As a centre for servicing investment funds, Ireland –or more precisely the International Financial Services Centre in Dublin – has been growing at a rapid rate. In the past year, according to London-based funds industry analyst Fitzrovia International, domiciled net assets in the Irish funds industry grew by more than 30% to exceed $50bn(E38bn) for the first time.
The Irish pension fund industry is much smaller. Unlike near neighbour the UK, very few pension funds in Ireland have assets of more than E1 bn, so it is a relatively small market in European terms.
However, the expertise that has been built up in Dublin to service investment funds could be put to wider use as the financial industry across Europe grapples with the implications of the EU pensions directive. The directive, which all members must implement by September 2005, sets out a new regulatory framework for defined benefit pension schemes.

The impact of the directive is still being mulled over. Some observers believe existing single employer/single country plans may consider relocating, while multinational employers have the option to pool investments, pool services or merge plans across countries.
Investment services, such as asset management, funds administration, custody could be consolidated as could pension services including actuarial, legal, benefit consulting and administration, accounting and compliance.
Anne Maher, chief executive of Ireland’s The Pensions Board, told an October meeting in Dublin on pensions and investing that the Irish Government was investigating the opportunities for the country in the directive.
Initial responses have included the Common Contractual Fund (CCF), a tax transparent equity pooling vehicle the first of which was launched in May 2004, and a Pan-European Pensions Task Force, which has been established under the Department of Taoiseach.
This would examine opportunities for Ireland in international pensions areas with particular regard to EU developments, said Maher. The task force is expected to report back to the government early this year.
Unlike other funds, a CCF is treated as a tax transparent vehicle under Irish tax law. Initially the fund vehicle is limited to Ucits structures but will be extended to non-Ucits funds in 2005. In a report on CCFs, consultancy PriceWaterhouseCoopers said: “With the first CCFs now being launched, the pooling of pension fund monies tax efficiently is now a reality rather than a possibility, putting Ireland to the forefront as a jurisdiction of choice for pension pooling vehicles. Plans are already in place to extend the application of the CCF by creating a non-Ucits version, along with expanding the range of qualifying institutional/pensions investors.”
Dean Handley, sales manager, UK and Ireland for ABN Amro Mellon Global Securities Services believes Dublin has a distinct advantage as Europe aims to harmonise the pension funds industry. “Dublin already has a strong reputation as an offshore financial centre in Europe and there is a perfect opportunity to use an investment funds type product to service the wider pension funds industry,” he says.
Handley’s view is echoed by Frank Roden, head of BNP Paribas Fund Services in Dublin: “The growth of the mutual funds servicing industry in Dublin over the past six years stands it in good stead to do the same for common contractual funds and the pensions industry generally. Dublin is now a strong centre for administration and outsourcing and if the European pensions industry is harmonised and single country funds look to relocate and centralise administration, custody and outsourcing, Dublin presents a strong case.”
Roden says the EU directive, along with the introduction of the CCF, is generating a great deal of interest among pension funds and with it, a demand for a greater range of products from securities services providers. “We are seeing demand for performance measurement, transaction cost analysis, sophisticated risk management, commission recapture, securities lending and compliance monitoring. “In the main, pension fund managers are looking for increased breadth and depth in the offerings from custodians.”
Handley says securities lending is proving to be particularly popular in Ireland. “Securities lending is high on the agenda as the larger schemes recognise its benefits at a time when stock market returns are not what they have been. “Most funds will look at securities lending as a way to offset custody fees and make it cost neutral.”
One of the largest providers of securities lending is Bank of Ireland Global Securities Services, which launched its Global Securities Lending programme in early 1998. It now lends securities for both domestic and international clients in more than 25 bond and equity markets. Growth has been particularly strong in the past year, says the bank, with daily average on loan balances of $4bn.

Bernard Hanratty, managing director, Citigroup Global Transaction Services, Emea, says there has been a high turnover of managers for Irish multi-manager funds in the past 18 months, which indicates that pension funds are looking for value and performance in their selection of asset managers.
He says: “At the same time, the use of independent consultants is also increasingly prevalent. Most of the large pension funds now have a custodian that is independent of the asset manager. This results in consistency of reporting on custody assets, fund accounting, performance measurement and risk performance.”
Reporting is an area that ABN Amro Mellon GSS turned its attentions to in May, when it introduced a financial reporting application developed to support Statement of Recommended Practices (Sorp) pension reporting requirements in both the UK and Ireland.
Available via ABN’s web-based Workbench Client Reporting product, it provides 20 reports specifically designed for Sorp pension disclosures, including balance sheet and profit and loss schedules covering market value, book cost, income and cash. Reports can be generated at an individual portfolio or consolidated scheme level.
The moves being made and the services being offered by securities services organisations for Irish pension funds could just be a dress rehearsal for the future when truly pan-European pension funds are a possibility. With the Irish government keen on positioning itself as a centre for pooled pension funds, the fund administration expertise that already exists in the country may well find itself operating in parallel with a pension fund servicing industry of great potential.

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