There is little talk of gloom and doom in Dublin’s International Financial Services Centre. Confidence remains undimmed despite a probable Irish recession this year, as well as possible threats to the IFSC’s dominance as a global asset servicing centre from hungrier, lower-cost destinations such as Poland.

Indeed, many in the country’s $2,200bn (£1,099bn, €1,387bn) asset servicing sector quietly welcome the country’s economic slowdown. To an extent, it provides an antidote to the biggest problem Ireland has faced as a fund administration base: escalating costs and a skills shortage that was itself fuelling further labour costs.

It means players such as State Street will face less competition for talent from domestic facing players, such as the Bank of Ireland and Allied Irish Banks, and from the country’s now emasculated property and construction sectors.

Willie Slattery, managing director of State Street International, says: “I have no interest in seeing people being hurt but the objective fact is the Irish slowdown is creating a more competitive labour market, which helps people such as ourselves who trade internationally.”

Having gained a significant Irish presence with its acquisition of Deutsche Bank’s custody arm in 2002, State Street is Ireland’s largest player in the fund administration sector, with $630bn in funds under administration ($315bn of which is hedge fund money) and 2,200 employees in the republic.

Mr Slattery, a former regulator at the Irish central bank, says the Boston-based group’s business is still growing in Ireland despite the downturn. “We’re still seeing good solid demand, especially from customers in Asia and the Middle East, including fund management groups and sovereign wealth funds,” he says.

Rob Richardson, chief executive of Pioneer Investments, which manages assets of €120bn from Dublin (including €7bn-worth of hedge funds) says: “Internationally focused businesses such as State Street and ourselves are almost immune to the economic slowdown in Ireland. We’re not selling to Ireland, we’re selling all over the world.

“Everyone obviously has their eye on the markets and on the credit crunch. But there are signs that mutual fund sales – for example sales of 401k retirement plans in the US – are holding up relatively well.”

Before it was launched in 1987, the IFSC formed part of the dilapidated docklands district said to have been so run-down it was avoided by even the city’s rats. Today, however, the area plays host to a cosmopolitan array of financial services players including State Street, BNY Mellon, Citi, JPMorgan, and BNP Paribas.

Dublin has effectively come from nowhere to become a strong challenger to Luxembourg as Europe’s biggest asset servicing centre. It has done this by becoming the home of choice for many Ucits funds, Europe’s leading domicile for money market funds and the largest administration centre for exchange traded funds in Europe. According to the Global Financial Centre’s Index published by the City of London, Dublin is the world’s 13th best financial centre and 10th for fund management

So how has this been achieved in the 21 years of the IFSC’s existence? A number of positive factors have fuelled Dublin’s growth, notably Ireland’s position as a member of both the European Union and the eurozone, its use of English, the strong supply of well-educated graduates (at least until recently) and the country’s legal framework.

However, regulation and tax were probably more critical to the IFSC’s success than anything. The financial regulator, the Irish Financial Services Regulatory Authority, is seen as combining robustness with responsiveness, and industry players welcome the efficiency of the regulatory approval process. The IFSRA can afford to be accommodating and attuned to innovations partly because of the lack of a significant indigenous fund management sector. Mr Slattery says: “Here in Ireland we understand the benefit of having an appropriately pitched regulatory regime.”

Low taxes have also played a big part in Dublin’s success. From the IFSC’s launch in 1987 until 2004-05, firms based there paid corporation tax at just 10 per cent. Although this has now risen to the standard 12.5 per cent, it still compares favourably with the 28 per cent levied in the UK and the EU average of 33 per cent.

The biggest pressure, however, remains cost, which is why the current economic slowdown comes as a welcome respite. Some investment administration specialists, including Citi, have quietly been shifting some of their more menial processing work from Ireland to lower-cost destinations, including eastern Europe, India and South Africa, and this trend is expected to grow. However, people in Ireland’s asset servicing industry argue this will free up capacity to take on higher value and so-called “middle-office” functions.

Mr Slattery says: “A lot of what we do is pretty complex stuff and our customers have extremely high expectations where service is concerned. Therefore, I don’t think that obtaining the skills in low-cost locations and managing your client expectations exclusively from servicing in low-cost jurisdictions is going to strike the right balance.”

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