There are a number of encouraging developments in Ireland that would, on the surface, appear to place it on a strong footing to further enhance its reputation as Europe's leading onshore alternative funds jurisdiction.
If one looks at fund growth, through October 2016 (the most recent figures at the time of writing) the aggregate AUM of Irish QIAIFs increased by 7 per cent with net sales reaching EUR10 billion. At the end of 2015, total assets in Irish ICAV fund structures stood at EUR6.2 billion. By the end of October 2016, that figure had risen to EUR26.5 billion.
"The ICAV also recorded strong net sales. In the 11 months through to November 2016, there were net sales of EUR16 billion into ICAVs, split between QIAIFs and UCITS; the former had EUR8.9 billion in net sales, the latter EUR7.1 billion," confirms Kieran Fox, Director of Business Development, Irish Funds (the Irish Funds Industry Association).
"The ICAV is well regarded by global asset managers and generally accepted as the legal structure of choice for new corporate fund structures," he adds.
The ICAV appears to be used proportionately more by investment managers launching QIAIFs, which is probably a function of more corporate AIFs being established. The ICAV also makes it easier to set up master feeder structures that are more common in AIFs than UCITS. This is a trend that Fox expects to continue for the foreseeable future.
As more investment managers choose to adopt the ICAV to use as a platform facility, this could result in the overall number of QIAIFs springboarding over the next year or two. Kepler Partners, Old Mutual Global Investors, Legal & General Investment Management, OppenheimerFunds and EnTrustPermal have all established ICAV platforms over the last 12 months to launch multiple fund offerings.
"The ICAV is flexible and can be used for any strategy type. There is no reason why any particular fund structure couldn't use an ICAV. It can be used for any type of product range or asset class," states Fox.
Donnacha O'Connor is Partner at Dillon Eustace, one of Ireland's leading law firms. In his view, the ICAV has become "more than the sum of its parts".
"The ICAV has technical advantages over other corporate fund structures in that it can `check the box' for US federal income tax purposes, it can produce separate financial statements for its sub-fund and it is subject to a tailored piece of funds legislation, rather than general company law and so on. The ICAV is also popular with managers and distributors because it's easy to understand it as the Irish SICAV or the Irish OEIC and it has become a marketable brand," comments O'Connor.
Ken Somerville, Head of Business Development at Quintillion Limited, a European-based affiliate of U.S. Bancorp Fund Services, believes that the ICAV has emerged as a key growth driver for Ireland and has "become the go-to solution for investment managers establishing funds in Europe, and in particular those in the CLO space who are branching out into funds.
"That has been a real advantage within U.S. Bancorp because it has allowed us deploy the combined services of fund and loan administration. This has been a really positive development for Ireland and the asset servicing community," says Somerville.
This is being further supported by a growing trend of established fund managers choosing to add an Irish regulated fund product to their fund stable. "They are looking for something to run alongside their offshore Cayman master/feeder structure, for example. The ICAV is attractive to alternative fund managers who perhaps want a regulated fund product within their traditionally offshore product range," adds Linda Gorman, CEO of Quintillion.
Philip Lovegrove is a partner in law firm Matheson's Asset Management and Investment Funds Group. He is in no doubt that the ICAV is very much part of Ireland's growth story.
"Nowadays, both across the hedge fund and the UCITS world, it is really the default structure for a fund. Unless there is a specific reason why someone might want a unit trust or limited partnership or a common contractual fund, they would choose the ICAV. It has replaced the Irish Plc, which had been used for a long time and worked fine but the ICAV does the same things, only better. We haven't set up a Plc for at least a year," says Lovegrove.
He says that one particular area of business that has proven busy in the last 12 months is in relation to fund platforms.
"We have a number of clients that run multi-manager platforms using the ICAV. It allows for a much easier entry point for smaller managers looking to come onshore for the first time; these platforms provide a very simple solution for all of their compliance and regulatory needs," explains Lovegrove.
One management company that has decided to use the ICAV for both its UCITS and AIFMD platforms is ML Capital, who now operate as a Super ManCo. Looking ahead, the fact that it also has a MiFID license could work in its favour as UK-based fund managers face uncertainty over AIFMD passporting rights as a result of Brexit.
"We are probably one of the only providers in Dublin that offers a Super ManCo solution for UCITS and AIFMD as well as holding a MiFID license. Having these licenses enables us to act as the investment manager to a number of fund structures with discretion and will allow us to respond to what managers may need in the future.
"I would say that we have active discussions with UK fund managers whereby we will have contingency plans in place for them should they lose those passporting rights in the next couple of years," says Cyril Delamare, CEO of ML Capital.
If a non-EU manager is marketing a Cayman fund in the UK and Switzerland and nowhere else in Europe, they tend to look firstly at private placement rather than re-domiciling the fund to the EU, says O'Connor.
"Where we see non-EU managers looking first at an EU product is when the product is going to be marketed to investors that require an EU domiciled fund or where it is to be marketed into jurisdictions where private placement is not recognised, such as Italy, or where private placement triggers onerous requirements, such as in Germany and the Nordics," says O'Connor.
ML Capital is very hands on with those managers who are looking at the platform option as an efficient route into Europe.
"We listen to what the client needs, in order to provide the best solution depending on what their strategy requires to be run properly, and what the end investors would be expecting from a fund structuring perspective. We manage the entire launch and deliver a finished product within an agreed timeframe.
"Once the fund launches, we actively operate it on an ongoing basis helping managers to manage their service provider relationships, their distribution strategy, their rebate management with the various platforms and we also answer any investor requests," confirms Delamare.
Amendments to Irish Limited Partnership Act
As well as ICAV and QIAIF growth, one factor that could facilitate private equity growth over the mid-term is the amendments currently being made to the Irish Limited Partnership.
"There's ongoing work around improving the structural offering that we have with respect to the Irish Limited Partnership Act. Private equity has been a big theme the last 12 months and I think this will continue into 2017," remarks Lovegrove.
Ireland is a jurisdiction that global managers (especially US managers) are aware of more generally given its popularity for hedge funds and although private equity hasn't yet been a big theme, this could change when the updated LPA is introduced.
"It was enacted in 1994 and hasn't been updated since. We hope some time this year to see the amendments made and an updated version of the Act introduced.
"I think it will be a big selling point for the jurisdiction. Private debt fund launches have been prevalent and we are starting to see pure PE strategies launch but not to the same extent," comments O'Connor.
Loan origination changes
At the end of November, the Central Bank of Ireland announced that it was making a number of improvements to the Irish loan origination QIAIF; something that Matheson's Lovegrove says has "kick started" quite a bit of interest: "We are working on a number of projects currently."
Fox says that this decision was the result of two factors: firstly, the level of interest in the loan origination QIAIFs among investors and secondly, "we had engaged with the CBI to make some changes to the product requirements in order to make it more usable and flexible."
New Chinese RQFII quota
A final growth driver, which should augur well for Ireland is the announcement made last December that China had granted it a EUR6.89 billion quota under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme. This comes on the back of the CBI giving its imprimatur to Irish UCITS and AIFs that wish to invest through the Shenzhen-Hong Kong Stock Connect programme.
"Increased access to China with the RQFII, the amended Irish Limited Partnership and the changes made at the end of 2016 to the Irish loan origination QIAIF are all positive developments for the jurisdiction," concludes Fox.
