Comment: The Irish funds industry is one of the outstanding successes of modern Ireland. In less than 20 years, it has transformed itself from a small domestic sector into a global competitor, rivalling traditional centres such as Luxembourg.

Funds domiciled in the Republic are growing at a phenomenal rate, with a 35 per cent increase in the net asset value of Irish funds in 2005 and another 8 per cent in the first half of 2006. This is not a once off, but follows 20 per cent growth in 2004 and 19 per cent in 2003. Coupled with the strong growth in the provision of specialised services to non-Irish funds, last year the net asset value of funds serviced in the Republic passed the magic €1 trillion mark.

But it is not just funds or their net asset value that are growing; industry employment and career opportunities are also expanding rapidly. The investment funds industry in Ireland now employs some 9,000 people, with growth in employment of 16 per cent forecasted for this year, following growth of 13 per cent in 2005 and 12 per cent in 2004.

Last year the industry, which includes custodian banks, administrators, managers, transfer agents, fund promoters and professional advisory firms involved in the international fund services industry, employed in more than 1,000 graduates and school leavers.

Awareness of the industry and the opportunities it presents is increasing among those in the education sector. UCD, for example, is to establish a global finance academy, targeting staffing needs in the funds and finance sectors.

Reflecting the growth the sector has experienced, companies have started to expand their operations by establishing secondary and tertiary offices outside the International Financial Services Centre (IFSC) and Dublin. Firms are now based in locations across the State, including State Street in Kilkenny, Bank of New York and Citco in Cork, Bisys in Waterford, PFPC in Wexford and Meath, Fortis in Galway, Northern Trust in Limerick and IFS in Kildare and Louth, to name a few.

To reflect the expansion of the industry throughout the State, the Dublin Funds Industry Association has recently changed its name to the Irish Funds Industry Association.

The Government has also recognised the importance of the funds industry to Ireland Inc, with the Department of the Taoiseach's strategic report on the international financial services industry including a number of provisions specifically designed to ensure the development of the funds industry. The Taoiseach's recent decision to establish a fund for specialist financial education is welcome. The promised dedicated centre of high-level training in the sector is also good news. These are part of a range of actions that are necessary to maintain and grow the investment funds industry.

However, we live in a rapidly changing and globalised world and, as most funds note, past performance is not a guarantee of future performance. Neither does the past performance of a fund jurisdiction guarantee its future. The funds industry is facing serious challenges from new and old competitors which are focused on stealing a march and preferably a large slice of our business.

The genesis of the industry stems from the establishment in the late 1980s of a European cross-border investment product called "undertaking for collective investment of transferable securities" (Ucits). The opportunity that such a cross-border investment product presented for the development of an international "hub" was seized. The funds industry proved itself to be innovative and effective, and the decision to actively attract investment fund activities into Ireland has paid off handsomely.

The recently enhanced Ucits III, as well as anticipated growth in European and international savings due to the ongoing pension crisis, means that a further era of opportunity is beckoning. However, the Republic must once again be innovative and effective if it is to benefit. Many other jurisdictions would love to benefit from the rapidly growing industry.

The bad news is that if the Republic does not respond to the challenge, somewhere else will. To compound the potential problem, it is possible that existing business could be lured to a new location. In almost all businesses, not benefiting from an opportunity might be seen as a lost opportunity. In the funds industry, missing an opportunity has wider implications.

Just as increasing business entrenches relationships, if a relationship strains because of perceived inefficiencies or opportunities elsewhere and the manager/fund promoter commences a relationship elsewhere, it will be at the expense of the existing relationship. Eventually, all business will be conducted through the new jurisdiction.

On the other hand, a jurisdiction that is innovative and forward-looking can gain first-mover advantage, which can encourage and establish relationships with managers/ fund promoters. This can further develop and encourage existing business to migrate to that jurisdiction.

It is thus crucial that the regulatory environment continues to develop in anticipation of and in response to the evolving needs of the global industry. We must be aware of challenges ahead. If it is not the Republic, it will be somewhere else.

Gary Palmer is chief executive of the Irish Funds Industry Association.