A Bright Outlook for Ireland's Investment Funds Landscape

A Bright Outlook for Ireland's Investment Funds Landscape

July 20, 2021

By David Kelly

David Kelly, recently appointed Head of Trust & Depositary for Ireland at BNY Mellon, shares his thoughts on the investment funds and Depositary landscape in Ireland as we exit COVID-19 enforced lockdowns.

While the COVID-19 pandemic, resulting lockdowns and market volatility have led to a period of unprecedented challenge for our societies and economies, as we emerge from lockdowns and resume “business as usual,” the future prospects for the global financial industry, and in particular for the Irish funds industry and the Irish Depositary market, are well positioned.

 

As we move from a period of resilience to a period of recovery and growth, there is a confluence of factors that are encouraging indicators for economic momentum. This includes progress on vaccine deployment, extraordinary levels of consumer savings, monetary stimulus and further government spending — all of which are likely to accelerate gross domestic product growth and have a positive impact on asset values and asset flows into investment products. This may well act as a stimulant of further product innovation.

 

With economies reopening and industries such as construction restarting globally, it is likely that the Private Equity and Real Estate sectors will grow in prominence and, as a result, increasing numbers of new Irish Fund assets will be focussed in these areas. Against this backdrop, the recent enactment of the Investment Limited Partnership (“ILP”) Amendment Act 2020 (the Act) in Ireland may prove timely and this new fund offering is positioned to be popular with global asset managers. Already the new ILP is getting a lot of attention from some of our US clients who have an existing funds presence in Ireland and who are anxious to add a European LP structure without needing to open a new European funds domicile.

 

The ILP, which falls within the AIFMD regime, introduces a number of important features already offered in structures such as Delaware LLPs and Cayman Island ELPs. Examples include the availability of efficient capital drawdown structures and strong enforcement powers in Limited Partner (“LP”) default instances. Limited liability is available for LPs that do not take part in the management of the ILP and the Act sets out a list of activities which can be performed by LPs without affecting their limited-liability status.

 

At BNY Mellon, we have collaborated with industry partners to create what we feel is a best-in-class Trust and Depositary offering in the ILP space. Our model for “not in bank” asset record-keeping and ownership verification has evolved in recent years. We have high levels of automation embedded in our process, which positions us well to service new ILP opportunities that come to market.

 

Our extensive experience in safekeeping a variety of different asset types is a prerequisite when servicing this fund genre. Assets are often held through multi-layered structures beneath the top-level fund / partnership, and the ability to understand and work with complexity is vital. We have focussed closely on building out this skill set, both within the Trust and Depositary team and within our second line of defence, Compliance and Risk teams. Subject matter expertise throughout our business gives us the agility to assess opportunities and to implement solutions quickly. This is a quality which is essential in the Private Equity / Real Estate market, where capital tends to be mobile.

 

A second area generating a lot of interest and focus among alternative asset managers is digital assets. Certain clients are eager to add a digital focus to their portfolios / product offerings and early regulatory clarity on the eligibility of digital assets for Irish Authorised Funds would be most welcome. We are keeping close to these developments and in light of ongoing and emerging trends internationally, I believe the timing of the decision on eligibility is crucial for Ireland and its ongoing competitiveness as a fund’s destination.

 

Earlier this year, BNY Mellon announced the formation of a new enterprise Digital Assets unit, which will be supported by a growing team of advanced solutions specialists, including data scientists and blockchain solution architects, who will focus on the development of solutions and capabilities to help clients address growing and evolving needs related to the growth of digital assets. This cross-functional, cross-business team is currently developing a client-facing prototype that is designed to be the industry's first multi-asset digital custody and administration platform for traditional and digital assets. The Trust and Depositary team are engaged with this unit and are already considering key elements of Depositary oversight and safekeeping in the context of digital assets. BNY Mellon Trust and Depositary intends to be ready to support our clients in investing in this asset class if or when relevant regulatory permissions are granted, or further regulatory guidance is provided in this space.

 

BNY Mellon in Ireland is participating in stakeholder engagements to progress Ireland’s ongoing considerations regarding digital assets and the appropriate regulatory framework for digital asset investment. I believe education is central to Ireland’s ability to successfully absorb digital asset investment into our regulated fund structures. BNY Mellon is leading digital asset dialogues with industry colleagues (including the Irish Independent Non-Executive Director community) and we are working with third-level institutions to help equip graduates with the digital asset skills and knowledge that we believe will be central to the Irish Funds Industries continued success.

 

New and exciting things are ahead. BNY Mellon continues to play a leading role in the Irish Depositary industry response to these challenges and opportunities and to supporting our clients in their delivery of investment products to investors throughout the globe.

David Kelly

Head of Trust and Depositary Services, Ireland

 


 

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