It started at an industry conference, with a question from the floor.

On a panel onstage were Derek Delaney of DMS, Cyril Delamare of Montlake, and Martin Vogel of MDO. All were CEOs of fund management companies.

They had been discussing a shared challenge in their corner of the industry. They each were small, but their clients were huge. The imbalance between small firms and large clients was causing problems. It would take years to fix, they said.

An audience member asked, “You’re all CEOs of your companies. Why don’t you just merge?”

They batted away the question (“On a panel, you never give anything away”, Delaney told me). But later on that evening, they got together and said they’d explore the idea. And in June 2020, the three firms announced their merger. The following March, the new company was rebranded as Waystone.

Headquartered in Dublin, Waystone employs more than 500 people in 11 locations around the world. It manages $250 billion worth of assets.

Waystone is a privately-financed start-up company that has reportedly been valued at more than a billion dollars. By any reasonable definition, it’s a unicorn. But it doesn’t fit the unicorn, start-up model. It’s not a tech company, it’s not a fintech. It’s stable and profitable. And it has flown below the radar.

Now Waystone has reached a size where it can’t go unnoticed. It has just taken out a landmark office beside Amazon on the Shelbourne Road in Dublin, and this week announced 100 new jobs at its base in Cashel. On its current trajectory, it’ll hit $1 trillion in assets under management in four to five years. 

The opportunity

Waystone is a management company, and the starting pistol for the European management company industry was in June of 2011. That’s when an EU directive called AIFMD came into effect. 

AIFMD is aimed at the fund management company industry. It’s not fund management in the sense of picking what to invest in, but fund management in the sense of literally managing the investment products – keeping custody of the money, making sure the funds are compliant, dotting all the i’s and crossing all the t’s. 

“AIFMD was written in response to some of the frauds that emerged post-2009, 2010,” said Delaney. “That had been hidden by a rising market. But when the market started to drop, they were exposed. So the German regulator led it. It was an ESMA directive that said, ‘If you want to sell to European investors, you set up a fund in Europe, managed by a European manager’.”

AIFMD said any fund marketed in the European Union needed to be managed from within the EU. Previously, most funds marketed in Europe were managed from outside the EU. 

Originally from Causeway, a village in North Kerry, Derek Delaney was then working with BNY Mellon. He could foresee a wall of capital would soon be needing new custodians and managers in the EU – so he joined DMS to lead their European team. “That first client was one of the largest banks in the world, and they needed us to be their substance in Europe,” said Delaney.

Across town in Dublin, another Irish funds industry veteran would have been thinking the same thing. John Donohoe founded the Carne Group in Dublin in 2004. When AIFMD came into effect in 2011, Carne was well-placed to benefit. Carne Group finds itself, along with Waystone and Luxembourg’s FundRock, as one of the emerging giants of the European management company industry.

Since 2011, the European management company industry has ballooned in size. “If you think of Europe having 34 per cent of the wealth in the world,” said Delaney, “and if you think of the fact that the sovereigns – the Singapores, the Middle East investors – invest through Europe as well, then about 50 per cent of the world’s wealth is put into European funds. So every European manager, and Asian Manager, wants to have a product in Europe. Or in effect, they don’t qualify for half of the available capital in the world. 

“So it is very much being driven by ‘it’s the biggest market we have to be in it’, from US managers. And then requiring someone here. And then facing the challenge that there’s only one that’s really reached institutional scale,” he added.

The product

What do Waystone's 500 employees do? "The first thing we'll do is we'll ask for the portfolio," said Delaney. "We'll run the portfolio and see does it stay within all the risk parameters. We'll categorise it as suitable for retail investors, or for qualifying investors. We look at whether it fits in an open-ended or closed-ended fund. And then that will allow us to create a prospectus. We'll then look at where it should be from a structuring perspective. So if it's a partnership, it tends to be Luxembourg; if it's a limited company, it tends to be Ireland. 

"We then set up the fund. What does that mean? It means we appoint an administrator, we appoint an auditor, we appoint directors. 

"Then we present the forms to the regulator. We typically go a few drafts back and forth with the regulator to get them comfortable. Once it's approved, we then register it to be sold in various European countries. We appoint someone to sell it in each of those countries. And then we're on a daily – and in our case, an intraday – basis, we're monitoring to make sure the manager in the US is managing within the rules of the fund."

The funds themselves are huge. That's how Waystone has ended up with $250 billion of assets under management. And it's why it made sense for Montlake, MDO and DMS to merge in the first place. The job is too big for a small organisation. 

"It is a very involved process," said Delaney, "And it's why any management companies that are less than ten people have disappeared. And I expect any that are sub-50 will too, because of the level of expertise you need. We have 19 teams within that 500, with a small little army in each of them, to make sure they're specialists on everything."

Has it been hard building a multinational financial services company out of Ireland? "The biggest problem we've had so far has been getting a new HQ in Dublin," Delaney said. "It came down to two auctions. That's how hard it is with the Fintechs, the Tiktoks, the Googles," he added.

Yesterday, Waystone announced it was hiring 100 more staff in Cashel. "Putting an office in Cashel was incredibly successful for us," said Delaney. "We thought there might be 20, 30 people that we could pick up there. We bought a business that specialised in aviation because some of our clients are buying aviation, we said 'we need to understand it better'. And there happened to be the ex-CFO of Airbus and one of the leads from GPA down there with a five-person business. We bought that, thinking 'let's grow to 30'. We're now cutting the ribbon on a 220person office."

The investors

Fourteen ingredients go into Waystone's product. The company provides five of them in-house and subcontracts the rest. Its fee is 4 basis points or 0.04 per cent. 0.04 per cent is a small number, but remember Waystone manages $250 billion of assets. It's on track to make $100 million in profit this year.

Even more impressive is the trajectory. By the end of the year, Delaney said assets under management are expected to rise from $250 to $300 billion. "Our organic growth rate has been 47 per cent, and it'll be about 30 per cent this year." Not many companies big enough to earn $100 million grow at that rate.

As well as organic growth, Waystone has absorbed other companies in the space. In January and March of this year, it acquired KB Associates and Centaur, both based in Dublin — "the two most significant deals we've done by a distance," said Delaney.

Private equity has provided the funding to make much of this possible. When MDO, DMS and Montlake decided to merge, they needed help buying out their shareholders. So they turned to MML, a London-based private equity fund that also had a presence in Dublin. They provided funds, said Delaney, "and more important than anything, [they got] a lot of the management involved in the ownership of the group. That's the good side of PE that you don't hear often enough."

Private equity investors always aim to sell their target companies after a period of time, usually five years or so. What's the plan for Waystone? "In a five-year timeline, we'll be looking at the exit," said Delaney, "and [it will likely be] a listing, given the scale will be then. It would be a difficult size for another private equity firm. But also, we'd like to achieve that, as a milestone in our career.

"That's the next goal driving us now. To do a listing in Ireland or the US, and have an Irish global firm."