Irish funds industry buoyed by new business growth - Deloitte
16 February 2012 - Irish fund administrators see revenues increase in 2011 amid strong demand for onshore, regulated funds and operational centres
All of the respondents to the Deloitte Fund Administration in Ireland Survey 2012 reported positive revenue growth for the financial year 2011. Just over half of respondents projected final year end growth exceeding 10% while almost 40% expected to grow by over 20%.
Furthermore, all respondents attributed this revenue growth to the securing of new clients. Additional volumes from existing business and new services were also cited as reasons for revenue growth by 86% and 50% of participants respectively.
Commenting on the survey results, Brian Forrester, Partner, Investment Management Advisory, Deloitte said: “The funds industry is one which employs over 11,000 people in Ireland in the administration of €1.8 trillion worth of assets. The survey reveals excellent growth prospects for the industry. Demand for fund administration and associated custodial services has benefitted from the trend towards regulated fund offerings in recent years, as investors and supervisors demand greater oversight and transparency from hedge funds. The findings follow the news that assets held in Irish domiciled funds exceeded €1 trillion for the first time in November 2011. A further €820 billion of non-Irish domiciled assets are also administered in Ireland.”
Hedge funds and UCITS, or retail funds set up under EU legislation, will continue to drive product growth over the next 12 months, according to the survey. Hedge funds, according to 29% of respondents are predicted to be the fastest growing products over the next 12 months, followed by traditional UCITS (23%) and sophisticated UCITS (17%).
Further findings of the survey include:
Strong corporate governance
Investors value high standards of corporate governance now more than ever and respondents were overwhelmingly (93%) in favour of the adoption of a voluntary corporate governance code for fund service providers. This follows the adoption in December 2011 of the Irish Funds Industry Association’s voluntary code for funds and management companies.
Efficiency and technology
The survey findings show that administrators continue to invest in their business to drive efficiencies through technology and training while low staff turnover has also enhanced productivity.
All respondents have implemented automated workflow systems or intend to do so over the next 12 months. 93% of respondents have focussed on staff training and development and 86% on process standardisation to enhance efficiencies. Fund administrators will continue to invest heavily in technology during 2012, with 60% of respondents increasing their IT system development budget.
Staff turnover in the funds industry has reached an all-time low of 6%, according to the survey. The sharp reduction in staff turnover since 2007 has reduced recruitment and training costs, minimised service disruption and enhanced the level of productivity and experience within companies.
Alternative Investment Fund Managers Directive
A majority (64%) of fund administrators surveyed view the EU’s Alternative Investment Fund Managers Directive (AIFMD) as a business opportunity. AIFMD will create a new regulatory regime for the EU hedge fund sector and will come into effect by July 2013. In response, many hedge fund managers have turned to Irish Qualifying Investor Funds, which are already in line with the AIFMD regime. Irish fund administrators also see strong possibilities under AIFMD to provide new services to fund managers to assist them in meeting new complex regulatory and reporting requirements.
Prepared for FATCA
The Foreign Account Tax Compliance Act (FATCA) is a new US tax reporting and withholding regime that will enter into force in July 2013. FATCA will impose a significant cost on fund administrators requiring investment in new systems, controls and new due diligence procedures. Most fund administrators (70%) view FATCA as a business threat rather than a revenue generating opportunity. However, the importance of being FATCA ready to meet client needs is a foremost concern for Irish fund administrators. All respondents were either in the advanced or early planning stage of FATCA implementation.
Despite the positive outlook for the industry on the whole, the survey revealed that fund administrators face a range of strategic and operational challenges in addition to regulatory change. Cost containment was identified by over two thirds of respondents (67%) as the greatest of these challenges, while managing uncertainty and pressure on fees were both identified by 60% of participants. Increasing client service demands was highlighted as a key challenge by over half (53%) of respondents.
Brian Forrester, Partner, Investment Management Advisory, Deloitte concluded: “Despite the current market uncertainty fund administrators continue to show resilience as demonstrated through continued revenue growth. The current demand for onshore, regulated funds and the increasing service expectations of asset managers represent an excellent opportunity for administrators. The challenge will be to deliver these services in an efficient and profitable manner. Administrators that strike the balance most effectively will seize the opportunity to exploit the growing fund administration market.”
Notes to editors
About the survey
The survey was carried out in December 2011. Respondents account for 80% of assets serviced in Ireland. Respondents service a mix of both traditional and alternative investment funds and include both large scale and smaller fund administrators.
Download the full survey report.
The information contained in this press release is correct at the time of going to press.