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irishfunds.ie

12 March 2018

Irish Funds Toronto Seminar 2018

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Premium Sponsors

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Event Partners

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Tara Doyle

Chairperson, Irish Funds

Head of Asset Management, Matheson

Welcome Address

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Irish Funds Industry Overview

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A Global Funds Centre…

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For Global Distribution

irishfunds.ie9

Total Assets under Administration

- split between Irish domiciled & Non-Irish funds

Source: Central Bank of Ireland December 2017

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Irish Domiciled Assets

• UCITS represent 75% of

Irish Domiciled Assets

• 88 UCITS Man Cos

• 161 AIFMs Registered or

Authorised

• 642 AIFMs operating in Ireland on

cross border basis

• 410 ICAVs established

(since 18 March 2015)

Source: Central Bank of Ireland

2018

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Growth of Largest European Fund Domiciles

Source: EFAMA Statistics

0%

20%

40%

60%

80%

100%

120%

140%

2011 2012 2013 2014 2015 2016 2017

% G

row

th

2011 2012 2013 2014 2015 2016 2017

Europe 0% 13% 23% 42% 58% 78% 97%

Luxembourg 0% 14% 25% 48% 67% 77% 98%

Ireland 0% 16% 27% 57% 80% 98% 126%

France 0% 9% 10% 14% 21% 29% 37%

Germany 0% 13% 24% 40% 53% 66% 80%

UK 0% 17% 35% 59% 79% 77% 99%

Europe Luxembourg Ireland France Germany UK

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Net Sales into Irish Domiciled Funds

Source: Central Bank of Ireland 2018

• > 30% of net sales

into all European

funds in 2017

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Other Developments….

• Updating of Ireland’s Investment Limited Partnership Legislation

• Legislative amendments approved by Irish Government.

• Entering legislative process

• Will provide additional scope for private equity and real asset funds.

• European Commission ESAs Proposals

• While there are aspects to the European Supervisory Authorities (ESAs) proposals we welcome, there are a number of

areas which are of significant concern. We have shared our views in Ireland and in Europe.

• Strong advocates of delegation to globally based experts.

• Loan Origination

• New enhancements have been made to the L-QIAIF.

• Tax Transparency

• OECD has awarded Ireland the highest international rating on tax transparency and exchange of information.

• EU Cross Border Distribution

• Consultation on removing barriers to Cross Border Distribution submitted 2016 and follow-up questionnaire completed

2017.

• We have subsequently met with the European Commission.

• Expected Q1 2018

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Other Developments….

• Pan European Personal Pension Plan (PEPP)

• Industry white paper published on PEPP.

• We have subsequently met with the European Commission.

• Financial Action Task Force (FATF) Mutual Evaluation Report (MER) of Ireland

• FATF’s assessment of Irelands anti-money laundering and counter terrorist financing concluded that “Ireland has a

sound and substantially effective regime to tackle money laundering and terrorist financing….” In addition the

Report highlights “National coordination mechanisms… and the Private Sector Consultative Forum (PSCF) were

fruitful in broadening the understanding of its ML and TF risks across all relevant agencies and with the private

sector.”

• CBI engagement re Exchange Traded Funds (ETF)

• Responded to Central Bank of Ireland (CBI) ETF discussion paper and engaged with the CBI throughout the

process.

• Consultation paper on CIS Liquidity Risk Management

• Response provided to the International Organization of Securities Commission (IOSCO) Consultation paper.

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Conclusion

• EU Member & Strategically Positioned

+

• International Hub for Globally Distributed Investment Funds

+

• Unrivalled Experience and Expertise in the Widest Range of Fund Structures

Moderator:

Panellists:

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Panel Discussion: Setting up Products for

Global Distribution

Paddy Walsh, CACEIS

Terri Troy

Stuart Alexander, Gemini Capital

Krish Karunakaran, AGF

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For Global Distribution

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Net Sales into Irish Domiciled Funds

Source: Central Bank of Ireland 2018

• > 30% of net sales

into all European

funds in 2017

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David Walsh, Dillon Eustace

Update on Brexit

2020 irishfunds.ie

Brexit: three interdependent themes

Distribution

Management

Models

(‘Delegation’)

Growth

OVER 2,400 IRISH

FUNDS SOLD TO UK

INVESTORS

$636bn

IN IRISH FUND ASSETS

MANAGED BY 175+ UK

FIRMS IN IRELAND

Continuity in UK investor

access to Irish funds

Continuity in

UK firm

management

of Irish funds

Increase Ireland’s growth

trajectory as an

international asset

management centre

SOURCE: Lipper IM Dec 2016

Monterey Ireland Fund Report 2017

Current context Target outcome

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Brexit Timeline

Possible Transition Period

Indicative Deadline

for SMIC &

Delegating Super

ManCo Authorisation

August 2018Indicative Deadline

for MiFID & ManCo

with Add On

Authorisation

June 2018

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International asset management centre

Growth

‘The Basics’

•Predictability / efficiency of regulatory process

•12.5% corporate tax rate

•Common law system

•Only English-speaking country in the Eurozone

•Less expensive than Zurich, Paris & Luxembourg1

Asset Manager Activity

Infra-structure

Reaffirmation of Ireland’s attractiveness as

an international asset management centreOpportunity

Benefits

SolutionProvide managers with options to support the

establishment of a physical presence in Ireland

NOTES:

1. Source PwC

2. http://www.iaim.ie/why-ireland (STEM = Science, Technology, Engineering &

Mathematics) & http://www.hea.ie/sites/default/files/awards_-

_all_undergraduate_by_level_and_field.xlsx

3. IFS 2020 Action Plan 2017 (http://finance.gov.ie) & IDA Ireland

4. MiFID firms, UCITS ManCos, Irish AIFMs & Non-Irish AIFMs - CBI

• Space for 100K new employees by 2020, 100K new houses3

• Leading global tech centre & fintech location

• London-Dublin: Most flight options in Europe

• 35K+ employed in international financial services in Ireland, 16K in funds industry

• 130K degree-level graduates across business, law and STEM w/ 20K new grads p.a.2

• 800+ investment firms active in Ireland4

• Increased presence of front office activities

• 18 of the top 20 global AMs have Irish funds

• €4trn total AuA, €300bn managed from Ireland2

• AM counterparties already in transit from UK

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Brexit: key points to pursue

• Encourage UK Treasury & FCA to recognise

Irish funds as eligible investments for UK

investors post-Brexit

• Encourage CBI to confirm that the provisions

of the 1998 MoU with the FCA enable

continuity for delegation of UCITS

management.

• Encourage ESMA to negotiate a cooperation

agreement with the FCA as a 3rd country

regulator under AIFMD, with subsequent

signing by CBI.

• Encourage the Irish Government to support

growth in employment, diversifying skill sets

and infrastructure to assist businesses

relocating to Ireland due to Brexit.

Distribution

Management Models

Management Models

Growth

“Our three key

themes are

interdependent.”

DistributionManagement

Models(‘Delegation’)

Growth

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Structuring options: Management models

DEFINITIONS:

• ‘MiFID Firm’: Investment firms authorised under Markets in Financial Instruments Directive (2007, to be replaced by MiFID 2 / MiFIR in January 2018)

• ‘Super ManCo’: authorised to provide services to UCITS and AIFs w/ the option of add-on authorisations for segregated mandates

• ‘SMIC’: Self-Managed Investment Company

MiFID Firm

Super ManCo w/ Add-on Authorisations (‘v2’)

Super ManCo w/ Delegates (‘v1)

SMIC• Simple option for single umbrella fund

• ‘v1’: widely used standard model w/ delegation option

• ‘v2’: ‘add-ons’ enable management w/out MiFID manager as delegate, including mandates

• Wider range of permissions availableGlobal

Asset

Managers

Regional

Asset

Managers

Multiple Asset

Manager types

Management

Models (‘Delegation’)

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Structuring options: detail

SMIC Super ManCo w/

Delegates (‘v1’)

Super ManCo w/ Add-on

Authorisations (‘v2’)

MiFID Firm

Authorisation indicative

timeline

Allow 6 to 8 months during high

volume periods

Allow 6 to 8 months during

high volume periods

Allow 8 to 9 months during high

volume periods

Allow 9 to 10 months during

high volume periods

Activities (PM = portfolio

management, RM = risk management)

Retain oversight of PM & RM but

delegate day to day activities

Retain oversight of PM &

RM but delegate day to day

activities

Performs day-to-day PM & RM Full range of services

Manage other fund umbrellas? No Yes Yes Yes

Manage/advise Segregated

Mandates?

No No Yes, via add-on licenses without need

for MiFID delegate

Yes

Substance requirements • 2 Irish-resident directors

• 2-3 Designated Persons1

• 2-3 Irish-resident

directors1

• 2-3 Designated

Persons1&2

• 2-3 Irish-resident directors

• 2-3 Designated Persons1

• Chief Investment Officer / Managing

Director

• Head of Risk/Compliance and

Finance, internal audit.2

• Substantive presence

required in Ireland3

• Specific roles based in

Ireland2:

• Legal & compliance

• Financial control

• Risk Management

Delegation / Outsourcing CBI permits delegation of day-

to-day PM and/or RM activities

CBI permits delegation of

day-to-day PM and/or RM

activities

CBI permits delegation of day-to-day

PM and/or RM activities

Outsourcing allowed (including

to other EEA states or 3rd

countries) if in line with

applicable law and best practice

1. Designated persons not all required to be Irish resident and can be directors or employees of the Investment Manager. For ‘low’ PRISM rated firms, half of the directors and at least 2 Designated Persons performing half of the

managerial functions are required to be EEA-resident. For ‘medium’ PRISM rating firms, 3 directors or 2 directors plus 1 designated person should be Irish resident.

2. The need for specific roles may differ on a case-by-case basis, depending on complexity and number of branches.

3. ‘Substantive presence’ for MiFID: the firm’s board and management run the firm from Ireland and make decisions in Ireland with sufficient staff and resources to manage the risks.

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SMIC Super ManCo w/ Delegates (‘v1’) Super ManCo w/ Add-on Authorisations

(‘v2’)

MiFID Firm

Capital

Required

€300,000 initial capital (which

can be met using shareholder

funds)

One quarter of its total expenditure in

its most recent annual accounts and

€125,000 plus an additional amount

of up to 0.02% of any AUM

exceeding €250m whichever is

greater, subject to a maximum

amount of €10million

One quarter of its total expenditure in its

most recent annual accounts and

€125,000 plus an additional amount of up

to 0.02% of any AUM exceeding €250m

whichever is greater, subject to a

maximum amount of €10million

Will be calculated in accordance with

CRD IV / CRR requirements

Pros • Works well if no other funds

managed

• Less staff on the ground

• Can manage multiple fund

umbrellas

• Can passport to other EEA

jurisdictions

• Less staff on the ground than v2 or

MiFID option

• Can perform full PM activities or

delegate

• Can manage multiple fund umbrellas &

mandates

• Can passport to other EEA jurisdictions

• Less staff on the ground than MiFID

option

• Wide range of

permissions/potential business

lines available

• Can passport throughout EEA

without seeking additional

authorisations

Cons • Cannot perform all PM

activities

• Cannot manage or advise

mandates

• Must delegate to regulated

investment manager

• Cannot perform all PM activities

• Cannot manage mandates

• More staff on the ground than SMIC or

v1 option

• Add-on authorisations possible, which

may be subject to local review when

passporting to other EEA jurisdictions

• More staff on the ground

• Subject to CRD IV / CRR

requirements

• MiFID 2 changes in Jan-2018

Structuring options: pros & cons

Moderator:

Panellists:

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Panel Discussion: Regulatory Hot Topics

for 2018 and Beyond

Philip Lovegrove, Matheson

Andrea Horton, RBC

Tony Spratt, McCann FitzGerald

Harvey Kalman, EQT

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Cormac Dinan, Deloitte

FinTech and Disruptive Innovation in

Investment Management

29 29

FinTech and Disruptive Innovation in

Investment Management

30

FinTech and Investment Management

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Eight forces have the potential to shift the competitive landscapeof the financial ecosystem

DISRUPTIVE FORCES

Cost Commoditization: Financial institutions will accelerate the commoditization of their cost bases, removing them as points of competition and creating new grounds for differentiation1

Profit Redistribution: Technology and new partnerships will enable organizations to bypass traditional value chains, thereby redistributing profit pools2

Experience Ownership: Power will transfer to the owner of the customer interface; pure manufacturers must therefore become hyper-scaled or hyper-focused3

Platforms Rising: Platforms that offer the ability to engage with different financial institutions from a single channel will become the dominant model for the delivery of financial services4

Financial Regionalization: Diverging regulatory priorities and customer needs will lead financial services in different regions of the world down distinct paths8

Systemically Important Techs: Financial institutions increasingly resemble, and are dependent on, large tech firms to acquire critical infrastructure and differentiating technologies 7

Bionic Workforce: As the ability of machines to replicate the behaviors of humans continues to evolve, financial institutions will need to manage labor and capital as a single set of capabilities6

Data Monetization: Data will become increasingly important for differentiation, but static data sets will be enriched by flows of data from multiple sources combined and used in real time5

Source: Beyond FinTech: A pragmatic assessment of disruptive potential in financial services, Deloitte & World Economic Forum Report

32

FinTechs have changed how financial services are structured, provisioned and consumed, but have not successfully established themselves as dominant players

WHERE FINTECHS HAVE SUCCEEDED WHERE FINTECHS HAVE FALLEN SHORT

FinTechs have materially changed the basis of competition in financial services, but have not yet materially changed the competitive landscape.

CONCLUSION

FinTechs have defined the

direction, shape and pace of

innovation across almost every

subsector of financial services

Customer willingness to switch

away from incumbents has been

overestimated

FinTechs have struggled to

create new infrastructure and

establish new financial services

ecosystems

FinTechs have reshaped

customer expectations, setting

new and higher bars for user

experience

Source: Beyond FinTech: A pragmatic assessment of disruptive potential in financial services, Deloitte & World Economic Forum Report

33

• FinTech formations are in decline with a sharp decline in start-up activity since 2015, and a dramatic dive taking place in the first three quarters of 2017

• Since 2008, the Investment Management industry has seen the lowest level of activity across the Financial Services sector

• Venture Scanner data show that acquisitions are up significantly in the past four years in Investment Management

Deloitte Center for Financial Services recent report* (“FinTech by the Numbers”) confirms that robo-advice

and Direct 2 Consumer distribution is the FinTech largest growth area within Investment Management

*Deloitte Center for Financial Services: FinTech by the Numbers

FinTech formations are in decline, however the level of acquisitions of FinTechs has increased in Investment Management

34

Emerging Toolkit for Investment Management firms

Robotic & Cognitive Automation Cognitive Analytics Blockchain Technology Robo Advisory

Automate high volume, rules based processes

Interpret human judgement & behavior

Provides an avenue to connect and interact securely across entities

Backbone technology behind Bitcoin

Apply analytics and cognitive computing technologies to help humans make smarter decisions

“Mimics Human Actions”

“Augments Quantitative Human Judgement”

“Digital ledger system that enables secure peer to peer

transfer of value”

“Makes Sense of Unstructured Data”

Sample Technology Vendors & Tools

Algorithm based adjustments & rebalancing proposals following pre-defined investment rule-sets

“Augments Human Intelligence”

Examples:

Software referred to as “bots”

Natural Language Processing

Natural Language Generation

Examples:

KYC

Transfer Agency

Regulatory reporting

Cash/ Collateral Availability

Examples:

Predictive analytics and decision-making support

Cognitive Automation / Machine Learning for Analytics

Examples:

Automated portfolio construction / rebalancing

Advisor-led solution with integrated investor and advisor workflows

35

Leverage technology to enable an efficient, differentiated customer journey

36

As individuals assume more responsibility for their investments, robo-distribution has become

the most compelling way to work with them.

What does this mean for Investment Management firms?

FinTechs have changed how financial services are structured, provisioned and consumed, but have not successfully established themselves as dominant players

Differentiation of offerings:Middle and back-office automation, combined with the growing ubiquity of robo-advisors,are turning investment into a commodity.

As a result, leading firms will look for other ways to stand out from the competition—especially through more personalised customer offerings

Level of disruption is increasing:There is no end in sight when it comes to the increasing level and availability of new emerging technologies in the areas of data, automation and DLT. Clear strategy is required to harness the benefits.

Role of human advisers:Human advisers will still be crucial to differentiate products, especially for customers with high net wealth. But the role of such advisers will shift from product selection to customer engagement, emotional intelligence, and decision support.

Key Takeaways

Where

disruption has

occurred

Where it

hasn’t?

It takes fewer resources to deliver more investment advice, as middle and back office

functions are increasingly automated.

New entrants to investment management have struggled to gain market share as customers

stick to existing providers and the cost of enticing them away remains high.

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Kieran Fox, Irish Funds

Closing Remarks

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Annual Global Funds Conference 2018

Now in its 20th year, the Irish Funds

Annual Global Funds Conference is a

highlight of the international funds industry

calendar.

The conference brings together prominent

industry speakers to discuss current

issues and challenges facing the global

funds industry.

For further information on registration,

sponsorship and exhibition please visit

irishfunds.ie/conference2018.

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Premium Sponsors

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Event Partners

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