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Ireland 2019 Special Report FEATURING AQMetrics // BNP Paribas Securities Services // Eversheds Sutherland // Fund Recs // Irish Funds Association
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INTRODUCTION
A portal to Europe
ince the first Irish Ucits fund was launched in 1989, the
S funds industry in Ireland has been continually growing,
developing and innovating. Ireland was the first regulat-
ed jurisdiction to provide a regulatory framework for the
LONDON
One London Wall
London, EC2Y 5EA
alternative investment fund industry and is now a top location for the
T +44 (0) 20 7832 6500
domiciling and servicing of alternative funds.
In the past decade assets under administration have more than dou- NEW YORK
41 Madison Avenue
bled to reach €4.4trn with assets in Irish-domiciled funds surpassing a 20th Floor
record €2.5trn. Accounting for almost 60% of the European ETF mar- New York, NY 10010
T +1 646 891 2110
ket and as the largest hedge fund administration centre in the world,
Ireland has attracted over 900 global managers and 17 of the top 20 EDITORIAL
REPORT EDITOR
global asset managers. Ireland is now the third largest funds domicile
Ross Law
in the world with 5.5% of global investment fund assets. T: +44 (0)207 832 6535
r.law@pageantmedia.com
While Ireland has long been regarded as a strategic location for
funds, its position as a committed member of the EU and close part- HFMWEEK EDITOR
ner with the UK industry make it an invaluable European centre. As a Matt Smith
T: +44 (0)207 832 6627
result of a shared history, Ireland and the UK have deep links – both are m.smith@pageantmedia.com
English-speaking countries, have a common law legal system, are in
HEAD OF PRODUCTION
the same time zone and have strong business Claudia Honerjager
and cultural ties. For these reasons, Ireland is
SUB-EDITORS
the top choice for UK managers establishing A small, open economy, Ireland Alice Burton, Charlotte Sayers,
or expanding operations to maintain EU pass- Luke Tuchscherer
porting rights post-Brexit. has been able to simultaneously
COMMERCIAL
A small, open economy, Ireland has been
able to simultaneously maintain a local, Eu-
maintain a local, European and ASSOCIATE PUBLISHER
Lucy Churchill
T: +44 (0)20 7832 6615
ropean and global outlook. The EU-wide Au- global outlook l.churchill@hfmweek.com
tumn 2018 Eurobarometer survey reported
that Irish people had the most positive view PAT LARDNER HEAD OF NORTH AMERICA
Tara Nolan
of the EU and 85% feel they are EU citizens. +1 (646) 335 3438
t.nolan@pageantmedia.com
The country scores highly on competitiveness
scales and recently ranked first in the world for inward investment for EUROPEAN COMMERCIAL MANAGER
the seventh year in a row in the IBM 2018 Global Location Report. Ad- Andrew Durbidge
T: +44 (0)207 832 6637
ditionally, with over 16,000 skilled funds professionals, the industry a.dubridge@hfmweek.com
draws on a highly educated Irish population, with the highest percent-
PUBLISHING ACCOUNT MANAGERS
age of 25-34-year-olds with third level qualifications in the OECD. David Butroid
The Irish government is focused on creating a responsive business T: +44 (0)207 832 6613
d.butroid@hfmweek.com
and regulatory environment through key strategies and legislation.
Irish institutions, such as the Central Bank of Ireland, are recognised Victoria Bennis
T: +44 (0)207 832 6615
for their clear regulatory guidelines and transparency.
v.bennis@hfmweek.com
Innovation has been key to Ireland’s success. The Irish Collective
Asset Management Vehicle (Icav) was introduced in 2015 to comple- Sigita Gravere
T: +44 (0)207 832 6631
ment a wide range of Irish-regulated funds and more than 500 have S.Gravere@hfmweek.com
been registered since its launch. There has also been a recent push to
THE MEMBERSHIP TEAM
enhance the attractiveness of the Irish investment limited partnership
+44 (0)20 7832 6511
(ILP), which will improve the environment for private equity investing. membership@hfmweek.com
Alongside product innovation, the well-established technology and
CIRCULATION MANAGER
financial services sectors have proved fertile ground for a thriving fin- Fay Oborne
tech industry. Within the funds industry specifically, recently estab- T: +44 (0)20 7832 6524
f.oborne@pageantmedia.com
lished innovation labs have been working in areas such as the applica-
tion of blockchain to regulatory reporting. CEO
Charlie Kerr
Looking forward to the changes that will come, Ireland is well po-
sitioned to meet the opportunities of the future as a portal to Europe HFMWeek is published weekly by
Pageant Media Ltd
and beyond with a comprehensive funds/asset management industry
ISSN 1748-5894
ecosystem based on government support, clear regulation, continuing
innovation and exceptional talent. Printed by The Manson Group
© 2019 all rights reserved. No part of
Pat Lardner this publication may be reproduced
or used without the prior permission
Chief executive, Irish Funds from the publisher
IRELAND 2019 HFM.GLOBAL 03
CONTENTS
Ireland 2019
Special Report
Technology 06
APPLYING ARTIFICIAL INTELLIGENCE TO HEDGE
FUNDS
Geraldine Gibson-Dautun, CEO, AQMetrics,
considers the future of artificial intelligence
for hedge funds
Banking 09
NO MARGIN FOR ERROR
David Beatrix and Diarmuid Ryan, of BNP Paribas
Securities Services, look at some of the core
issues currently facing the hedge fund industry
Legal 12
BREXIT IMPACT
Deborah Hutton, of Eversheds Sutherland,
reflects on the continued growth of Ireland as
the innovative European domicile of choice for
hedge funds and financial service providers and
not just as a Brexit back-stop
Technology 15
FUSION: AN ALTERNATIVE TO BLOCKCHAIN
Des O’Donohoe, of Fund Recs, outlines the firm’s
blockchain alternative
04 HFM.GLOBAL IRELAND 2019
“IF YOU’RE A PROFESSIONAL IN THIS
INDUSTRY, AND YOU’RE NOT A
F REQ UE N T USE R
OF H F M GLO B AL
YOU’RE WORKING WITH
O NE H AND T I E D
B E H I ND YO UR B AC K ”
Don’t give yourself a
disadvantage - begin your
HFM Global Membership
hfm.global/register
Contact us:
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membership@hfm.global
linkedin.com/in/hfm-global
@HFM_Global
TECHNOLOGY
Applying artificial
intelligence to hedge funds
Geraldine Gibson-Dautun, CEO, AQMetrics, considers the future of
artificial intelligence for hedge funds
hat is all this hype about Geraldine Gibson-Dautun management firm Blackstone. The
W AI? Do you have it? How
do you know if you have
AQMetrics
Geraldine Gibson-Dautun has over 20 years of fintech experience and in November
2018 won Fintech Champion of the Year at the Women In Finance awards. Educated
amount of the investment shows
the perceived future value of AI to
it? Can you count your the industry.
at Trinity College Dublin and the Sorbonne University, France, Gibson-Dautun
bots? It always fascinates me when I founded AQMetrics in 2012. The company has been recognised as one of the top However, some serious questions
100 global regtechs for the last two years running and won the HFM European
think of the many different views on Technology Award for Best Regtech Solution 2018.
should be asked before one blindly
what AI really is and what it can do. follows the direction of the Black-
AI or Artificial Intelligence has Despite all the keyword hits and Rocks and Blackstones of this world.
been an interest area of mine for my natural curiosity towards AI
decades now. I have alerts on key- advancement, I cannot help but Data in finance
words about AI across a myriad of ask: does AI truly hold the prom- The first question the data scientist
social media channels and news ise of alpha generation above and always asks is: where is the data and
feeds. Anytime an AI article or news beyond traditional methods? Deci- what is its quality? Those trained
item makes its way to the web I am sive actions by BlackRock, to cross in computer science know that the
immediately interested. the rubicon and pivot into big data data sets of academics who are pas-
The keywords that get the most analytics and automated quantita- sionate about machine learning are
hits are machine learning, natural tive stock selection would certainly a far cry from the tsunami of data
language processing and robotics. indicate so. Only last October MIT sets available on a daily basis to fi-
These are three key AI technologies. announced a $1bn commitment to nancial services firms. And therein
Deep learning is a subset of machine AI, the single largest investment in lies the rub. Static, complete and
learning and sits between machine AI by an American academic insti- visible data sets are not readily
learning and neural networks. It tution. Interestingly, at the heart available in financial services data.
is deep learning that most hedge of the investment lay a $350m Financial price data in isolation is not
funds look towards to create algo- foundational gift from Stephen A big data by any stretch of the imag-
rithms that they hope will beat the Schwarzman, the chairman, CEO ination but the myriad of data that
returns feasible by humans. and co-founder of the global asset factors into a market price is noisy
06 HFM.GLOBAL IRELAND 2019
TECHNOLOGY
Having worked as a data scien- officer, machine learning experts,
tist training machines on a trading data scientists and engineers to
floor to build strategies, I know first- build the platform, the hedge fund
hand that over time any regularities managers can save both time and
in price stats soon disappear as the money by partnering with cloud-
trading strategies evolve. It is the based software vendors who have
traders who decide when the strat- invested in employing a blend of
egy is no longer working. The fun- these people and investment pro-
damental and quantitative analysis fessionals to build an investment
combined with their own personal manager-agnostic platform that can
pattern matching is what sets apart recognise the state of pricing data,
a great trader from a mediocre trad- allow for it automatically and in so
er and no machine can mirror that. doing solve tomorrow’s investment
You cannot mimic this process by problems today.
using machine learning to fine tune Collectively the funds who have
portfolio decision making. The best previously published that they use
trading strategies are driven from AI for trading stocks including Sen-
human greed when real money is on tient Investment Management, Cer-
the table. ebellum Capital, Acatis Investment
GmbH and Man Group Plc’s AHL unit
AI for hedge funds have seen returns turn in a negative
So, what is a hedge fund manager to direction in 2018. Last year was the
do? Particularly a hedge fund man- worst year for hedge fund returns
ager who really doesn’t know the dif- since 2011. Ironically, it is between
ference between robotics and natu- 2011 and 2018 that the use of AI
ral language processing or machine in hedge fund strategies was sup-
learning. It is very easy for a hedge posedly growing year-on-year. This
fund manager to hire a computer trend leads me to question that if
scientist and ask them to suggest a hedge funds don’t act to ensure they
new AI-enhanced investment strate- take a platform approach to AI, will
gy. The hedge fund manager and the disillusionment with AI and an AI
computer scientist will solve today’s winter soon follow?
problem today and when the invest- An AI winter will be on the hori-
ment problem changes tomorrow, zon for most hedge fund managers
then the hedge fund manager will if they do not accept that AI on its
own will not guarantee alpha re-
data. Financial data is unpredictable. To truly take advantage of AI, turns on an ongoing basis. There is
A number of shocks occur in a series a shortage of AI talent in all indus-
that impacts the data and means the hedge funds must have the tries, never mind financial services.
data cannot be 100% replicated in To truly take advantage of AI, hedge
the future. Ultimately, emotions of
people who understand AI funds must have the people who un-
the investor herd drives market pric- around the table during both derstand AI around the table during
es, the mainstay of financial services both business decision-making and
data and those emotions are impact- business decision-making and strategy design. Partnering with AI
ed by so many factors and life events platform vendors can fill that void.
at any given time that the emotions
strategy design AI is merely a platform for the hu-
of the past cannot be guaranteed mans to step up higher than they
into the future. could possibly alone. One cannot
Investment decisions always de- aim for 100% digitisation of their
pend on the emotions of humans, be paying the computer scientist to investment processes. Unsupervised
the investors. Remove the investors solve that problem tomorrow and deep learning might be an aspiration
from the equation and provide ma- every other day that a new invest- of the scientists but it is a dangerous
chines with data for deep learning ment problem presents itself. Which tool in the field of financial services.
and decision-making and there is is why I would say it’s a state-of- If the learning goes wrong and no
no guarantee that the optimal al- the-art AI platform with automated one is supervising it, a firm could be
pha will be achieved. Further, if all data management at the heart of it written off. It is for this reason that
is left to the machines and there are that hedge fund managers should I believe AI on its own cannot solve
no humans pulling the brake, long- be trying to implement. A platform the impossible business problems
term investment strategies that may that hedge fund managers can use for hedge funds. That is only made
be running a course in free fall, will to solve the investment problems possible through the collective in-
not be halted in time and this is not of tomorrow and the next day. Rath- telligence of people and computers
a good thing. er than hiring in a chief technology together.
IRELAND 2019 HFM.GLOBAL 07
Irish Funds Annual Global Funds Conference 2019 The Future Of Funds - Evolution Or Revolution? The Convention Centre, Spencer Dock, North Wall Quay, Dublin. Thursday / 23 May 2019 Register now - irishfunds.ie/conference2019 The Irish Funds Annual Global Funds Conference brings together hundreds of global CEOs, industry executives, policy makers and regulators to explore and debate the key issues of the funds industry. The programme for 2019 will address topics most relevant to asset managers, service providers and funds industry professionals. Sponsorship and exhibition opportunities are currently available for this event. A limited number of free passes will be available for overseas investment managers and distributors – contact events@irishfunds.ie for more details.
BANKING
No margin for error
David Beatrix and Diarmuid Ryan, of BNP Paribas Securities Services, look
at some of the core issues currently facing the hedge fund industry
he next two years are David Beatrix problematic when meeting in-
T going to be extraor-
dinarily taxing from a
hedge fund operations
BNP Paribas Securities Services
David Beatrix is global product manager and leads the collateral access product
offering at BNP Paribas Securities Services. With 20 years of experience in the
tra-day margin calls from counter-
parties. Given the potential for de-
rivatives volatility over the next few
finance industry, he helps clients optimise their post-trade and collateral manage-
perspective, as new regulations take ment processing, to mitigate risk and operate their OTC trading more efficiently. years arising from deepening trade
hold or are phased in, beginning with tariffs, a slowdown in global equity
the introduction of bilateral margin- prices, eurozone debt risk and Brex-
Diarmuid Ryan
ing for uncleared over-the-counter BNP Paribas Securities Services it, firms need to have mechanisms in
(OTC) derivatives as part of the latest place by which to obtain collateral
Diarmuid Ryan is global head of hedge fund services at BNP Paribas Securities
instalment of the European Market Services. He has almost 20 years of experience partnering, building relationships as rapidly as possible to post as mar-
and delivering solutions with the industry’s largest alternative asset managers in
Infrastructure Regulation (Emir). the US and in Europe.
gin for their cleared and uncleared
OTC positions.
“Last call” for compliance funds also need to be conscious that
Along with the imposition of man- collateral management is not an en- Service providers are here to
datory clearing, margining require- tirely straightforward exercise. For help
ments for non-cleared OTCs are non-cleared derivatives, the regula- A number of effective solutions
becoming much more prescriptive tion now defines some strict bound- are, however, available to impacted
in Europe under Emir, similar to the aries in terms of what can be posted OTC users. Some fund managers are
rules set out by its US equivalent, and received as collateral, mainly looking to their bank service provid-
the Dodd Frank Act. At present, fi- cash and liquid/non-risky securities. ers to support them by offering col-
nancial institutions holding non- Unlike variation margins which at all lateral upgrades or transformations,
cleared OTCs with an aggregate times are either held or posted, de- whereby illiquid or ineligible assets
notional value in excess of €1.5trn pending on the value of the OTC de- are converted into eligible securities
needed to post initial margin. Given rivatives portfolio, initial margins re- that can be posted as margin. While
the high sums involved, this thresh- lated to non-cleared OTC are always some hedge funds have investigated
old currently only impacts a handful held and posted at the same time, whether cash-rich long-only manag-
of very large market incumbents. since they are bilaterally exchanged ers or asset owners would lend out
But the rule is gradually phasing-in, and custody-segregated. It implies their high-quality securities as eligi-
with a reduced threshold of €750bn that each party to a relationship is ble collateral in exchange for a fee,
coming into play in September 2019, both pledger and secured party at peer-to-peer activity has been fairly
and dropping considerably to €8bn the same time, and that each party muted.
in September 2020. This will bring a has a net collateral funding cost at In contrast, well-capitalised and
much wider range of institutions in all times. For funds holding insuffi- carefully risk-managed custodian
scope, including a number of hedge cient assets eligible for posting, po- banks can provide clients with a
funds. tential access to eligible collateral number of tangible solutions, in-
from banks through collateral up- cluding access to automated sys-
Taking collateral management grade trades has been made more tems connected to market utilities,
to the next level expensive due to banks’ increased credit facilities and a triparty plat-
In order for hedge funds to post mar- need to comply with Basel III’s liquid- form that enables hedge funds to
gin on time to the relevant OTC coun- ity ratios (LCR and NSFR especially). tap into liquidity providers, helping
terparties, they need to ensure they These challenges make it diffi- them to optimise collateral man-
have robust collateral management cult for firms to acquire the right agement. Most importantly, global
processes in place. However, hedge collateral quickly, which can be custodians with collateral systems
IRELAND 2019 HFM.GLOBAL 09
BANKING
on the model and its parameters,
but rather on the sensitivity inputs
to the model, which are directly de-
pendent on the pricing process of
the OTC derivatives. Investigations
of disputes on initial margins require
seamless connection between col-
lateral and pricing teams, like for
variation margin disputes, and gives
a critical importance to the portfo-
lio reconciliation process, an area
where industry platforms have ex-
panded their services.
Finally, when it comes to segrega-
tion, firms caught in the first waves
went naturally with their triparty
collateral agents to manage the
trilateral ACA, as the sourcing and
margin pledging/release, and eligi-
bility monitoring processes can be
handled seamlessly. But whatever
the operational framework, there
is some significant legal and opera-
tional implementation that needs to
be anticipated.
of the latest generation and propri- of the compliance date to ensure a Still some regulatory
etary local custody networks ensure smooth implementation and avoid uncertainties?
collateral is settled and held secure- the “last-minute” rush to providers The significant number of firms in
ly in a segregated account structure and custodians. line to be caught up in the 2020
in line with Ucits and AIFMD (Alter- Another issue facing hedge funds wave – and the challenge of being
native Investment Fund Managers is that initial margin is calculated us- ready by that date – prompted as-
ing a different methodology to var- sociations to write to the regulators
By 2020, hedge funds will need iation margin, as the former is risk- in September 2018, suggesting that
based. Broadly, regulators have said some of the rule’s provisions be re-
to have the correct infrastructure firms can either use a table-based visited, such as the September 2020
in place to facilitate margining approach or an internal model when threshold level and its calculation
calculating initial margin. For firms basis, the model governance, and
requirements for non-cleared opting for the latter, and to avoid the documentation prerequisites de-
endless methodology disputes, the termining when the threshold would
OTC trades
ISDA has rolled out a Standard Initial apply. It is not sure yet whether the
Margin Model (SIMM) – a sensitivity- rules as they currently stand will be
based measure – that defines the amended or not. Time will tell.
Directive) rules. In fact, compared parameters (shocks, correlations)
to a standard non-bank administra- that each firm needs to implement Next steps for hedge funds
tor, BNP Paribas Securities Services to calculate the initial margins as By 2020, hedge funds will need to
offers a one-stop-shop offer to its per regulatory requirements. While have the correct infrastructure in
hedge fund clients. intuitively an internal model is de- place to facilitate margining require-
signed to be more efficient than the ments for non-cleared OTC trades,
Avoiding collateral damage simplistic table-based approach, and at a time when their industry is fac-
The introduction of initial margins take into account the offsetting risks ing enormous regulatory and per-
for non-cleared OTC transactions in a portfolio, there can be cases formance pressures. Building new
creates other operational issues for where some portfolios – especially if systems and redrafting critical doc-
hedge funds. Firstly, for each trad- directional – will produce lower fig- umentation such as CSAs will be a
ing relationship, an additional initial ures than the SIMM anyway. time-consuming exercise. By engag-
margin Credit Support Annex (CSAs) Furthermore, hedge funds must ing a custodian with excellent links
and two trilateral Account Control ensure they have processes in place across the buy-side, sell-side and
Agreements (as pledger and secured whereby those initial margins – industry platforms, and which has
party) need to be negotiated to ac- posted and received – can be agreed, an extensive range of triparty and
commodate the new collateral re- and segregated. The challenge un- collateral management solutions,
quirements. This should be initiated derpinning the agreement of the the process can be significantly ex-
– via self-disclosures – well ahead margins does not depend so much pedited.
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Brexit impact
Deborah Hutton, of Eversheds Sutherland, reflects on the continued
growth of Ireland as the innovative European domicile of choice for hedge
funds and financial service providers and not just as a Brexit backstop
Q In view of Brexit, what are the
key reasons that those looking
Deborah Huon
Eversheds Sutherland
managers from working with other
services providers in Ireland to set
to redomicile some element of their Deborah Hutton heads the asset management and financial services department at up a hedge fund in Ireland.
Eversheds Sutherland Ireland. Hutton regularly advises on alternative investments
business should look to Ireland? including all aspects of AIFMD including in relation to hedge funds, property funds,
Ireland is home to hedge fund
A Simply put, service providers private equity funds, loan funds, debt funds and fund formation. She is recognised managers from around the world
as a leading lawyer in Europe for Financial and Regulatory Services, by ILO/ACC and
in Ireland understand the key in Ireland in the Legal 500.
with a wide range of experience. In
issues facing hedge funds and work sum, there are approximately 900
together with such clients to find a sustained growth in the number of fund managers from 53 countries
solutions. Accordingly, entities are Aifs domiciled within its jurisdiction providing services to fund compa-
choosing Ireland as a jurisdiction with the number of Aifs (including nies. Of these fund managers, 352
and European headquarters for sub-funds) growing from 2,419 to are UK companies, 233 North Amer-
many reasons of which Brexit is only 2,774, representing a net increase of ican, 50 Swiss, 63 Asian and 219
one. Ireland is an appealing jurisdic- just under 15%. However, for the rea- are other companies. The figures
tion for redomiciliation given that it sons outlined above, this continued demonstrate that Ireland already
is home to a large and well-estab- growth may have little correlation to services EU and non-EU fund manag-
lished hedge fund industry with fa- Brexit, rather Ireland continues to at- ers globally, and there is the further
vourable tax treatment, a 24-hour tract hedge fund managers globally. fact that Irish Aifs have managers
authorisation process for QIAIFs, a Whether an Aif can delegate port- globally and that there is a well-
knowledgeable and well-respected folio management to a UK manager established process to follow should
regulator, robust industry bodies, post-Brexit is a key query that clients the necessary MoU be entered into
which advocate together with mar- raise. In this regard there is an exist- with the UK.
ket participants to enable the fund ing process in place for non-EU fund A recent statement by Ed Sibley of
industry to continue to innovate and managers to be approved wherein the Central Bank of Ireland (the CBI)
evolve, a highly skilled workforce, one needs to be from a jurisdiction on 17 January has abated industry
global fund service providers and which has prudential regulation in concerns. Sibley stated that if Britain
Ireland is a well-regarded location to place and memorandums of under- does leave the EU, it’ll invariably be-
distribute Aifs from globally. Accord- standing (MoU) in place so those come a third country under AIFMD.
ingly, the domicile has an in-depth hedge funds can delegate portfo- An MoU will therefore need to be in
understanding of complex asset lio management out to managers place between the FCA and the CBI.
classes and strategies and has been in the US, or, for example, the UK Sibley went on to say that there has
first to market in many cases. if/when it becomes a third-party now been a statement saying that it
Of Ireland’s asset classes, approx- country should Brexit go ahead as is reasonable for firms to plan on the
imately 24% are alternative, 23% anticipated. basis that MoUs will be in place by
bond, 2% other asset classes, 4% Key players in the market have 29 March.
balance, 27% equity, and 20% mon- been asking what it will mean if
ey market funds. In terms of recent
trends in Ireland in hedge funds,
there is no MoU in place, and if the
lack thereof will mean that portfolio Q In light of Brexit, is the land-
scape of Ireland as a jurisdic-
there has been an increased interest management cannot be delegated tion changing?
A
in ethical, Sharia funds and Sharia out to the UK. Given that it is Febru- What we've been seeing re-
aviation funds, property funds, debt ary at the time of going to press, it cently is an increase in appli-
and loan funds. In terms of strategy, seems unlikely that managers, who cations for management companies
long/short remains the most pop- have not started the authorisation such as AIFMs, Ucits management
ular but largely all other strategies application process in Ireland, will companies or ‘Super ManCos’ which
are represented. Since the Brexit be authorised by 29 March. How- are a dual authorisation whereby
vote in 2016, Ireland has witnessed ever, this does not preclude such the entity can provide management
12 HFM.GLOBAL IRELAND 2019LEGAL
services to Aifs and Ucits. Having a right enables a client to establish the and the use of blockchain in a wider
management company authorisa- right relationship with the CBI and a range of business lines.
tion in Ireland appeals to many cli- reputation in the market. According- With crypto funds there is less of
ents as it provides certainty and en- ly, rather than setting up something an established path to setting up in
ables such clients to use Ireland as a small that may not have sufficient one particular jurisdiction.
European headquarters and avail of substance, or be economically vi- The way in which crypto funds are
passporting licences as applicable. able, using a third-party provider set up is also different, in particular
We would advise our clients, may be worthwhile to allow entities there is an additional issue of obtain-
however, that there's no point in more time to give their application ing service providers who are happy
rushing ahead with a ManCo appli- full consideration. to, and savvy enough, to work with
cation without due consideration For some managers, however, it crypto funds. Whether a country can
of ‘substance’ and ‘mind and man- may make sense to establish a Super operate with crypto funds is, to a
agement’ or ‘boots on the ground’ ManCo. The other thing we've seen large extent, driven by whether that
requirements in Ireland. There are and been involved in is the consolida- country has the requisite service
other practical solutions on offer tion of ManCos and the exploration providers to enable such a fund.
and we regularly work with cli- of what are the potential business Crypto funds are relatively new
ents to find a solution that fits their opportunities. We are noting that and, as such, an 'institutional qual-
specific requirements. The CBI has entities are exploring restructuring ity' fund here is different to other
made it clear that Brexit applications options and/or buying or merging funds. There is less track record, the
should not be ‘back-up’ plans with- with other European-based ManCos service providers will be less estab-
out due consideration being given. including those within Ireland. lished, and there is more of a focus
That said, as we move closer to the Ireland as a jurisdiction is also on ensuring 'quality' documentation,
Brexit deadline it is worth noting changing in that Brexit has not only which looks and feels well drafted.
that there are other solutions, rather impacted a percentage of the funds In terms of emergence of tech for
than seeking to establish a ManCo in domiciled in Ireland, but financial the financial services sector more
a rush and incurring expense. Some service providers more broadly. broadly, we are seeing increased ex-
Accordingly, we are also seeing an ploration of uses for blockchain, for
As we move closer to the Brexit increase in payment service provid- example as a clearing platform or
ers’ queries and applications under to simply manage documentation.
deadline it is worth noting that PSD2, Mifid, insurance regulations We regularly work with clients to
and various related authorisations assess compliance and risk models,
there are other solutions, rather more broadly. for example cybersecurity, disaster
than seeking to establish a ManCo recovery, outsourcing and cloud
Q How is Ireland supporting
crypto funds and how is it pre-
computing. In this regard we note
industry’s response via Irish Funds
pared for other emerging tech for to the CBI ‘Outsourcing Paper - Find-
clients are working with Irish service the financial services sector? ings and Issues for Discussion DP
A
providers (even in some cases as an Ireland is well placed and re- 8’, this is a very welcome and much
interim solution), who will provide mains at the forefront of inno- needed discussion at this juncture
the Irish management company/ vation with a highly skilled work- with the closing date for submis-
AIFM. Using this solution, portfolio force and a well-regarded regulator. sions having been the 31 January.
management can still be delegated With hedge funds both large and We are seeing clients who are first of
to an investment manager based, small, they are often seeking to chal- a kind establishing in Ireland and this
for example, in the US, or, given the lenge regulation and 'push the en- is positive for all market participants
aforementioned statement on 17 velope' as often these experienced in Ireland and Ireland as a domicile.
January, the UK, rather than rushing market participants are ahead of For example, ClearBank Europe (the
to get an application in at this late the regulation and help self-identify first clearing bank to be established
stage. We work with clients to con- risks and solutions. The role of indus- in 250 years in the UK), has selected
sider their business case and how try and its input into the evolution Ireland as its European headquarters
to best manage regulatory change, of regulation remains key to a ro- for reasons unrelated to Brexit.
such as in relation to AIFMD, AML, bust regulatory environment. It has My final thought is that as clients
Mifid II, CRDIV, together with gov- often been the case that the funds are becoming ever more sophisticat-
ernance requirements in light of (and their service providers) are first ed in a market which is responding
increased European focus on the to consider what the governance to many factors (of which Brexit is
same. We work with clients to estab- should be in place with regards to only one) such as: increased regula-
lish the right governance model and new and innovative strategies or as- tion, globalisation, increased inno-
assist both at entity level (whether set classes. We regularly work with vation, complex technology, the role
as part of domestic or a global strat- clients to consider questions such of a lawyer in servicing and working
egy level and in relation to training as: how do you custody crypto, what with such highly skilled clients has
and assessment in relation to fitness is best practice and what are the also understandably undergone rap-
and probity requirements at the indi- risks? Many of the Irish depositaries id changes and this can only be wel-
vidual level. Getting this framework are considering the same questions comed.
IRELAND 2019 HFM.GLOBAL 13IN A CHANGING WORLD,
BY THE TIME YOU MASTER THE GAME,
THE RULES HAVE CHANGED.
ANTICIPATING YOUR BUSINESS ENVIRONMENT
At Securities Services, we support your business
in adapting to ever changing regulations. Our
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are serviced effectively in over 90 markets.
www.securities.bnpparibas
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ACPR (Autorité de Contrôle Prudentiel et de Résolution) and the AMF (Autorité des Marchés Financiers). BNP Paribas Securities Services, London branch is authorised by
the ACPR, the AMF and the Prudential Regulation Authority and is subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority.
Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the Financial Conduct Authority are available from
us on request. BNP Paribas Securities Services, London branch is a member of the London Stock Exchange. BNP Paribas Trust Corporation UK Limited (a wholly owned
subsidiary of BNP Paribas Securities Services), incorporated in the UK is authorised and regulated by the Financial Conduct Authority. ©“3 man chess”TECHNOLOGY
Fusion: an alternative
to Blockchain
Des O’Donohoe, of Fund Recs, outlines the firm’s blockchain alternative
hat are the main chal- - Paper
Des O'Donohoe
W lenges facing the asset
management industry
and the relevant players
Fund Recs
Des O’Donohoe has been working in the asset management industry for the last 20
years. He is currently co-founder and managing director at Fund Recs where they of-
- Swift
- XML
- Email
fer a fully automated file processing and reconciliation solution to all participants
operating in the eco system? There in the industry from the asset managers, administrators and auditors. He is a fully
are of course many, but I am going to qualified member of the Project Management Institute. There can be no doubt that both
focus on one that has dogged oper- digitisation and automation are hot
ations since God was a boy. There is to be able to convince them. topics in most organisations. There
no consistency to either data trans- We have tried and failed at this has been huge interest shown in
mission or data format. The question on many occasions. There is not Distributed Ledger Technologies
I have always asked myself is, why is enough upside to get these play- since the advent of Bitcoin which
there no consistency? Is this such a ers to change how they play the is enabled by blockchain. But what
hard thing to get right? The answer game. They can conduct their is blockchain and why is there so
to the question is quite straightfor- own operations without issue much interest in it? In basic terms, a
ward. There are just so many differ- and it is more hassle than it is blockchain is a chain of blocks that
ent systems involved. There are 100s worth for them to play ball. contains information. The blocks
if not 1,000s of systems generating I spoke recently to a Fund Recs of information cannot be changed.
files and playing their roles in the as- prospect in London. She had just left A blockchain is a distributed ledg-
set manager industry. The trouble is her position as managing director of er which is open to anyone. What
most of these systems either cannot a large asset manager. She informed this means is that if you join the
or will not talk to each other directly. me that she was going to build a chain, you have the full history of
It is my opinion there are two main new all singing all dancing platform transactions.
reasons for this: for asset managers. I thought: this Many people saw how efficiently
- There are legacy systems in- sounds interesting, tell me more. blockchain works for cryptocurren-
volved that are not capable of She said: “First of all, I am going to cies. Unfortunately, as is true with so
change without some serious gain access to all of the main indus- many things in life, “what is good for
capital investment to allow try participants API’s…” I said I had to the goose is not always good for the
them to communicate directly stop her right there because API ac- gander”. Rather than going through
with other systems. They are of- cess is not readily available. She was the many issues facing blockchain
ten restricted on the format that shocked as I believe most people are such as huge bandwidth and storage
they can produce and rarely have when they are told this. requirements, immutability, in par-
open API’s (Application Program- ticular: what about the right to be
ming Interfaces). Common file transmission methods: forgotten?, slow transaction times
- Getting people to change is al- - Email and so on, I would like to propose
ways about incentives. As an ex- - SFTP another approach to tackling the
ample, if you are receiving data - Fax problem.
from a large brokerage firm, how - Web browser At Fund Recs, we focus on the rec-
exactly are you going to convince - API onciliation of data for investment
them to “open their doors to - Post funds. Our goal has always been to
you”, and convince them to al- achieve straight through reconcilia-
low a direct connection? Can you Common file formats: tions. Straight through meaning that
even get them to provide the - Excel there are no human touch points in
data in a format you can receive? - CSV either the collection of the files and
Quite simply, you are not going - PDF the matching of the data.
IRELAND 2019 HFM.GLOBAL 15TECHNOLOGY
We knew that in order to achieve this problem with ease. One of the Fusion benefits
the end goal of straight through rec- main goals in the development of - No IT or developers required
onciliations we would have to solve Fusion was that the user needed to - Any file
the long-running problems of both be in full control of the process with- - Any format
data delivery and multiple formats. out IT or developer involvement. - Any delivery method
To that end, in 2013 we scoured That aim has been achieved. - Auto unlock a password protect-
the market to see what solutions ed file
already existed as we had no inten- So how does Fusion work? - Bullet-proof security
tion of reinventing the wheel. Long Steps: - A live system that is at work even
story short, our development team - The user points Fusion at the file when you are not
were not happy with the solutions that needs to be processed.
they found and two years later had - A template is set up (a one-time In short, why try to change the
completed building a full end-to-end activity) by the user to process world, when you can simply work
file processing solution that we call and enrich/filter etc. the data around it? The system is not as bro-
'Fusion'. in the file. This is done visually ken as people think. As I mentioned,
through the screens without any all of the data needed to make the
coding required. system work is there, you just need
- The file gets re-formatted and to introduce flexibility in an environ-
Why try to change the world, when sent downstream to be accepted ment that has very little. The adage
you can simply work around it? in the next stage of the chain. of 'Change what you cannot accept
- The diagram below gives a visual and accept what you cannot change'
overview of the process. springs to mind.
Fusion allows a non-technical
user to take data in any format, ma- Fusion diagram
nipulate that data, and pass it down
stream. One of the main bi-products
of being able to process data in any
format is that you can receive far
more of it. Let’s take an example of
a system that cannot receive swift
message orders and must instead re-
ceive system generated PDFs, which
are user friendly for humans to read,
who then manually key the data
into the system. If you could process
the swift message there would be a
massive increase in the amount of
data at your disposal. With the PDF,
you are restricted to what can be
displayed across a page rather than
thousands of columns.
The other issue with humans man-
ually doing anything with either text
or numbers is that we are simply not
very good at it. The way the human
brain is wired does not lend itself
to manual data entry. Between 'fat
fingering' a keystroke and not being
particularly good at distinguishing
between similar numerical values
and text, manual data entry is a risky
business.
The elephant in the room with
blockchain is that you need consen-
sus. Everyone must agree on the new
rules. The data in the asset manage-
ment industry is not the issue. The is-
sue is the routing of that information
through the multitude of systems.
My assertion is that Fusion solves
16 HFM.GLOBAL IRELAND 2019DISCOVER
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AQMETRICS
sales@aqmetrics.com BNP Paribas Securities Services is a leading global custodian and fund services provider, backed by the
strength of a universal bank. With over 45 years of operating history, our hedge fund services teams
have forged a solid reputation for superior client service and customised solutions across administration,
AQMetrics is an award winning RegTech that has innovated the way that investment firms integrate risk control custody and banking. We have built strong partnerships with established alternative funds, including
processes with regulatory compliance. AQMetrics provides integrated compliance and risk management successful start-ups and many of the world’s largest managers. We continue to invest in our capabilities,
software to fund administrators, asset managers, investment managers and broker/dealer companies. The con- confirming our commitment to alternative investments. By partnering with us, you benefit from expert
solidated platform delivers data management, risk profiling and monitoring, compliance workflows and reports technology, designed specifically for alternatives, that simplifies and enhances data reporting and analysis.
all in one place. Using AQMetrics, customers understand their risks whilst complying with regulations in a way Our full suite of services allows you to streamline your operations, while the strength of our balance sheet
that has never before been possible. They also improve their client experience and reduce operational costs. mitigates financial risk to your investors.
LAW SAS
FUND RECS
EVERSHEDS SUTHERLAND
Deborah Huon, Partner EMEA: Des O Donohoe, Managing Director
DeborahHutton@eversheds-sutherland.ie // T: +353 1 6677 273 T +353 8 7257 1278 // des@fundrecs.com
USA: Alan Meaney, CEO
Eversheds Sutherland is one of the largest global law organisations in the world. With some 5,000 people T +353 8 7767 8844 // alan@fundrecs.com
in 68 offices around the world, including offices in the heart of Dublin and Belfast, we are committed
locally but connected globally to the world's major economic centres. Our financial services team is one
of the largest focusing on asset management and financial services product development and regulation Fund Recs develop cloud based file processing and reconciliation software for the funds industry,
in the sector. We provide our clients with strategic advice, structuring of investment products and product replacing prehistoric enterprise software with pay as you go software as a service. Fund Recs helps make
knowledge as well as general legal and tax advice. complex reconciliations simple.
INDUSTRY ASSOCIATION DEPOSITARY
IRISH FUNDS INDUSTRY ASSOCIATION
Ashford House, 18-22 Tara Street, Dublin 2, Ireland, D02 VX67
The Irish Funds Industry Association (Irish Funds) is the representative body for the international invest-
ment funds community in Ireland. Members come from all areas of the industry, including fund managers,
depositaries, administrators, transfer agents, professional advisory firms and other specialist firms.
As the voice of the funds industry in Ireland, Irish Funds: SPARKASSE BANK MALTA PLC | IRELAND BRANCH
• Represents the industry in discussions with government and agencies info.ie@sparkasse-bank-malta.com
• Raises the profile of Ireland's funds industry
• Supports the development and training of funds professionals
• Provides industry informational resources Sparkasse Bank Malta | Ireland Branch is a branch of Sparkasse bank Malta and licensed by the Central
• Represents the industry internationally Bank of Ireland to act as Depositary in Ireland. Through its team of professionals in Ireland, the branch
Irish Funds supports the continued development of the industry and raises the profile of Ireland as the seeks to provide a range of holistic custody and depositary solutions for AIFs, Ucits and non-EU funds from
location of choice for the domiciling and administration of investment funds. one platform, all supported by our robust and secure banking infrastructure bringing fresh thinking to
www.irishfunds.ie depositary services.
To promote
your company
email: directory@hfmweek.com
or call UK +44 20 7832 6615 US +1 (212) 268 4919
18 HFM.GLOBAL IRELAND 2019POSITION REC
3 WAY REC
TA BANK REC
FUSION
TRADE CAPTURE
C AS H R EC
*YRH6IGWEYXSQEXIWFSXL½PI
TVSGIWWMRKERHVIGSRGMPMEXMSRW
www. f undrecs.comNavigating uncertain waters Expert insight to protect investments Eversheds Sutherland is one of the leading legal advisers to the financial services sector in Ireland, offering an end- to-end, client focused solution for funds globally. With 68 offices worldwide, including Dublin and Belfast, we offer both a local and global perspective on investment fund and financial services regulation advice. Drawing upon our financial services and asset management capability, we provide expert insight on a broad range of investment fund issues – from Irish authorisation, tax structuring and establishment of UCITS, AIFs and their service providers, to Brexit guidance in the face of continued uncertainty. As thought leaders, our advice evolves with the markets, together with the changing regulatory, risk, and governance requirements of the sector, to ensure unique, compliant solutions to protect your client’s interests. To discuss your investment fund or wider financial services needs, please contact: Deborah Hutton Partner and Head of Asset Management and Regulation +353 1 6644 273 deborahhutton@eversheds-sutherland.ie eversheds-sutherland.ie
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