Brian Higgins and Karen Jennings, Dillon Eustace: Governance has been a key issue for European and domestic regulators for some time. This has been evident within the EU in many pieces of legislation, including the various updates to the UCITS Directive and AIFMD, which, over the last number of years, have significantly increased substance and control requirements within management companies and AIFMs. Following the UK’s decision to leave the EU, new fund management companies where established in a number of EU jurisdictions (particularly Ireland) and as a consequence, governance received additional scrutiny at a European level in an effort to ensure consistency of requirements and the application of same across member states. This was reflected in ESMA’s Opinion of 13 July 2017 on supervisory convergence in the area of investment management and again in ESMA’s letter to the European Commission of 18 August 2020 in relation to the review of AIFMD. It is in this context that the Central Bank carried out its thematic review of fund management companies’ governance, management and effectiveness.
A central theme emerging from the Central Bank’s review is that a fund management company must ensure that it has adequate resources and operational structures in place to ensure that it can comply with the Central Bank’s governance requirements. In this respect, a key aspect from an operational perspective is that fund management companies should have the necessary resources to ensure that appropriate oversight procedures (including review, engagement and reporting procedures) are in place. The level of resources should be appropriate to the nature, scale and size of each fund management company. However, the Central Bank did confirm that it requires a minimum of three full time employees (with suitable qualification and experience) for even the smallest and simplest of entities. Further, the Central Bank has said that management companies/AIFMs “must appoint locally based persons who conduct managerial functions”, meaning that non-Irish promoters have been required to source Irish-based solutions as they seek to remain within the new regulatory requirements.

This has resulted in the continued trend of a move away from the self-managed model, which has become more expensive to operate. Most if not all self-managed funds are now considering a move to a managed structure. While some may appoint a manager from within the promoter group, many funds would not have this option and are looking to appoint a third party manager.

Ross McCann, Alter Domus, Ireland: The size and makeup of FMCs in Ireland is diverse, so we would expect a similarly diverse range of proposed solutions to be implemented through 2021 as there is no ‘one size fits all’ solution. Given that many FMCs are relatively new to Ireland, having set up there in the past 3-4 years, the resourcing and governance question is likely to be the most pertinent. For these parties, I expect some to exit the Irish market, particularly if they already have another EU presence, for example in Luxembourg, from which they can passport or indeed outsource to an Irish or EU third-party ManCo. Others will accelerate existing hiring plans to meet the requirements in anticipation of their business levels catching up. A kind of hybrid solution is for the FMC to meet requirements through a combination of its own resources and certain outsourced support from third-parties, for example to cover compliance and regulatory reporting. It remains to be seen to what extent the Central Bank of Ireland will allow FMC outsourcing to meet its requirements, but this will become apparent over the coming months.
Tadhg Young, State Street*: The CP86 framework includes detailed requirements on organisational effectiveness, the performance of managerial functions, delegate oversight and resourcing. The review found that when applied correctly, the rules and guidance provide a framework of robust governance and oversight arrangements. However, it also found that a significant number of FMCs have not fully implemented the framework. All FMCs must assess their operations against the requirements, while taking into account the findings of the review and, where necessary, put action plans in place by the first quarter of 2021.

There are a number of resourcing options available to FMCs as they seek to ensure full and effective embedding of all aspects of the framework:
• An FMC which is currently staffed in Ireland may need to assess whether they have sufficient resources within the FMC to ensure they are in a position to fully meet the requirements of CP86 and the findings of the review. This may be of particular relevance to staffed FMCs, which were established prior to 2017.
• An FMC which is currently a Self-Managed Investment Company (SMIC) could consider employing resources within the SMIC. However, this is not an option we have seen widely implemented to date.
• An FMC which has not had staff employed previously could consider hiring staff?to ensure they have resources to fully meet the requirements of CP86, including governance and oversight requirements.
• An Irish fund range could appoint a third party “management company provider” to act as FMC to their Irish funds. That third-party FMC would have responsibility for satisfying the CP86 requirements and the findings of the review.
• A fund range could use a management company already established in another EU location and “passport” the EU authorised management company in for their Irish funds.

At the time of writing just under half of State Street’s Irish clients have chosen to establish a staffed Irish management company, while the remainder have appointed a third-party management company provider.

The ILP for private asset funds?

Following the updates to ILP, CBI share class guidance updates for closed ended QIAIFs and introduction of Depositaries of Assets other than Financial Instruments (“DaoFI’s”) Ireland now presents itself as a compelling choice for domiciling private asset funds. What key considerations should Managers consider when choosing Ireland for the first time?

Ross McCann, Alter Domus, Ireland: One of the main challenges managers coming to Ireland may face is a general unfamiliarity with the jurisdiction, especially if they come from outside Europe. Thankfully, this can be addressed by having a strong network of advisors, lawyers and service providers who can really guide and partner with them by setting up and operating in Ireland.
Getting to grips with local regulation can be a struggle, where understanding the particulars of the regulatory reporting required and other such intricacies is key. Here once again, managers will benefit from using service providers who have in-depth, local experience and can take on that type of work in the background. Our work is essentially about letting the managers continue to focus on taking advantage of opportunities and managing assets.
The ability to provide a full-service solution is a compelling component for the 1,000 or so managers who are already in Ireland and want to do business from there, both from an efficiency perspective but also in terms of depth and breadth of knowledge and experience.

Locally, we have been setting up our firm to take advantage of the anticipated in Ireland. This has involved expanding our service line to have an even stronger administration and corporate services offering. We are also opening a ManCo business, in addition to a real assets depositary, enabling us to offer managers a one-stop-shop.

Cryptocurrencies: a new asset class?

How do you see the market in cryptocurrencies and other blockchain-based assets developing?
Brian Higgins & Karen Jennings, Dillon Eustace: If anything can be learned from recent tech developments in financial markets (such as the rise in popularity of cryptocurrencies and other blockchain-based assets, and the fall-rise-and-fall of GameStop triggered by low commission trading apps) it is that the asset management industry is in an unprecedented state of flux. The recent rise in popularity (and value) of “non-fungible tokens” could herald the growth of a new form of asset class, proving once again that where an asset is rare (even where that rarity is fabricated) it will increase the perceived worth of such an investment.

Recent history (see the examples above) has taught us that the volatility (and thus risk) of investment in “new” assets, or via new channels of investment, means that investment through a fund is somewhat niche. Nevertheless, this is an area in which we can expect growth in the coming years, even if, initially, it is only on the margins of the industry as a whole (as it is likely to take time before European regulators become comfortable with retail funds investing directly in cryptocurrencies and other blockchain-based assets).