Research & Development: Fuelling innovation in Irish investment funds

Kanika Mishra Pathak, Research & Development Tax Director at Baker Tilly, discusses the growing importance of Research & Development (R&D) for investment funds in Ireland and why IT investments are becoming critical for future success.

Investment funds in Ireland, traditionally focused on financial expertise and market strategy, are increasingly recognising the value of R&D, particularly in IT/software development and mathematics/statistical analysis, to gain a competitive advantage. This shift towards technology is not only transforming individual firms but also reshaping the broader investment management landscape in Ireland, including key sectors like pensions, savings, and insurance.

R&D in the Irish investment world: Beyond numbers and charts

R&D in Irish investment funds is evident in several key areas:

• Trading platforms: This involves developing sophisticated trading platforms that allow fund managers to execute trades quickly and efficiently. These platforms are constantly being updated to improve functionality, integrate advanced analytics, and ensure seamless connectivity with various market data sources.
• Infrastructure and operations: Due to the specific needs of investment funds, particularly in terms of scale and performance, traditional infrastructure management often falls short. This has led to advancements in infrastructure management and development operations, enabling companies to build and deploy faster.
• Consumer-facing models: Investment firms are increasingly focusing on R&D to create user-friendly, self-service platforms that empower individual investors to manage their portfolios. This includes features like personalised investment recommendations, portfolio analysis tools, and educational resources.
• Disruptive Technology: Customer acquisition processes, such as Know Your Customer (KYC) checks and quotation/pricing, were traditionally manual and time-consuming. Disruptive technologies now enable video-based and programmatic KYC/onboarding, significantly reducing customer acquisition time and costs.
• Quantitative modelling: Investment fund managers are often involved in developing new models for managing risk, portfolio optimisation, and volatility. Traditionally, R&D in these areas focused on developing new algorithms and libraries that required extensions to underlying technologies (e.g., MATLAB and R). With recent legislative changes in Ireland, mathematical and statistical advances are now eligible for R&D tax credits, significantly expanding the scope of R&D incentives for companies in the funds space.

The Wider Impact: Beyond investment funds in Ireland

The investment management industry's investment in R&D has a ripple effect that extends beyond its own domain:

• Pensions and savings: Advanced investment management tools and strategies enable pension funds to optimise their investment portfolios, ensuring long-term financial security for retirees in Ireland.
• Insurance: Insurance companies rely on investment income to support their underwriting activities. Effective investment management practices, driven by R&D, help Irish insurance firms maintain financial stability and offer competitive, dynamic pricing and quotations.

The Irish funds landscape: challenges and opportunities

Ireland boasts a thriving funds landscape, with a wide range of investment funds catering to diverse investor needs. However, the industry faces certain challenges:

• Regulatory complexity: The Irish regulatory framework for investment funds is complex and constantly evolving, requiring firms to invest in compliance expertise and technology.
• Cost pressures: The rise of passive investing and the growing popularity of low-cost exchange-traded funds (ETFs) are putting pressure on traditional active fund managers to reduce fees.
• Technological disruption: The rapid pace of technological change is disrupting traditional investment models, requiring firms to adapt quickly to remain competitive.

Technological advancements, such as the use of artificial intelligence (AI) and big data analytics, are creating new opportunities for Irish investment firms to enhance their offerings and improve their performance.

Despite these challenges, the outlook for the Irish funds industry remains positive. The demand for investment products is likely to remain strong, driven by demographic trends and growing wealth accumulation in Ireland.

Technology at the forefront: system architectures and open source

The business of managing and making money demands continuous investment in R&D. This investment extends from advanced trading platforms used by fund managers to innovative self-service consumer models.

New system architectures are being designed to meet the demands of low-latency and high-throughput trading. This requires a shift towards distributed systems and real-time data processing.

Open-source technologies like big data analytics are also playing an increasingly important role. By leveraging these technologies, Irish investment firms can gain valuable insights from vast amounts of market data, enabling them to make more informed investment decisions.

Conclusion

R&D is the driving force behind the investment management industry in Ireland. It empowers firms to navigate the complex financial landscape, meet investor needs, and contribute to the growth of the Irish economy. As the industry continues to evolve, the importance of R&D, especially in IT and software, will only become more pronounced.

How can Baker Tilly help Irish investment funds?

Baker Tilly Ireland, the Irish member firm of the global Baker Tilly network, provides a wide range of services to support investment funds in their R&D efforts in Ireland. They have a deep understanding of the fund management process and the Irish tax landscape, allowing them to identify opportunities to maximize tax relief.

Core services include:

• R&D tax relief: Baker Tilly can help Irish firms identify eligible R&D activities and claim valuable tax credits under the Irish R&D tax credit scheme. The Baker Tilly team are specialists in supporting financial services and fintech companies maximise their claims while mitigating risk.
• Tax advisory services: Baker Tilly can assist with tax planning and strategy, tax preparation and filing, tax audits and disputes, and a variety of other tax-related issues for corporates and individual private clients in Ireland.
• Regulatory compliance: Baker Tilly can assist firms in navigating the complex regulatory landscape in Ireland and ensuring compliance.

By partnering with Baker Tilly, investment funds in Ireland can leverage their expertise to overcome challenges, capitalise on opportunities, and thrive in the dynamic Irish funds industry.