a leading international funds centre?
Ireland has been operating as a fund centre for over 30 years and is now the third largest global domicile in terms of AUM, and Irish funds are distributed to over 90 countries. Ireland is the only English-speaking common law jurisdiction in the EU and has a strong pipeline of talent with its young and highly educated population. These factors, along with an innovative outlook on products and technology, a robust and efficient regulatory regime, and an efficient and transparent tax regime with a multitude of negotiated tax treaties makes Ireland an attractive fund centre. Although Ireland has historically been the domicile of choice for US and UK investment managers, managers from more than 50 countries have now chosen to set up their funds in Ireland.
To retain and build on the strength of the domicile, Ireland will need to continue to focus on these core strengths. The Irish funds industry adopts a collaborative approach in terms of making Ireland an attractive place for managers to launch funds and this collective drive to maintain our competitive advantages, and indeed be innovative in developing newer ones, should ensure the continued growth and success of the Irish funds industry.
Could you walk us through Universal Investment’s strategy and explain which role the Irish fund hub plays in delivering against this?
Universal Investment’s strategy is to bring its very significant and broad product offering to a wider range of international investment managers, building on its dominance in the German and Luxembourg markets. Adding Ireland to the ManCo and AIFM hubs of Germany and Luxembourg offers a tailored solution for any asset manager looking to offer their products to a broad investor base.
Universal Investment’s structure with hubs in both the major domiciles of Ireland and Luxembourg in addition to the main markets where assets are raised, such as Germany and France, provides clients with a pan-European offering within one group. This unique structure among third-party ManCos creates synergies for added value services, such as active distribution support in mainland Europe.
We expect Universal Investment Ireland to be the preferred hub in the group for North American and UK asset managers looking for the benefits of a Universal Investment offering. However, our Irish AIFM and ManCo will equally offer asset managers from Europe or Asia the benefits of an Irish domicile. All clients partnering with our Irish operation will benefit from an experienced and expert team, supported by the full backing of the wider Universal Investment Group.
What should asset managers or investors consider when looking for a new ManCo or AIFM?
Managers should be looking for a partner who can offer comprehensive support on a wide range of value-add services in various jurisdictions. In addition to core ManCo and administration services, Universal Investment has an active distribution offering with dedicated salespeople on the ground in Europe and can offer active marketing support as one of its further added value services.
Substance and scale are also vitally important attributes in a ManCo partner to continue to serve clients in the future with the ever-increasing range of challenges being faced, both on the regulatory and commercial side of the business. With changing dynamics in the industry, stability, longevity and experience should also be considered as key components for a decision on a ManCo partner.
Looking to the future, the ManCo’s capacity to invest in services to future-proof the sector should also be borne in mind. At Universal Investment, our focus on this area are in the shape of our front-office expert UI labs, our digital assets platform UI Enlyte, and an award winning innovative AI based ESG product, are all examples of our strategy of staying ahead of the curve in terms of preparing for the future and the servicing of our clients.