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The ICAV at the heart of Ireland’s robust investment funds industry Back
As the Irish Collective Asset Management Vehicle (ICAV) enters its fourth year, Meliosa O’Caoimh, Managing Director, Northern Trust, Ireland, identifies the factors behind its success and what will be required to ensure that its growth momentum is maintained. In a wide ranging review, in the 2018 edition of the Finance Dublin Yearbook, she also assesses the key pillars of the Irish investment funds industry, and its service record for both domiciled and non domiciled funds, including the $100 billion Irish ICAV industry that has emerged in the 3 years since the passing of the ICAVs Act in March 2015.
Since the introduction of the Irish Collective Asset-management Vehicles Act 2015 more than 400 ICAVs have been established and registered with the Central Bank of Ireland, generating around US$100 billion in assets under management. The growth rate over the past three years has been spectacular and the ICAV has become the vehicle of choice for many asset managers.

Nor does the growth in the popularity of the ICAV appear to be slowing down. Initially established variable capital companies transitioned into the ICAV structure as the legislation made it possible for the re-domiciliation of foreign investment funds into ICAVs. However, it has certainly managed to maintain momentum when it comes to new fund launches as well.
Meliosa O'Caoimh, Managing Director, Northern Trust, Ireland: 'nor does the growth in the popularity of the ICAV appear to be slowing down'.



Until March 2015 the Irish PLC or the Part XIII Company was the vehicle of choice. However, over the years it became apparent that the fund structures available to fund managers in Ireland required an overhaul, particularly as a number of technical requirements were putting Ireland at a comparative and competitive disadvantage against other jurisdictions.

Historically, Irish fund corporate vehicles had been established under Irish company law, requiring them to comply with legislation written with 'normal' corporate entities in mind and without recognition of the reality in which fund vehicles operate.

In response, the industry, in consultation with various government departments and agencies, lobbied for the creation of a fund vehicle that would more appropriately reflect the way in which funds operate. A bespoke piece of funds legislation was introduced in 2015 which did away with certain Irish company legal requirements and placed greater emphasis on the workings of an Irish fund. For instance, an ICAV can now dispense with the requirement to hold an AGM and it can now change its instrument of incorporation without a shareholder vote.

The key benefits and enhancements of the ICAV include:
• Greater efficiency: As the ICAV is now authorised and supervised by the Central Bank of Ireland, there is a separate process for ICAVs going through the funds authorisation section. Also, ICAVs are no longer required to register with the Companies Registration Office.
• Greater flexibility: Shareholder approval is no longer required when making changes to the ICAVs instrument of incorporation. Certification from the ICAV’s Depositary that investors’ interests are not prejudiced is sufficient.
• Lower costs: Directors can dispense with the requirement to hold Annual General Meetings upon providing 60 days’ notice to shareholders of its decision to dispense with same.
• Financial Statements: The ICAV has more discretion on how financial statements are compiled, including the flexibility to prepare separate financial statements for individual sub-funds (with different financial year ends), rendering the process more relevant for shareholders.
• Protection from unintended consequences: The ICAV is no longer affected by changes introduced under European/Irish company law. For instance, the new requirement to file annual financial statements (together with directors' and auditors' reports) with the Irish Companies Registration Office will not apply to ICAVs.
• No risk spreading: The ICAV is no longer subject to risk spreading rules.
• Tax benefits: The ICAV is a corporate 'check the box' entity and may be treated as a partnership for US tax purposes, offering an attractive vehicle for US taxable investors.
Since the introduction of the Irish Collective Asset-management Vehicles Act 2015 more than 400 ICAVs have been established and registered with the Central Bank of Ireland, generating around US$100 billion in assets under management. The growth rate over the past three years has been spectacular and the ICAV has become the vehicle of choice for many asset managers.

Much has been written on the topic of tax benefits and, in our view, while this is a clear potential advantage of the ICAV, there are operational implications and potential complexities that need to be considered in each case. A key issue, of course, for US investors will be to compare an ICAV with the costs, regulatory environment and product flexibility of any other global product that can provide the same tax effect.

For many years the Irish funds industry has enjoyed healthy growth levels and, in fact, assets under administration in the jurisdiction have fallen in only one of the past 15 years. The continued flow of assets into Irish funds has created thousands of jobs in the industry, both directly and indirectly, in key support services and businesses around Dublin and other financial centres. Significantly, Ireland’s ability to secure non-domiciled business has also contributed to the success of the jurisdiction, with almost 50 per cent of the AUA serviced in Ireland being for funds located outside of the country.

An often underestimated value of non-domiciled business to Ireland is the positive experience that global asset managers enjoy when they use Irish administrators, auditors, law firms, listing agents etc., creating a 'brand experience' that in time facilitates a separate discussion about having funds domiciled into Ireland. The resulting growth in the industry has propelled Ireland into the top tier of international financial services locations, with a premium reputation for quality and a well regulated environment.
An often underestimated value of non-domiciled business to Ireland is the positive experience that global asset managers enjoy when they use Irish administrators, auditors, law firms, listing agents etc., creating a 'brand experience' that in time facilitates a separate discussion about having funds domiciled into Ireland. The resulting growth in the industry has propelled Ireland into the top tier of international financial services locations, with a premium reputation for quality and a well regulated environment.

The Irish funds industry is now being widely regarded as a ‘best practice template’ of industry collaboration. At recent events it has been noticeable that others see us as an example of how an industry can work with government to continuously communicate its unique propositions. It is important to acknowledge that success, while never taking it for granted - there are plenty of jurisdictions looking to Ireland with some admiration.
The continued focus and attention to enhancing the jurisdiction demonstrated by Irish Funds is commendable and, as we look into 2018 and 2019, two key priorities will be the new Limited Partnership legislation and securing a business friendly Brexit environment.

The ICAV is now a core part of Northern Trust’s offering. A significant number of clients have already restructured legacy products into ICAV vehicles and we currently administer approximately 30 per cent of the ICAV market in Ireland with over 100 vehicles. Our new business pipeline remains strong and is heavily populated by ICAVs, particularly in our real estate, private equity and infrastructure businesses.

But our mantra remains that any new business has to be the ‘right type’ for us in terms of complementing our existing book because our first obligation and priority is to our existing clients, particularly as much of our product innovation is achieved in partnership with them.

We are therefore looking forward in 2018 to continued growth in our business lines on the back of continued internal product and operational innovation, and in conjunction with key industry developments such as the Limited Partnership legislation.

Ireland has achieved success within a complex competitive global environment and it can be confident that it will continue to do so in the future. But equally, we also need to recognise that many global investors will prefer to deploy their capital to funds domiciled further afield.

One of the key success factors of the Irish industry has been its twin track offering of seeking to secure locally domiciled funds and of providing a world class professional environment for servicing complex alternative non-domiciled funds, especially in the hedge funds, private equity and real estate spaces.

The benefits of the ICAV have added a new string to Irelands’ already successful bow, eliminating one of the potential competitive disadvantages versus other key jurisdictions. The ICAV is a key win for the industry in this competitive landscape and represents the latest enhancement that we can add to our toolkit as we seek to secure new commercial flows into the country.

It is self-evident that the Irish funds industry will continue to offer a wide range of products, services and domiciles and the continued success of the jurisdiction will be founded on this diversity of product, manager location and type, as well as an ever expanding product range.

Our collective success has also been built upon innovation and a sensible relationship between the industry and the organs of state. It remains imperative that the funds industry collectively, both individual firms and industry associations, continue to leverage the excellent working relationship forged over many years with a view to ensuring that we clearly articulate our message to global firms and potential new customers to Ireland Inc.
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