I am delighted to be here, as your guest at the Chartered Accountants of Ireland Leinster Society monthly lunch. Events such as this are important as they allow practioners from different firms, with a common ethos and background to meet in an informal manner and renew acquaintances.
As you may know, I travel later today to an informal meeting of the 27 members of the European Council to discuss ways to create more growth and jobs opportunities across the Union.
This is an agenda that I and other like-minded European leaders have been pushing for the last six months, but clearly it has been given added momentum by the election of President Hollande in France.
This is good news for Ireland. While the Irish economy and financial system is stabilising, we need a sustained period of economic growth to lower unemployment and to emerge from the debt crisis created over the last decade.
As a trading nation, a jobs-rich economic recovery in Ireland depends on the restoration of growth in our major trading partners. Stimulus to the Irish economy will come from further growth in exports and foreign investment and a recovery in business investment and household confidence and spending, not from more Government spending.
Indeed, there are few economies in Europe or the world that are more dependent on international trade and investment for employment. Exports of Irish goods and services measured €165bn in 2011, an €8bn increase on the previous year and equivalent to 106% of total production in the Irish economy. Of this, €61bn - or 37% of the total - was exported to other members of the eurozone.
I welcome the growing consensus at European level that greater budgetary discipline and more efforts to promote growth are not alternatives - they are both essential. Sound public finances are a condition for sustainable growth and employment.
And that is why, through our Action Plan for Jobs, we are steadily removing the barriers to job creation and investment in this country, with the aim of increasing employment levels in Ireland by at least 100,000 by 2016.
One of the areas identified in the Action Plan as a potential source of strong employment is growth in the funds industry.
While everyone is aware that the funds industry has enjoyed enormous success over the past two decades the asset and investment management businesses have been quietly growing. It is difficult to quantify that growth, however, one measure proposed by industry professionals, is the number of firms authorised by the Central Bank under the Markets in Financial Instruments Directive (MiFID) - This number, as of April 2012, stood at 130. These 130 firms include the Irish operations of a number of global investment managers who have established investment hubs here with Assets under Management of some €350 billion managed from Ireland. Over €200 billion is on behalf of international clients. These 130 investment firms employ in excess of 2,000 people in Ireland.
Industry today
Today the industry competes on a global basis with products matching those available anywhere.
Twenty five years ago:
- The investment management industry would have been entirely domestic with a suite of ‘plain vanilla’ products;
- A CFA qualification, the benchmark global qualifications for investment managers, was a rarity where today there are over 400 in Ireland; and
- No CEO or CFO of a large global listed company had reason to visit an Irish based investment manager as part of an investment road show. Dublin is now starting to feature on itineraries.
The industry, as you will know, is going through an unprecedented period of change, on a global basis, in business models. It is likely that distinctions, in Ireland, between ‘fund’ and ‘asset management’ will become more blurred particularly as investment managers continue to outsource more functions traditionally seen as ‘front’ or ‘middle’ office. Distribution models are changing significantly with ever increasing levels of disintermediation. Establishing an EU presence is an expensive and risky undertaking for smaller non-European managers. Understanding the differing traditions, channels and preferences in the different countries is not a modest undertaking. The expertise available here makes Dublin an attractive proposition for firms considering such a project. We have the language, the reputation and the professional skills infrastructure to pursue growth in this area.
Despite this growth in the scope and scale of front office activities in Ireland, the industry faces challenges. Dublin, as an investment hub, competes with long established centres such as London. The availability of skills in Ireland, particularly in quantitative roles remains a challenge but the output of quality graduates from our universities can help fill this gap. However, the many advantages offered by Ireland as an investment location can allow for the additional investment in specialised skills which need to be brought in from abroad. Recent tax changes, particularly the Special Assignment Relief in the Finance Act, address these challenges.
Strategy for the International Services Centre
In July of last year the Government launched its Strategy for the International Financial Services Centre. The Strategy identifies a number of areas for potential growth in asset management activity and our inventory of strengths is impressive:
- Dublin is a recognised financial centre in a market of 500 million people.
- We have an acknowledged expertise in the world’s leading mutual fund brand, UCITS.
- The essential expertise in law, tax, accounting, compliance and intellectual property is readily available and known to be so.
- IDA Ireland and Enterprise Ireland understand the importance of Research, Development and Innovation within the financial services industry.
- While often seen as a ‘soft’ asset the value of the Irish reputation for client service cannot be underestimated.
Of the many functions which organisations may seek to consolidate into centres of excellence Research, Development and Innovation is one which the Government’s strategy has identified.
All meaningful surveys of CEOs/CIOs of global asset managers identify RD&I as a crucial differentiator in the industry over the coming years. In investment management the first mover with the right product has significant advantage.
But RD&I is not restricted to only product development. Innovation in internal processes is vital to competitiveness for investment firms and a number of the larger international firms in Dublin have nurtured this technology-led approach. The Government development agencies offer support for RD&I and the tax code, incentivises R&D expenditure. While traditionally R&D has been considered in the context of physical objects - a new medicine or computer chip - in financial services the nature of the outcomes from R&D activities are different, but this difference has been acknowledged and a new understanding of the potential is emerging.
The potential value, to Ireland, of RD&I activity in the financial services sector should not be underestimated.
An outstanding example is the Exchange Traded Funds [ETF] which, in its modern incarnation, is present in virtually all significant global investment portfolios. It was developed in Ireland. Dublin is now the financial centre of choice for the establishment of ETFs. The value to the economy is found less in asset management jobs than in the business generated by the fund administration and professional services firms who support the international promoters of ETFs.
We also recognize that speed of reaction is crucial in international financial services. In Ireland, the Clearing House Group, a body representing both the industry and the public sector stakeholders was established in my Department. This forum continues to offer the ‘fast response’ mechanisms and acts as a catalyst vital in maintaining the IFSC as a competitive financial services hub. The Department of Finance have also highlighted their role in supporting the IFSC and its future development.
The Government’s strategy document covers the period to 2016. This Government will continue to be bold and innovative in its approach to implementing the strategy and reinforcing its importance to Ireland domestic and global aspirations.
Thank you for inviting me here today and I wish an enjoyable afternoon.