The best in Irish innovation

A loop-tape of iconic former US President John F Kennedy plays in the departure lounge at Dublin airport, urging the Irish diaspora not to forget their homeland when working abroad.

This is part of the ConnectIreland initiative, through which the government offers financial rewards to Irish business people, encouraged to use foreign connections to create new jobs back home. It is hoped more international names will join the likes of social networking and technology giants Google, Faceboook and LinkedIn, which all run substantial operations from Dublin.

Ireland’s financial services industry expects the innovative practices evolved by foreign newcomers will help improve the quality of projects being developed within the ranks of international banks and finance houses.

“There is a whole bank of global intelligence in Ireland, now that Google, Facebook, LinkedIn and Twitter are all here,” says who runs the Dublin arm of high-profile Italian wealth manager Mediolanum, employing 150 staff in Ireland. “You don’t have to get a plane to fly to San Francisco for exposure to their way of thinking. You just cross the road and your guys are having a coffee and a sandwich with their guys,” he says gesturing out of his office window to Google’s Irish headquarters. “Ireland now has a huge advantage in terms of innovation and skills.”

Mediolanum, still part-owned by controversial media magnate Silvio Berlusconi, has long enjoyed success in its Italian homeland, by partnering with major global names such as Goldman Sachs, Invesco and now rising French house Carmignac.

But it is the Irish operation masterminded by Mr Pietribiasi where product structures are drawn up, payments are handled and customer data is collected and analysed. He plays down reported accusations from authorities in Rome that Italian financial companies use Dublin to help minimise taxes back home. Rather than tinker with products, Mr Pietribiasi prefers to improve their delivery and how the customer relationship can be enhanced. One of his new projects will be to break down asset allocation and performance metrics for individual customers.

“We need to develop processes that help out our own clients,” says Mr Pietribiasi, who belongs to Irish government working groups for the funds and asset management industry, which have been tailoring a Graduate Diploma in Innovation specifically for the financial services industry in partnership with University College Dublin.

Problem-solving techniques, developed at Stanford University in the US, and now being applied to Dublin’s investment industry are “laughingly simple”, according to course leader Keith Finglas.

Attention to such practices will not only halve the length of most projects, but also dramatically improve end results, he believes. “At the end of a project, most companies have a post-mortem to see how they went wrong,” says Mr Finglas, who has worked in senior positions with Guinness, General Electric and Intel.

“The best performing companies do the same thing, but the difference is, they do it right at the start, asking themselves, ‘what can we do to make this project perfect?’ You need to get your project and production teams and most important of all your customers, in a room together, before any work even begins.”

Companies buying into this innovative thinking agenda include Citi, Fidelity, BBH, Irish Life, RBC and the country’s largest financial services employer State Street.

“The key part of the innovation process is getting to end investors and understanding their requirements,” says Susan Dargan, head of State Street’s Irish operation. Staff numbers have grown steadily to 2,000, following acquisition of fund servicing operations from Goldman Sachs and Deutsche Bank, among others.

“A lot of the future innovation will be based around where the investor wants to go next and which product we should build out,” she says, with particular emphasis on risk services and information provision.

The biggest area of expansion will be alternative investments, where the Irish funds industry has been preparing for the EU’s Alternative Investment Fund Managers Directive (AIFMD) – which aims to harmonise regulation of private equity and hedge funds across Europe – with strong support from the government. The regulations, to be introduced in July, are seen as a huge opportunity for the country to develop its centre of excellence in this asset class and help create new jobs for the crisis-ravaged economy.

Ireland is being helped by the fact that many US hedge fund managers, with products domiciled in Caribbean centres such as Cayman, are now deciding Europe may be an important market for them.

“It depends on the provider, but the majority of clients are going to register for the AIFMD and continue to promote their hedge fund strategies in Europe,” says Ms Dargan. “But some smaller players are saying ‘this is not really worth it for us’ and let’s go for another route, either through private placement or setting up in another jurisdiction.”

US custody bank Northern Trust has also decided to base the lion’s share of fund servicing staff in Ireland, while European-based banks such as BNP Paribas and Société Générale tend to prefer Luxembourg. Many of Northern Trust’s support staff are now based in Limerick, rather than the Irish capital.

Nearly 45 per cent of the world’s hedge funds are domiciled in Ireland, irrespective of their origin, says Northern Trust’s head of hedge funds business, Ian Headon.

“If we are talking about US or Cayman hedge funds, Ireland has become the centre of expertise for these strategies,” he says.

Rather than a battle for business between Dublin and Luxembourg, Mr Headon believes the EU must speak with a single voice to promote both centres to some reluctant hedge fund promoters. “The question is whether the benefit of a marketing passport is definitely worth the cost. The EU needs to persuade everyone that the extra costs are properly understood and properly valued.”  

Government pinning hopes on fund industry

Despite rapid growth, Ireland’s funds industry – employing 12,500 people from 440 investment groups, servicing €2.3tn of assets – remains nervous following the country’s banking crisis, which gathered pace from 2008.

There are fears among practitioners that Luxembourg, established earlier, will always be the bigger fund servicing centre, that certain regions of the world will refuse to accept Irish-domiciled funds for years to come and that funds manufactured and marketed out of Asia may one day supersede those coming out of Dublin.

These concerns were all articulated at the recent, well-attended Irish Funds Industry Association (IFIA) conference in Dublin. “Regulatory change can present an opportunity or a challenge,” said Kevin Murphy, partner at solicitors Arthur Cox and newly installed as IFIA chairman. “Often, our concern is not about the regulation itself, but that it can lead to regulatory arbitrage, which can be damaging to the European funds industry as a whole,” he said.

This was a reference to the capital buffer needed for constant net asset value (cnav) money market funds. Practitioners claim funds domiciled in European jurisdictions such as Dublin will cost up to 30 basis point more than equivalents from elsewhere.

Stakes have been raised recently because the government expects the funds industry to replace jobs vacated by the country’s ill-fated construction boom, with benefits fast spilling out of the capital into regional hubs such as Limerick and Munster. The latter boasts 1400 finance-related posts.

“These are jobs which sustain our quality of life and show Ireland has stayed open for business,” said finance minister Michael Noonan.

His target for 10,000 new financial services jobs plans to not only take advantage of implementation of EU and US regulations, but also to attract assets to new fund areas such as real estate, green products and Islamic investments, the latter aimed especially at Middle Eastern sovereign wealth funds.

“If there are obstacles preventing partnerships with companies in the Islamic world, please let us know,” Mr Noonan told delegates.

But investment groups are more concerned about Dublin funds not being accepted in certain countries. “The credit rating has been a long-term problem with Chile and Latin America,” said the head of one Irish-based fund servicing group, who asked not to be named. “They understand the Irish funds industry is not contaminated by the Irish crisis, but it has been written into their legislation, so their hands are tied.”

There were also calls for the government to do more to promote Irish funds in China. “Most strategies for Chinese nationals are focused on fixed income and equities, they are not global themed funds,” said Alwyn Li, a partner with Deacons in Hong Kong. “This is where Ucits should come in with a broader range of products.”