Ireland has gone from competing for leadership in European ETF domiciling to becoming the go-to destination within a decade. Under the auspices of the Central Bank of Ireland (CBI), the emerald isle now looks to be a home for the next wave of ETF entrants.
At last month’s ETF Forum: Dublin, ETF Stream revealed assets under management (AUM) in Luxembourg domiciled ETFs quadrupled to little over $400bn, between the start of 2015 and 30 September 2024.
Over the same period, AUM in Irish domiciled ETFs surged almost eightfold to more than $1.65trn, according to data from ETFbook.
For those well-versed in the Ireland-Luxembourg tussle – and the tax advantage afforded to Irish-domiciled US exposures – it will come as little surprise to learn much of the growth in Ireland has been led by equity ETFs, with the product class growing from under $200bn to $1.15trn in under a decade.
Readying for active influx
However, far from resting on its laurels, the CBI has made a statement of intent in recent weeks by adjusting its stance on key policies lower barriers to entry for active ETFs and other more complex exposures.
While the first of these changes came a week after ETF Stream’s Dublin event, a more likely catalyst for regulatory reflection in Ireland was the arrival of the Fair Oaks AAA CLO UCITS ETF (FAAA), a listed share class of a Luxembourg domiciled mutual fund, becoming Europe’s first ETF to offer 100% exposure to collateralised loan obligations (CLOs).
This was significant as it once again underlined the fact Luxembourg domiciled mutual funds can launch ETF share classes within the same umbrella as unlisted share classes, without having to change the name of the entire sub-fund.
Such a move has not been possible for Irish domiciled funds, with the launch of a listed share class forcing an entire umbrella to be renamed with the ‘UCITS ETF’ moniker, until now.
Last week, CBI deputy governor Derville Rowland announced the policymaker would be “converging [its] approach with other fund domiciles”, meaning the “UCITS ETF identifier can be included at the level of a sub-fund or a share class”.
Adrian Whelan, global head of market intelligence at Brown Brothers Harriman, described the development as “very positive, long anticipated and greatly welcomed news” and one that could mean “several UCITS mutual funds will now look to add an ETF share class to their repertoire”.
Ultimately, as active ETFs dominate headlines, this opens a door for active fund managers to make a small foray into ETFs without making commitments such as renaming entire products or launching new Irish platforms.
Access all areas
With the dust settling on last week’s update, on Wednesday, sources from law firms and ETF service providers told ETF Stream the CBI intends to broaden the scope of eligible assets within UCITS funds to enable 100% CLO exposure within ETFs and funds.
Much like Luxembourg regulator – the Commission de Surveillance du Secteur Financier (CSSF) – approved the FAAA ETF, ETF Stream understands the CBI granting UCITS vehicles CLO exposure will be predicated on the products being distributed to sophisticated rather than retail investors.
While there may be question marks surrounding the Irish policymaker’s decision to allow UCITS 100% exposure to a more complicated securitised debt – even if constrained to AAA-rated issuance – the move signals a desire to encompass the broadest range of exposures within the popular regulatory framework.
Final word
In sum, Ireland has already established itself as the epicentre of European ETF domiciling. As active managers and more specialist exposures enter ETFs, it appears the CBI will not stand idly by and allow Luxembourg to reclaim market share.
