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12 | International location
seven of its funds. Nevertheless our “credibility”
shareholder took fright and I left following what
was described in the press as a “philosophical dif-
Market disruptions such as
ference of opinion” – a perfect example of a
“euphemism”. It was an unfortunate time to try
and replicate the McD model in Dublin, which
was my intention, because the 1990 Gulf War
we have seen can have a very
crash was much more severe than the 1987 event
and I couldn’t sell any esoteric investment when
you could get 17% in the bank. Remember the
beneficial effect if targets and
days when we all trusted banks?
Feeding the family
Suddenly I had to find another way to feed my
attitudes can change and a
wife, children and dogs and, having done some
corporate work in Dublin, I decided to concen-
trate on helping emerging hedge fund managers
to both set up and administer their new “hedge”
re-vitalised, competitive
funds. This was in 1993 as Ireland was just build-
ing up its administration expertise. The IFSC had
originally developed as an international treasury
product is offered
centre, but, alongside that, the custody and
administration business started to take off with
an influx of the huge global institutions, such as handle hedge funds”. Is it any wonder that so and “tax havens”. Of course many of the offshore
Citibank, State Street, Deutsche Bank, et al, many banks had no concept of the risk or value centres are not tax havens per se, but “Give a dog
which were all primarily traditional service inherent in their exotic OTC portfolios 10 years a bad name……..”. I believe that it is likely that a
providers to the large long only equity and bond later? prudent US investor who had previously been
funds. They were, however subsequently joined Dublin was able to adjust to the growth of the happy to invest in a Cayman Island fund, will
by several hedge fund administrators and, over international hedge fund market faster than their now be nervous that his name could be plastered
the next 15 years or so, Dublin grew to become competitor financial centre in Europe. Another across the newspapers because he is an innocent
the pre-eminent hedge fund service centre in the major boost was the ability to list funds on the investor in a targeted fund.
world. That contention may severely increase the Irish Stock Exchange, which I feel should put up Therefore we may see a lot of pressure by both
corporate blood pressure in Luxembourg. a statue of Maire O’Connor, who almost single- institutional and high net worth individuals to
Nevertheless, it is generally accepted that 30% of handedly put the Irish Stock Exchange on the invest in what is perceived as a more conservative
global hedge fund assets are administered in global hedge fund map, certainly in the early and better-regulated jurisdiction, providing they
Dublin. days. are not financially disadvantaged. This, I think,
bodes well for European centres, except for, per-
So how did this come about? Counting the cost haps, Luxembourg, which many politicians seem
In 1987, the concept of the International Another factor was that, when the IFSC was to confuse with Lichtenstein. Both of those get
Financial Services Centre became the reality and launched, costs in Ireland were very low, and associated with Switzerland, which has had its
the “IFSC” was born. The concept was to estab- labour was plentiful and skilled. There were reputation destroyed by the UBS tax scandal.
lish a financial services centre, where qualifying more banking, finance, accounting and IT gradu- One should also remember that French and
companies – i.e. companies that offered financial ates in Ireland per capita than anywhere else in Germans (and the Belgians, for that matter) hate
services to foreign rather than Irish domestic the world at that time and communications were Luxembourg, because all of their very rich den-
clients - would only pay a very attractive 10% good. Apart from the fact it’s a very pleasant tists deposit their money in Luxembourg banks,
corporation tax. place to live that was why I chose Ireland in the or Luxembourg market funds.
However that attraction was multiplied several first place. So, this leaves Malta and Dublin, both of
times when the Irish double taxation treaty net- To a great extent, that has now changed. which I think will benefit. Dublin will benefit,
work was taken into account. It doesn’t take a Dublin is one of the most expensive cities in the because it is now well established, as demon-
rocket scientist to recognise why so many major world. As a very high cost centre it has competi- strated by the substantial financial services
corporations set up treasury operations in the tion from several places that did not exist in presence and the fact that the fund industry is
IFSC – notwithstanding that so many rocket sci- 1989. Thus, although Ireland is still an excellent very well regulated. However, Dublin does
entists had started running hedge funds. centre for a large hedge fund but I think it is have a cloud hanging over it, because of the
It should be remembered that, in the mid-90s, expensive, both to establish and operate any fund perception of total regulatory failure with regard
hedge funds were a dubious mystery to most tra- below $100m NAV. to the banking industry and, of course, Irish
ditional banks. Indeed, I recall approaching one This is not to say that Ireland’s future is entire- funds have to use an Irish resident bank. That
of Ireland’s two major banks at that time, with a ly gloomy. Market disruptions such as we have could cause some discomfort to the nervous
client who needed a local custodian bank for a seen can have a very beneficial effect if targets investor, so I think a lot has got to change now
proposed Euro denominated fund that was going and attitudes can change and a re-vitalised, com- if Dublin is to keep its pre-eminent position.
to invest in US Dollar denominated listed securi- petitive product is offered. There are some very On the other hand, I am a long-term bull of
ties. The fund wanted to appoint a specialist cur- positive aspects, which, in my opinion, include the hedge fund market, so even if Ireland loses
rency sub-advisor, to dynamically manage the the continual attacks co-ordinated at the recent market share, it will still, I believe, be a major
currency exposure. Our intrepid banker turned G20 Summit by Mr. Brown, Mrs. Merkel, Mr. player in a major market and I would not write
down the account because, as he said “We don’t Sarkozy and Mr. Obama against offshore centres it off – yet.
April 2009 Investment International www.investmentinternational.com
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