Why Ireland must move up the private credit food chain

Before 2016, Ireland’s professional services audit industry was dominated by its largest players. 

The Big Four firms – Deloitte, EY, PwC and KPMG – commanded most of the business and fees, leaving mid-tier firms fighting amongst themselves for the scraps. 

But wide EU reforms brought in that year, which aimed to address the “excessive familiarity” between firms and their auditors, have changed the playing field. 

“It was probably the first time that insurance companies and banks, who never had to look at the mid-tier, now had to look at the mid-tier,” Michael Tuohy, head of financial services audit and assurance at Forvis Mazars, told the Business Post. 

“And we were in a good position. We grew hugely from 2016 to 2021.”

 The new reforms meant that firms now had to rotate audit firms every ten years and audit partners every five; this meant that long-standing audit relationships, which sometimes extended into the decades, had to be severed. 

Forvis Mazars’ capitalised on this – it grew its financial services audit function, which was “much smaller” beforehand, and now boasts around 300 workers across its financial services division. 

“On the back of the success of the growth of our audit practice, we have then made investments across financial services, tax, consulting and prudential,” he said. 

“We now have teams that if you're looking to come to Ireland and set up a bank, an insurance company or a MiFID company, we have teams that will advise you on that.”

Originators 

Tuohy, who has led the firm’s financial auditing practice since 2015, has seen Ireland grow into a major financial services hub. 

But, he’s cognisant of future-proofing this success, especially against rivals like Luxembourg, and even improving Ireland’s position in private markets, particularly private credit. 

Key to this is moving beyond just administering funds and vehicles – by providing the administration and back-end servicing – to getting the real decision makers into the country. 

Currently, London, Frankfurt and the US are the key homes for decision makers in private assets, while Ireland and Luxembourg are domicile-heavy, but the latter holds a slim advantage over Ireland as its focus is “pretty much all financial services”. 

Tuohy points to another dominant industry in Ireland which has flourished as a global benchmark, aviation leasing, where “all the big players” are based in Ireland. 

This can be the same for private markets, he said, if an ecosystem is built around them. He uses an example of Ireland’s role in administering collateralised loan obligations (CLOs), or special purpose vehicles that invest in buckets of loans. 

These benefited from a migration from the Netherlands from 2020 after Vat changes there prompted many vehicles to move to Ireland. 

“Really what we're doing at the moment is administering them – and that's brilliant, that gives lots of jobs,” he said. “But then, if you were involved in the originating of these loans, then you would have credit people sitting in Ireland, and you'd have the dealmakers sitting in Ireland. 

“These are all just very, sophisticated professionals, and then it just brings a whole new ecosystem of high-value jobs. 

“It’s just moving up the food chain. You're bringing the decision-makers to Ireland rather than just the parties that do the administration for the structures.” 

But how Ireland gets to this point is an easier question to ask than answer. 

Obvious questions like housing and incentives matter, but so does the structure of the industry. 

In the recently announced Ireland for Finance Strategy, the government has come out to support the digitalisation of assets, such as the tokenisation of investment funds. 

It also committed to the potential “modernisation” of the Irish Collective Asset Management Vehicle (ICAV) Act and a reform of the antiquated 1907 Limited Partnerships Act. 

These were welcomed but probably could have done a “little bit more”, he said, but added that it can often be a matter of perception for the large companies. 

“Sometimes other countries are perceived as being more friendly, or more eager to win digital asset business,” he said, pointing to the decision of crypto firms’ redomiciling from Irish headquarters a few years back.

Ecosystem 

One debate levelled against Ireland as a potential home for dealmakers is its relatively small size and market, similar to how its small financial system rarely attracts large international bankers to its shores. 

But private credit is a bit different. 

“You don't need to have a huge domestic market in private credit, because you're effectively originating the loans all over Europe and the US, depending what your strategy is,” he said. 

For the accounting industry, managing the regulatory and audit functions of these vehicles, funds and businesses has become far more involved than it used to be. 

He said that before the EU rules came into effect, the summertime after the busy season in April was far quieter: “You were looking around for things to do,” he joked. 

Now, it has evolved into more 12 months, and late nights, as specialism has brought in extra work. 

“Audit has become a situation where you need specialists, versus 10 years ago or 15 years ago, it's very different,” he said. 

“Take your standard audit – now you need IT specialists, tax specialists, valuation specialists, accounting specialists and even financial reporting specialists.

The full text of the article can be found on the Business Post.