By A Paris – When the Alternative Investment Fund Managers Directive was enacted, there was talk of AIFMD becoming a brand to rival UCITS. The latest enhancements to the Investment Limited Partnership (ILP) structure in Ireland may well oil the wheels in the journey to making this a reality.
Following the initial frosty reception of the AIFMD, the fund industry has grown increasingly comfortable with the regulation. This happened concurrently with the dramatic rise in institutional investors’ needs around transparency and disclosure.
Paul Whelan, CSC Global managing director, head of depositary services, comments: “AIFMD is becoming a more recognised brand. UCITS is well known in the retail space on the mutual fund side. Although AIFMD is not yet up to the level of UCITS, it has and will become a more powerful brand. Investors recognise this now and are often specifically looking for an AIFMD regulated manager.”
The ILP gives managers the opportunity to offer investors a regulated product built to cater for private and real assets, investment areas which are expanding in the current environment. The structure is essentially an AIF under AIFMD, which will need to appoint an AIFM for the investment management of the fund. If a European AIFM is appointed, then the ILP will be able to benefit from the AIFMD marketing passport.
Momentum is continuing to build behind the AIFMD brand and industry experts believe the ILP can be considered to represent a tipping point, with Ireland at the centre. This new structure can encourage managers outside Europe to set up a fund in Ireland, driven by the promise of a strong yet pragmatic regulatory approach.
“The introduction of the ILP has meant managers who previously considered the Irish regime but did not have access to the ideal legal structure now have an additional option to set up a world-class private equity, credit, real asset or closed-ended sustainable finance fund in Ireland,” observes Peter Stapleton, head of the Funds & Investment Management team at Maples and Calder, the Maples Group law firm.
Colin Farrell, partner, PwC Ireland notes: “The updates to the ILP regime significantly enhance Ireland’s product suite for private fund managers at a time when tailored investment structuring is of paramount importance.”
In a newsletter, partners at Walkers point out: “While the statistics paint a very positive picture, the reality is that Ireland has fallen behind its counterparts in relation to its offering to private equity stakeholders. While the ICAV has proven to be a very successful introduction to the Irish fund product offering, it has not captured the attention of private equity managers and investors, who are familiar with, and have always had a preference for, limited partnership structures. The absence of a ‘fit-for-purpose’ partnership vehicle is considered by many to be the biggest gap in Ireland’s current financial services offering.”
The ILP is considered by many to fill this gap.
A familiar structure
A further incentive for managers to use the ILP is the familiarity it provides for those hailing from countries like the US, Canada and Australia. Stapleton outlines: “There’s a significant appetite for a common-law product that looks and feels like what managers have used in other global domiciles before. The ILP is going to fit very nicely into that category and continue to grow under the AIFMD brand. There is a strong likelihood that the two will go hand in hand and the success of one will augment the chances of success of the other.”
“The ILP shares characteristics with the commonly-used, tax transparent Delaware or Cayman structures. Given that Ireland is a common law country – the only such country in the EU post-Brexit – it is anticipated that the ILP will particularly appeal to fund promoters and managers in other common law countries, such as the US, UK, Hong Kong and Australia,” write Conor Houlihan and Sean Murray, both partners at DLA Piper.
BNY Mellon underscores that Ireland’s amended ILP structure enhances its flexibility and brings the Irish ILP offering up to the standard of other leading European jurisdictions. “Combined with Ireland’s existing favourable legal characteristics, ILP reform should make Ireland a more attractive place for alternative asset funds to raise capital over the long term. In addition, US investment managers that are familiar and comfortable with the ILP structure in locations such as the Cayman Islands and Delaware will now be able to leverage Irish ILPs’ tax transparency and the large range of tax treaties that Ireland has with other countries,” the firm says.
In addition, Dermot Finnegan, global head of private markets administration at BNY Mellon continues: “The legislative changes are a welcome arrival aligning Ireland with other domiciles and their current approaches, giving it the opportunity to become the domicile of choice for private asset vehicles.”
Outlook for growth
In January 2021, PwC estimated that around 150 international asset managers who already manage funds in Ireland will be taking advantage of the new ILP structure.
The outlook across the industry is positive. Imelda Shine, managing director Ireland – Intertrust Group, comments: “We expect that the ILP amendments will drive strong activity across the new year. It makes Ireland a highly attractive jurisdiction for private capital asset managers – especially those based in the UK, US, Europe and Asia.
“The new legislation will result in further private investment fund structures being set up in Ireland. The country’s already a leading jurisdiction for both domiciled and non-domiciled funds – Ireland administers 40% of the world’s alternative investment funds, for instance – but this new legislation could see that number rise significantly.”
Further, as investor appetite for private assets and infrastructure funds continues to ramp up, PwC’s Farrell discusses the demise of the one-size fits all solution. He says: “Going forward, asset managers and their advisers will need to take a more holistic approach to structuring investment platforms and, in doing so, critically assess and weigh up the pros and cons of each layer in the structure. The broader asset management infrastructure will need to have the flexibility to service these tailored solutions in an efficient and effective manner.
“The enhancement of the ILP means that Ireland has taken a very positive step in its continual evolution to meet the needs of an ever-changing market.”
