GLOBAL FUNDS IRELAND

Investor Services Journal Supplement, May 2009

First Word
Brian Lenihan

Annus horribilus
Eoin Ryan MEP

Twenty 20 Vision
Gary Palmer, IFIA

Alternative lifestyles
- the risk landscape

Post
Apocalypse
GFI 203x267 final.indd 1 10/06/2009 19:55
 Global Funds Ireland
First
word Brian Lenihan,
Finance Minister
“ Globally, the financial services industry has
experienced its most difficult year for generations,
if not ever.
The Funds Industry in Ireland has not been immune to
these turbulent times but it has the knowledge and experi-
ence that will be vital to enable it to take advantage of the
opportunities that will inevitably arise.
Ireland is one of the most significant international invest-
ment fund jurisdictions in the global investment funds
industry with in excess of 10,000 funds (including sub-funds)
and a net asset value of EUR1,400 billion being serviced by
the international investment funds industry in Ireland,
The Irish Funds Industry is an industry which has been
built on the pillars of openness, transparency and investor
protection. Therefore, Ireland has the potential to be a sig-
nificant centre of excellence for the global investment funds
industry
Recent events in financial markets have questioned the
operating model of many sectors of financial services. Solu-
tions are being sought to align the demand for transparency,
regulation and openness with the desire for flexibility and
speed to market. With close to 20 years of significant achieve-
ment, the industry in Ireland has been successfully addressing
these tensions so as to achieve a balanced outcome.
The prevailing regulatory environment is one of the most
important factors in choosing an international jurisdiction
for the domiciling of an investment fund. The regulatory
environment in Ireland enjoys a considerable reputation for
determining and leading international best practise in the
funds sector. The signing of a Memorandum of Understand-
ing between the Financial Regulator and the Chinese banking
and securities regulators was a very significant positive event
in a year which provided us with many other less positive
memories.
An acknowledged open and transparent tax regime, Ireland
GFI 203x267 final.indd 2
ISJ Investor Services Journal
is the only international location of significance not to be
included in the many lists of “offshore” jurisdictions. I might
add that the Irish Government has recently re-affirmed its
commitment to retain the 12.5% Corporation Tax Rate.
The industry includes in excess of 12,500 experienced
professionals who, through professional expertise and in-
novation, have added considerably to the global Industry’s
capabilities.
“The Irish Funds Industry
has consistently
demonstrated its
resilience over the years”
While Ireland has laid a significant claim to be the domicile
of choice for investment funds; in the administration of in-
vestment funds the industry’s credentials are well established
and Ireland is often referenced as the world’s leading centre
for investment fund administration.
I was heartened by the recent announcement by a global
consortium which chose Ireland as the domicile for a new
Exchange Traded Funds Platform because it “..stood out with
its highly regarded and globally recognised financial services
infrastructure and its international position at the forefront
of the funds regulatory regime…a strong service and support
infrastructure across the industry made Ireland the natural
choice over other competitive fund centres.”
The Irish Funds Industry has consistently demonstrated its
resilience over the years. Its ability to react to market devel-
opments will allow it to continue to identify and exploit the
”
opportunities that arise.
10/06/2009 19:55
 General Company Ad

We can...

...see the wood

At Dillon Eustace our many years of experience mean we can For more information contact:
provide clear, focused advise, without ever losing sight of the
Mark Thorne.
bigger picture. We offer national and international corporates,
banks, asset managers and insurers our expertise in: Dillon Eustace,
33 Sir John Rogerson’s Quay,
• ABS/Funds Listing • General Commercial
Dublin 2.
• Asset Management • Investment Funds
• Banking • Labour Law Tel: +353 1 667 0022
• Commercial Property • Litigation Fax: +353 1 667 0042
• Corporate Finance • Maritime/Aviation
mark.thorne@dilloneustace.ie
• Cross Border Insurance • Regulatory Compliance
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• Financial Services • Tax

GFI 203x267 final.indd 3 10/06/2009 19:55


Global Funds Ireland
Twenty 20
vision
On the 20th anniversary UCITS, Gary Palmer,
chief executive of the IFIA looks at the
achievements and the way to maintain them.
“
When the investment funds industry was being
established in Ireland 20 years ago, the concept was
to develop an industry that would partner the grow-
ing international model of multi country distribu-
tion from one manufacturing/servicing centre of excellence.
Ireland provides this through an industry built on the pillars of
openness, transparency and investor protection. These pillars,
now the virtues and qualities sought by the global industry,
provide Ireland with the potential to be the most significant
manufacturing/servicing centre of excellence for the global
industry. With significant achievement over the last 20 years
the regulatory environment in Ireland enjoys a considerable
reputation for determining and leading international best
practise. An acknowledged open and transparent tax regime,
Ireland is the only international location of significance not to
be included in the many lists of “offshore” jurisdictions. The
industry includes in excess of 12,500 experienced professionals
who through the provision of expertise and thought leader-
ship have added considerably to the evolution of the global
Industry’s capabilities.
With in excess of 10,000 funds (including sub-funds) and
a net asset value of EUR1,400 billion being serviced by the
international investment funds industry in Ireland, it is one of
the most significant international investment fund jurisdic-
tions in the global investment funds industry. While Ireland
has not only laid justifiable claim as the domicile of choice,
but in the administration of investment funds the industry’s
credentials are well established and Ireland is often referenced
as the world’s leading administration centre. This reputation,
which is evidenced by the scale of activity, has been maintained
by the development of best practice and thought leadership.
Recent events in financial markets have questioned the
operating model of many sectors of financial services and the
investment funds industry has clearly not been immune from
such challenges. These events have required the industry all
GFI 203x267 final.indd 4
Storm
ISJ Investor Services Journal
over the world to re-assess its operations and priorities. During
this re-assessment some of the key issues being highlighted
include: supervision and regulation; safety and custody; liquid-
ity; transparency for investors and independent valuation. As
such, consideration of the prevailing regulatory environment is
the most important factor in choosing an international juris-
diction for the domiciling of an investment fund. Within the
debate on fund regulation at both EU and international fora
the participation of the Irish Financial Regulator is regarded
as one of the most informed and the regulatory environment
in Ireland is seen as leading international best practise. Ireland
has been chosen as a domicile for investment funds by many
international companies because of its reputation for strong
regulation.
“Ireland must ensure
that it continues to
provide solutions and
deliver efficiencies”
As the industry looks forward, solutions are being sought
to align the demand for transparency, regulation and open-
ness with the desire for flexibility and speed to market. Given
that the environment in Ireland has always been focused on,
openness transparency and investor protection together with
the market need for flexibility and efficiency, the industry in
Ireland has been continuously addressing these often seen as
conflicting requirements. Given that the original concept on
which the industry was established is more important than
ever, Ireland must ensure that it continues to provide solutions
”
and deliver efficiencies as the partner of choice to
the international industry.
10/06/2009 20:00
Storm Advert 203x267 May 09:Dublin Advert 2008 13/5/09 17:01 Page 1

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GFI 203x267 final.indd 5 10/06/2009 20:00

 Global Funds Ireland
Contents
2 - First Word
by Brian Linehan, TD.
Minister of Finance
4 - Twenty 20 Vision
Gary Palmer Chief executive
of the IFIA looks at the 20th
Anniversary of UCITS and
beyond
6 - Stats, facts and market
acts - the last year in the
market
7 - Annus horribilus
by Eoin Ryan, MEP
8 - 20th Anniversary
Messages
14 - Alternative lifestyles
the risk landscape
17 - Philosophy of
consultation
Carne Global CEO John
Donohoe gives his market
view
GFI 203x267 final.indd 6
Stats, facts, and market acts
While we were away... the key events affect-
ing the Irish market in 2009
September 2008
15th – Lehman Brothers collapses
in what became the world’s biggest
bankruptcy, hitting stock markets.
Irish banks’ shares plummeted
before a brief recovery.
Anglo Irish Bank fell 21.6%, closing
7.7% down. Irish Life & Permanent
ended the day down 13.3%. AIB
fell 15.6% and Bank of Ireland 13%
- their lowest same-day trading
levels of recent years.
30th – AIB announces a bank guar-
antee scheme.
October 2008
29th - Hedge fund managers get
burned from Porsche proposed
takeover of Volkswagon.
- Memorandum of Understanding
between the Irish Financial Regula-
tor and the Chinese banking and
securities regulators signed.
November 2008
5th - AIB publishes a management
statement and becomes the first
Irish bank to issue a trading update
to the stock market.
December 2008
Bernard Madoff, a New York fund
manager, is arrested over his engi-
neering of a USD50 billion ‘Ponzi’
scheme that sucked in banks,
hedge funds and retail investors. He
is eventually sent to prison on 12th
March to serve 150 years, pleading
guilty to perjury, money-laundering
and fraud.
January 2009
The Irish arm of banking giant
HSBC tells the Commercial Court it
is waiting to see if competing claims
will be brought over sums of more
than EUR1.2 billion given to it by
ISJ Investor Services Journal
two Irish-listed investment compa-
nies and passed on for investment
purposes to Bernard Madoff and his
companies.
February 2009
28th – Employment group Ibec
calls on the government, the main
opposition parties and other related
parties to agree a national
economic recovery plan.
March 2009
30th – Taoseach Brian Cowan warns
that the economic recovery in
Ireland could take five years. He
said the country was fighting to
“survive a very painful recession”.
April 2009
29th April – The European Com-
mission releases its draft of the
‘European Directive On Alternative
Fund Managers’ to the European
Parliament and the Council. The
Directive stipulates that all manag-
ers who oversee more than EUR100
million of non-UCITS products must
be subject to a common set of
licensing and supervision rules in
exchange for enhanced distribution
opportunities for their funds.
May 2009
7th – The European Central Bank
cuts its interest rate by 0.25%
to 1%
20th – A report by Ernst & Young,
the auditor, found that Ireland was
‘technically in a depression’, predict-
ing that it will contract by as much
as 8% of GDP.
The Irish government sells EUR1
billion in five-year and 10-year
bonds as part of its pledge to raise
a record EUR25 billion of state
borrowing required for 2009.
10/06/2009 20:00
 ISJ Investor Services Journal
Annus horribilis
The past year has been one of unprecedented, unexpected
and radical changes in financial services. While an annus
horribilis for many in the European financial system, I be-
lieve that those financial actors that emerge from this turmoil
will do so stronger and more robust than previously.
We have heard time and again that the funds in-
dustry was not responsible for the crisis, and that the crisis
originated not in Ireland or Europe but across the Atlantic.
Though true, this is largely immaterial. What started as sub-
prime crisis in the US quickly spread across the globe and
has impacted on all financial actors. Financial markets and
financial institutions are so closely linked that all must face
the implications of the crisis and address the challenges of the
future.
The assets under management by the global funds
industry reached nearly EUR2 trillion in recent years. While
perhaps a small amount in relation to the balance sheets of
the conventional banking sector, it is clear that the funds
industry is an important actor in today’s financial world and
can impact significantly on financial markets and actors.
“Best results come
from co-operation”
As a member of the European Parliament’s Econom-
ic and Monetary Affairs (ECON) Committee the three words
that have appeared constantly in debate and when amending
legislation are: transparency, regulation and supervision. The
financial crisis has reinforced the realisation of the need for
enhanced European and global cooperation, especially in
the area of supervision, and this realisation has coloured the
legislation on the funds industry that has originated from the
EU institutions this year.
There was always the danger that the turmoil on the
financial markets would engender knee-jerk reactions among
policy-makers. Indeed, when the first draft of a report on
Hedge Funds and Private Equity was presented to the ECON
Committee last year this appeared to be the case. However,
long months of negotiation and compromise ensured that the
final European Parliament recommendations were balanced,
GFI 203x267 final.indd 7
Global Funds Ireland
Eoin Ryan MEP
proportional, effective and evidence-based. In recent weeks
this balanced and pragmatic approach has been reflected in
the European Commission proposal brought forward on
hedge funds, private equity and other alternative fund manag-
ers.
The European Commission has been clear in stating
that it does not want to drive the funds industry out of Eu-
rope or to create burdens out of proportion to risks. Howev-
er, there has been a global consensus - as witnessed at the G20
meeting this year - that EU and global leaders should engage
more in a regulatory manner on this issue.
In my time as a politician and policy-maker I have
seen that the best results come from cooperation and coordi-
nation. In acknowledgement of this the European Commis-
sion proposal on funds adopts a “carrot and stick” approach,
creating the opportunity of a European passport as well as
setting down common and specific rules for managers that
will apply across the EU.
Earlier in the year the European Parliament ap-
proved a revision of the UCITS Directive aimed at cutting
red tape and simplifying and improving a funds market that
is worth nearly EUR7trillion. The revised UCITS directive
aims to ensure that investors receive appropriate cost and
performance information and to simplify procedures and to
implement cost savings for the industry.
It has indeed been a very difficult year for the funds
industry. 2008 was the worst year on record for hedge funds.
Nonetheless, much of what I wrote for this publication last
year holds true.
Ireland’s funds industry will continue to be a success
story, will continue to create employment in Ireland and will
continue to play an important role in growing our economy.
I believe that European regulation will ultimately strengthen,
restore and increase confidence in the funds industry.
The future for financial services in European and
Ireland is one of cooperation and mutual trust, where indus-
try and policy-makers work together for sustainable growth.
I believe that the future is bright for Ireland’s funds industry,
and in years to come this period will be remembered not as an
annus horribilis but as a time when the foundation was laid
for lasting and sustainable growth and cooperation.
10/06/2009 20:00
 1989 - 20
2009
The 20th Anniversary of the European Union UCITS (Under-
takings for Collective Investment in Transferable Securities)
directives adoption in Ireland falls this year. At a time when
the fund industry faces both cyclical and systemic challenges.
However, recognising the enormous achievements of the past
two decades GFI are proud to publish the following organisations
expressions of support for the Irish Funds industry.
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Apex Fund Services Apex Fund Services banks, asset managers and insurers our expertise in: Dillon Eustace,
(Ireland) Ltd. (Malta) Ltd. • ABS/Funds Listing • General Commercial
33 Sir John Rogerson’s Quay,
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: info@apexfunds.ie : anthony@apexfunds.com.mt • Corporate Finance • Maritime/Aviation
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• Cross Border Insurance • Regulatory Compliance
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• Financial Services • Tax

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Apex Fund Services (Ireland) Limited is regulated by the Financial Regulator. ©2009

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GFI 203x267 final.indd 8 10/06/2009 20:00

 In Ireland, Ernst & Young’s Asset Management practice is a
leading provider of audit, tax and advisory services to asset
management companies, including mutual funds, offshore
funds, group trusts, hedge funds, variable annuity separate
accounts, unit investment trusts, partnerships and business
trusts. With over 300 audit professionals, our strong market
position means that we have the people, experience, technol-
ogy and business insight to meet our clients’ needs.
In addition to audit and tax services, we also specialise
in the provision of advice on specific areas of business risk
within the funds industry including:
· SAS 70
· Internal audit
· Anti-money laundering & fraud prevention/
investigation
· Information security
· Regulatory and risk management
· Fund rationalisation and cost reduction
As a firm with a recognised international capability in the
investment funds industry, Ernst & Young provides a truly
global service to our clients.
Des Quigley, Partner, Head of Financial Services Markets
Tel +353 (0)1 221 2550
Email des.quigley@ie.ey.com
Donal O’Sullivan, Partner, Financial Services Tax
Tel +353 1 221 2455
Email donal.osullivan@ie.ey.com
Cormac Murphy, Partner, Financial Services Risk Advisory
Tel +353 1 221 2750
Email cormac.murphy@ie.ey.com
Mason Hayes+Curran,
South Bank House, Barrow Street,
Dublin 4, Ireland
Mason Hayes+Curran is one of Ireland’s leading
business law firms. With offices in Dublin, London,
and New York, the firm represents a large proportion of
international enterprises establishing or doing business
in Ireland and is experiencing strong growth in
investment funds and banking & financial services.
The investment funds group advises on all aspects
of investment fund law and regulation. In particular,
we advise fund promoters on structuring, establishing
operations in Ireland and provide ongoing legal advice as
their business develops. With many years experience in
industry and private practice, our lawyers have specific
expertise in developing innovative products and struc-
tures for fund promoters, particulary ain the area of
hedge funds and other alternative investments.
Contact:
Mr Fionan Breathnach, Partner,
Head of Investment Funds Unit
Tel: 353 1 614 5000 Fax: 353 1 614 5001
Email: fbreathnach@mhc.ie
Website: www.mhc.ie
GFI 203x267 final.indd 9
Kinetic Partners is a global professional services boutique fo-
cused exclusively on the asset management industry. We provide
a full range of audit and assurance, tax, consulting, forensic, cor-
porate recovery and corporate finance services. Operating as one
seamless team and structuring our business around client needs,
we are well positioned to provide innovative solutions to the
entire asset management industry. We advise over 750 clients,
including many of the world’s largest hedge funds and traditional
asset managers. Established in 2005, Kinetic Partners now
operates out of London, Dublin, Grand Cayman, New York and
Geneva. Our unique focus makes us less susceptible to conflicts
of interest and enables us to deploy highly experienced profes-
sionals in a targeted, efficient yet flexible manner. A global firm,
we operate as a seamless team with a single point of contact for
clients, reacting rapidly while avoiding duplication of effort.
For our experienced project leaders, quality of service delivery
is paramount, ensuring that only appropriate personnel are
deployed and that communication is emphasized. This has
been recognised through our award for ‘Best Consulting Firm in
Ireland and Cayman’.
Our multi-disciplinary team of senior professionals is drawn
from regulators, financial institutions and major professional ser-
vices firms around the world. It consists of experts in all aspects
of fund operations & distressed situations, including:
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Iveagh Court, Floor 5, Block D, Harcourt Road, Dublin 2
t: 353 1 475 0520 f: 353 1 475 0376
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Phoenix Fund Services was established in 1998 and now
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vices covering investment operations outsourcing through to
administration of a wide range of traditional and alternative
structures.
Within our alternative funds services business, our compre-
hensive range of administration services covers single strat-
egy funds, multi strategy funds, fund of funds, private equity
vehicles and managed accounts. Our investment operations
outsourcing platform has been developed in close conjunction
with alternative managers and with a particular focs on start up
hedge fund managers.
Our services are supported by a team of experienced and
relationship focused management and staff and an underlying
flexible technology model.
Ireland & the Americas
Mr Gavin Gray
gavin.gray@phoenixfundservices.com
t: +353 1 845 8161
UK
Mr Steve King
steve.king@phoenixfundservices.com
t: +44 1245 398 962
Mr Stuart Mathieson
stuart.mathieson@phoenixfundservices.com
t: +44 1245 398 985
7 St. James’s Terrace, Malahide, Co. Dublin
Tel: +353 1845 8160, Fax: +353 1 816 8741
Website: www.phoenixfundservices.com
10/06/2009 20:00
 Global Funds Ireland ISJ Investor Services Journal

Alternative lifestyles
As liquidity, risk and transparency form the
holy trinity for institutional investors’ due
diligence, the alternative fund industry
in Ireland, as globally, has had to adapt with
haste. GFI examines the new risk landscape.
The international pressures on the hedge funds will generally have 60-90
alternative fund sector in the latest days notice that the investors need to
chapter of the financial crisis are par- provide to get their money back.”
ticularly prominent in Ireland. As both He anticipates outflows
a home of innumerable hedge funds through July 2009 as a result of re-
and the base for around a third of the demption requests in the last few
world’s hedge fund asset servicing, the months. The time delay to retrieve
alternatives money that once flowed funds says much about the original
through the IFSC as strongly as the motive for the outflows. Liquidity has
Liffey River has been draining of late. climbed the agenda for the majority of
Funds of hedge funds, in portfolio managers, and the viability of
particular, have seen redemptions locking money in the relatively illiquid

“The view of from institutional investors and high

net worth clients, according to Pete
world of alternative funds is dimin-
ishing. Townsend points towards the

a few hedge Townsend, head of global fund services

operations for alternative investments
“liquidity balance” for funds of hedge
funds – weighing up the liquidity to the

funds is that at BNP Paribas. He points out that the investor to the liquidity of the funds in
process of retracting money that may which they invest. It’s a challenge for

the market rally

have started in October last year is now any fund of hedge funds manager, he
coming to conclusion. “If you have out- adds.

will be short
flows from funds of hedge funds, they High net worth clients have
need to get their investment from single been the main area to remove their
money in such a way. Though institu-
lived”
hedge funds. When everything became
volatile at the end of 2008 the funds of tional investors such as pension funds
will also have liquidity and risk on their
minds, they are more likely to remain in
alternative investment funds to comply
with their investment mandate.
The demand for a freer move-
ment of money, along with the wider
requirement for transparency, has
further bolstered UCITS, the interna-
tional fund brand that Ireland has been
a leader in promoting and accom-
modating. Another strength of the
country has been in the half-way house,
of sorts, between alternatives and the
Pete Townsend more mainstream UCITS – hedge fund
BNP Paribas replications. Hedge funds’ march into

10

GFI 203x267 final.indd 10 10/06/2009 20:00

 ISJ Investor Services Journal
the UCITS world to bolster assets under
management has been a prominent
development in 2009. Townsend says
the manager’s strategy is key to their
success to cross the fund Rubicon.
“It’s a little easier for the
Global Macro managers to do this,” he
says. “Instruments such as exchange-
traded derivatives, for example, are
acceptable within UCITS, as long as the
underlying mix of instruments within
the derivatives contracts creates a diver-
sified portfolio.”
Despite the chance of greater
volatility with listed derivatives, it is
the kind of volatility that hedge fund
managers like, he adds. The power is
with the investor, too, which adds to
the concessions made by hedge funds.
Townsend cites examples of institu-
tional investors approaching Cayman
domiciled hedge fund managers with
an ultimatum: “They say: ‘I will provide
X million, but only if you launch it as
an Irish or Luxembourg UCITS rather
than offshore’.” Further, a hedge fund
manager may have to get used to pro-
ducing longer investment objectives in
line with UCITS.
He adds that alternative assets
aren’t just a group of securities class –
they also represent a type of investment
manager. You may have a long only
absolute returns strategy that’s been in
a UCITS structure for years, he argues,
viewed as long- only. Similarly, a long-
only Cayman-domiciled fund could
be managed as a hedge fund. “What’s
more important is manager selection.
The better performing managers will
get the majority of the allocations - as
opposed to the investor just looking to
have ‘exposure to alternative funds’ and
taking the recommendation of their
consultant.”
But the hedge fund industry,
in its classic form, is not entirely cowed
by redemptions, de-leveraging and close
regulatory scrutiny. Though the US
pension and endowment funds overall
have been more staunch in their al-
location to hedge funds, there are signs
that the institutional investors’ retreat
from hedges in Europe have slowed.
Townsend believes the sector may be
GFI 203x267 final.indd 11
through the worst. “The view of a few
of the hedge funds that I’ve spoken with
is that the market rally may be short
lived and they may look to the economy
to see the signs,” he says.
He adds that some manag-
ers will be successful regardless of the
economic circumstances – some global
macro funds, he gives as an example,
returned 14-15% last year, “and are still
taking in money”.
The track record is vital for the
fund provider too. Townsend stresses
that it is the more diversified service
providers that will come out of this
downturn “leaner and meaner” than
before, maintaining service levels to all
domiciled managers
“Our business in Dublin is a
good microcosm of the BNP Paribas
Securities Services business as a whole.
We administer 50% long only and 50%
hedge funds. We have some large insti-
tutional cash funds and we see those
funds as the perfect bell weather of the
market: when you see money flowing
out of alternative strategy they flow into
the cash funds. So we think we have a
good idea as to how things are going
simply by the inflows and outflows
from these funds.”
He adds that service providers
that can give a daily NAV are very well
situated as the UCITS model continues
its ascendancy. A custodian should be
able to provide a manager with fact
sheets that they could send to their
investor base on the original books and
records of the funds. This compares
favourably with hedge fund managers
systems, which generally wouldn’t be
general ledger-based systems. “A lot of
the managers have their own risk sys-
tems but we can provide the transpar-
ent view and performance data that’s
driven by the books and records of the
fund.”
Such services are therefore
increasingly outsourced to the major
asset servicers in the city. But Townsend
sees another trend, largely driven by the
need to cut servicing fees: the consoli-
dation of the service providers.
“In October there was a
perfect storm. Investors were redeem-
11
Global Funds Ireland
ing from funds, the volatility in the
Euro-USD foreign exchange rates
[many funds of hedge funds are
Euro-denominated but invest in USD
underlying instruments] along with
the market volatility as a whole created
a huge challenge and many managers
may be looking to consolidate their
service providers. So instead of having
different service providers for liquidity,
custody and administration, they bring
it all together.”
Dublin’s recent strength in
alternative asset management and
servicing closely links it with fund
centres such as Cayman and Bermuda.
These islands were under consider-
able scrutiny in March following the
London meeting of the G20, part of the
so-called “shadow banking system” that
includes opaque and structured prod-
ucts and credit rating agencies. It resur-
rected the debate around ‘light-touch’
regulation, and the effect on a domi-
cile’s revenue if more stringent regula-
tory oversight – such as the increase
witnessed in the UK – is introduced.
Townsend says that light touch
domiciles will be there for as long as
the investors are willing to accept them.
“Although these domiciles will have to
respond to the statements made by the
G20 and the European Commission’s
calls for more regulation, I believe they
will respond, but it really does come
down to the investor.”
For the future, Townsend says
it is difficult to predict if Ireland will see
significant alternative asset growth. The
great amount of convergence between
alternative and traditional partly obfus-
cates any statistical forecast. But UCITS,
he argues, is a significant strong point
for the country, and as with managers
and service providers, a country’s repu-
tation is perhaps itsthe most valuable
asset. “It’s not just that we’re putting
our flag up now as a domicile with
great flexibility; we’ve been doing it for
20 years and have built up a strong core
of people working in the fund services
business. So - while it’s difficult to draw
the line between the two different fund
types – we are best placed to continue
to service the different products.”
10/06/2009 20:00
 Global Funds Ireland
Philosophy of
consultations
John Donohoe, CEO of Carne Global, explains
the changing funds market in Ireland from
the perspective of a leading consultancy firm
to Ben Roberts .
Carne is an independent consultancy
established by investment professionals
to provide tailored solutions and ad-
visory services to asset managers, fund
directors and their service providers.
In addition to its bases in Dublin,
London, Switzerland and Luxembourg,
“Exchange
2009 saw the opening of offices in
Cayman and Dubai. Jon Donohoe,
traded
CEO, says that this breadth of offices,
combined with its close relationships
derivatives
with the managers, gives the firm a
“good view of the market”, as well as an
insight as to what the leading managers
are acceptable are thinking.
The firm aims to be at the cutting
within UCITS” edge of product development, including
fund structures and investment policies
across multiple fund domiciles ( such
as CCF, pooling, multi-manager funds,
hedge funds, and UCITS III) as well
as current market issues surrounding
the investor appetite for risk, liquidity,
transparency and portfolio balance.
Donohoe has witnessed the money
flowing from funds of hedge funds and
other, less liquid vehicles. This is partly
a reaction to performance, he says, par-
ticularly if absolute returns had been
promised. Other institutional investors,
he adds, might not have understood the
strategy that the manager employed,
and might have evacuated funds of
funds before gates were imposed.
“To an extent you’re trying to pre-
empt a bad situation, which sometimes
led to the next investor putting in re-
demptions,” he says. “Some funds with
a six-month notice period, although
they didn’t want to redeem, thought
that there was an opportunity that
wouldn’t come round for another six
months. Others just needed liquidity, or
12
GFI 203x267 final.indd 12
ISJ Investor Services Journal
they had to raise money.”
A decline in market per-
formance for hedge funds should be
viewed in context, however – some
traditional long-only managers have
struggled along with their alterna-
tive counterparts. But in terms of the
investor perception of hedge funds and
funds of funds, Donohoe says it is note-
worthy to distinguish between Europe
and the US.
The US has a longer history in this
area of alternative4 allocation, with
more endowments and foundations
that have a greater loyalty to hedge
funds and their model, he explains. In
this way they might be more reluctant
to redeem money.
Europe, by contrast, is a more recent
entrant to alternative funds, and s more
institutional based. This includes a
greater proportion of high net worth
clients.
Other differences are also prominent
in today’s market. “European investors
don’t particularly want a huge amount
of leverage. Investors want liquidity,
and to make sure [the strategy] matches
with their expectations and require-
ments.”
However, there are signs that liquid-
ity is becoming a prominent issue for
US funds. CalPERS, for example, the
influential USD167 billion Sacramento-
based retirement scheme, considered a
re-evaluation of its asset allocation – in-
cluding the portion going into alterna-
tives – along the lines of liquidity.
Part of the liquidity challenge for
institutional investors stems from the
hedge funds themselves. Donohoe says
that the width of a hedge fund’s asset
allocation – from private equity to
10/06/2009 20:00 sec-len
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10/06/2009 19:38
 Global Funds Ireland
commodities - can create problems of
assessing liquidity levels and valuation.
He says this is less of an issue if a small
amount of the fund is in the very illiq-
uid securities, but the added complexity
brought about by the mix of liquid and
illiquid instruments is a challenge for
the investor, who in turbulent market
may prioritise the ability to move in
and out of a position.
“The pricing of the fund comes out
of the liquidity; if something is liquid
and is traded quite a bit its easy to get a
price,” he says. “Investors want most of
their money in something they can get
out of; it’s not that they are not will-
ing to take risk, but perhaps less than
before.”
For many, exchange traded funds –
passive vehicles that track indices or
sectors and trade on exchanges like
shares - has satisfied the demand for
liquidity. Dublin has been a key recipi-
ent in the growth in the European ETF
industry, which reached EUR91.228
billion in assets under management at
the end of 2008, according to data from
Lyxor Asset Management.
“Investors are attracted to ETFs as
they can be bought and sold from a
broker and the underlying assets are
liquid,” explains Donohoe. This is not
always the case, however, and he identi-
fies corporate bond ETFs as an exam-
ple: “The bid offer spread on corporate
bonds widened worldwide, so naturally
the sprtead on the corporate bond ETF
widened as well.”
Importantly, Donohoe stresses that
investment in hedge funds and ETFs is
not an ‘either/or’ scenario for investors.
The choice to invest in ETFs is often
made following a comparison of net
return with a traditional, actively man-
aged fund.
“A lot of the money [into ETFs] is a
reallocation of institutional money out
of the traditional long- only manage-
ment into those products. There are
also more private wealth managers
setting up ETF-like products, so there is
more money being allocated from this
sector.”
Carne plays a key consultancy role
for hedge funds that seek to launch
GFI 203x267 final.indd 14
products with the UCITS tag. The
resulting product, he said, is sufficiently
structured so that it would count not
be classified as part of the hedge fund
allocation on the books of pension
schemes.
“If a fund manager is looking to put a
product into a UCITS fund, one of the
key criteria is it has to provide at least
twice monthly dealing. Managers have
to be aware it is liquid.
“Part of the UCITS ‘revolution’ is
people should see it as a risk manage-
ment vehicle – it is designed to ensure
people have liquidity, that there is risk
management in place. If you look at all
the restriction in UCTS and take the
exposure to companies that are related.
When you added up how the exposure
comes – derivatives, paper, bonds – the
maximum exposure to group counter-
parties is 20%.”
“Part of the
UCITS revolution
is that people
should see it as
a risk manage-
ment vehicle”
Carne works in this way with many
of the key players in asset management,
such as Credit Suisse and BGI, and adds
a very important extra service. Once
a fund is set up, he says, Carne will
provide independent directorship. This,
like third party administration and ac-
counting, is climbing investors’ agenda
– here there is an independent element,
there is a greater perception of comfort
and security. He adds that Carne has
been approached by US hedge funds
seeking this independence.
Donohoe ponders carefully the ques-
tion as to whether light touch regula-
tion is a good or bad thing for the Irish
market. “European investors usually
14
ISJ Investor Services Journal
want more regulated products. I think
investor demand has changed but I
think that European politicians have
become more hard-lined in wanting
more regulation. The proposed Euro-
pean Directive on Alternative Invest-
ment Fund Managers says if you’re a
European manager, you’re going to have
to be regulated and your products are
going to have to hit certain minimum
standards in terms of structure which
will make them more akin to regu-
lated professional funds. That’s where
European regulation want to drive it,
principally down to the response to the
economic circumstances.
The proposed directive in its current
form will therefore result in a number
of challnges to existing hedge funds, he
adds. “For instance, one requirements
would be that the funds must have a
custodian – if that comes in it will be a
significant change.
“Most hedge funds utilise multiple
brokers – it will be a challenge to find
the right operational models. So there
are a lot of challenges for the directive
in its current form.”
For the future, Donohoe returns to
the ETF boom and hedge funds en-
trants into UCITS as areas of significant
potential – as well as the competitive
tax treaties what I’ve seen over the
last six months is because of some tax
treaties. “Dublin has more ETF s than
almost any location – we’re seeing quite
a lot fo the larger banks setting up ETFs
as well.
“It’s still relatively new as an industry
– in reality less than a decade old. But
there are a lot of banks have ETFs in the
pipeline that will be coming out over
the next few months. So thee will be a
lot more ETF managers promoting the
industry with more investor interest.
Dublin is winning most of that busi-
ness because trying to track the indices
is more important in an ETF, so every
basis point counts.
“A lot of fund managers use Dublin
for their base for
administrators, there are obviously a lot
of ties between Ireland and UK manag-
ers. So we’re seeing Ireland is winning a
lot of business.”
10/06/2009 20:00 GSL
 Annual
Global Funds
Conference
2009
27th May
Four Seasons Hotel, Dublin, Ireland

BOOK EARLY TO SECURE YOUR PLACE

at www.irishfunds.ie or www.nicsa.org
or telephone ifia (+353-1-670-1077) or
nicsa (+1-508-485-1500)

Speakers include: IAN MORLEY, Chairman, Corazon Capital

ROB AGNEW, Managing Director, Matrix Hong Kong
ROLF BACHNER, Vice President, The Bank of New York Mellon
CHARLES BEAZLEY, President, Nikko Asset Management Europe
STEVE FOSTER, Chief Operating Officer, Single Manager Hedge Fund
Group, Credit Suisse Alternatives
DEBORAH FUHR, Managing Director, Barclays Global Investors
PAUL FREEMAN, Managing Director, BlackRock EMEA
MOHAMMED HANIF, Chief Executive Officer,
Insparo Asset Management
ROBERT KROESE, Principal, GreenBay Asset Management
PAUL MACK, Partner & Chief Operations Officer, Iveagh
KRYSTAN MCSTAY, Managing Director of Capital Markets,
Key Capital
JOHN PERLOWSKI, Managing Director, Goldman Sachs
Asset Management
CHARLIE PORTER, Chief Executive Officer, Thames River Capital
TOM RAMPULLA, Managing Director Europe, Vanguard
JEAN SCHAEFFER, President, ReFlow Management
ANDREW SHRIMPTON, Member, Kinetic Partners
JERVIS SMITH, Managing Director, Financial institutions Group,
Citigroup
JULIAN TREGONING, Director, The Bank of New York Mellon
SETH WEINSTEIN, Managing Director & CEO, Morgan Stanley
Fund Services
ROBERT WILLIAMS, Business Development Director,
Skandia Investment Group

For further information please contact

IFIA +353-1-670-1077
NICSA +1 508 485 1500
www.irishfunds.ie/conference
www.nicsa.org

GFI 203x267 final.indd 16 10/06/2009 20:00

conf_ad_2009.indd 1 05/05/2009 12:53:43
 GSL Summit| Global
Securities
Lending

Back to school
The need for a reappraisal of the DaTe
methods and presentation of Thursday,
Securities Lending has become 10th September 2009
obvious in the past months. The
latest GSL Summit in our quarterly
LocaTion
series will debate at the legal
Four Seasons Hotel,
documentation, technology and best
practice the industry needs to adopt
canary Wharf, London
to move forward.
GSL invites readers to an 1:30 Pm
informative afternoon to discuss Registration/coffee
this topic along with wider issues of
transparency, risk and returns at this 5:00 Pm
important time. Drinks Reception

For speaking and sponsorship

opportunities please contact:

Jon Hewson
jon.hewson@2i.tv
Tel: +44 (0) 20 7299 7700

Please visit GSL.TV to register

28

GFIGSL
203x267 final.indd
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