And by “they”, I mean the Central Bank.
Every year the Bank publishes its Regulatory & Supervisory Outlook which highlights where they feel the greatest risks and vulnerabilities are for the financial system and our overall financial stability.
The report covers several sectors, one of which is investment funds.
So where are the main risks in the Irish Funds sector?
As you’d expect there is a consistency and continuity around what the main risks are. But I had a look at this year’s report (which is just out) and compared it to what the Central Bank had focussed on in their previous report, to get a sense of what might have changed, or moved up the agenda for the regulator.
To be clear, Ireland is a significant global funds domicile, with about 9100 funds and asset value of €5.3 Trillion. This compares to 9000 funds with an asset value of €5 Trillion at the time of the last report. We host about two-thirds of the ETFs in the euro area by value. Nearly 40% of all Irish funds have ESG credentials – so we’re well represented in the most dynamic sectors.
As it happens, many of the risks identified seem quite timely at the moment. The Central Bank this year continues to emphasize vulnerabilities around liquidity and leverage in investment funds. A shift in investor sentiment could easily lead to a “dash for cash” and it’s important that funds can ensure access and protection for investors. Upcoming regulation will focus on documentation and development of liquidity management tools.
The funds sector is growing ever more complex. The Bank highlights risks around what for many are “new” asset classes. Here they mean assets like private debt, crypto etc. Investors needs adequate protection here. Funds need to ensure the suitability of the strategy for the target market. They also need to show that the fees they are charging (which are likely to be higher) are clearly justified and transparent.
Cyber risk and resilience get increased focus in this year’s report. Service disruptions and attacks on companies especially given the volatile and unpredictable geopolitical backdrop are key risks in the view of the Central Bank. One key feature they would be wary of is an overreliance on external service providers.
The regulator’s view on market risks for fund investors this year is notable. Last year, macroeconomic uncertainty and elevated geopolitical risk were to the fore. While these haven’t gone away, the Central Bank this year clearly highlights elevated valuations for large cap growth stocks and narrow credit spreads in bond markets. This raises the risk of correlated sell-offs in markets.
I also get a sense of concern from the Bank around funds investing in private assets, both equity and bonds. Do the valuations reflect the true economic worth? This mirrors a concern expressed this week by ex-Goldman Sachs boss Lloyd Blankfein.
There is some better news on assets. Last year the Central Bank had some concerns around valuations in Commercial Property. 2026 sees a more relaxed stance. In their view, the Irish Commercial Property market continued to stabilise in 2025 and sentiment indicators point to further recovery.
So overall it’s not getting easier.
Evergreen risks around issues like governance, liquidity and leverage stay firmly on the agenda. But added to this, the funds sector has to manage evolving complexity and innovative strategies.
And all this is happening in what looks to be a riskier financial world!
Tradewinds 