The path has been laid for investment advisers to benefit from Ireland’s Investment Limited Partnership (ILP) structure when launching private assets funds. Many players in the private equity space do not currently have a fully scoped MiFID license which might have precluded them historically from making use of certain structures. But this barrier has been broken as it relates to the ILP, even though investment advisers must remain mindful of their choice of service providers.
The path has been laid for investment advisers to benefit from Ireland’s Investment Limited Partnership (ILP) structure when launching private assets funds. Many players in the private equity space do not currently have a fully scoped MiFID license which might have precluded them historically from making use of certain structures. But this barrier has been broken as it relates to the ILP, even though investment advisers must remain mindful of their choice of service providers.
Vanora Madigan, executive director, Waystone, details the firm’s experience in this area, having been one of the first, if not the first, to have a fund with an investment adviser appointed as part of the structure which was approved by the Central Bank of Ireland.
Launching a fund involves many moving parts which include the various service providers, the depository, auditors, general partners and limited partners. One of these elements is also the discretionary asset manager. Madigan outlines: “In the PE world, many managers might not have a full MiFID license, so they are classified as investment advisers. We understand we were one of the first, if not the first, AIFM to successfully launch an ILP with an investment adviser, having had the structure authorized by the CBI.”
The experience means Waystone now knows what the central bank focuses on when considering these funds for approval.
“They looked at the taxonomy of responsibility and how that was split out between the different roles each party plays. For instance, Waystone was acting as the investment manager in this fund. This means the investment adviser would put forward recommendations in terms of which assets and which deals to invest. The CBI also examined the fee structure very closely, how this was being split and the rationale behind it,” Madigan explains.
She also highlights the attention given to the role of the Alternative Investment Fund Manager (AIFM), since in this case Waystone was acting as the fund’s external AIFM: “Typically, the investment adviser would review the expertise and track records of the PE investments, but the AIFM certainly has a role to play in this structure. Having this AIFM experience and expertise was critical in getting this fund authorised by the central bank.”
The fund Madigan is referring to, was the first of its kind but she believes it has now opened the road for more investment advisers who may not have a full MiFID licence but are looking to launch ILP funds in Ireland. “The pre-submission and pre-engagement phase was also key in the process and the CBI was satisfied on our role and the substance, resourcing and expertise as AIFM,” she observes.
Madigan further underlines the role Waystone plays in the process: “We’re very comfortable in being able to provide this service to other investment advisers. When considering such a fund for launch, the central bank not only looks at the investment adviser itself but it will also focus on the AIFM. So, although the investment adviser is responsible for the selection of assets, the AIFM needs to retain complete control to proceed with those investments and investment recommendations.”
Good fit for ESG
The ILP structure is also a good fit for new PE, infrastructure and green energy projects. “Looking at our pipeline since March last year, we can see that new funds being launched have a focus on SFDR classified article 8 (light green) or 9 (dark green) funds,” Madigan notes, referring to the fund classification according to the EU’s Sustainable Finance Disclosures Regulation.
There is a huge focus on ESG and sustainability and the ILP can help support this demand. Globally, over 100 LPs and GPs have signed up to the ESG Data Convergence Project which shows the commitment to these matters and, in Madigan’s view, highlights the importance of the data part of the equation.
“It’s one thing having the documents stating what a fund is doing in terms of sustainability, but making sure you can show and monitor these investments is critical. This is part of our role; monitoring and confirming that those funds are indeed compliant with those designations,” she says.
The objective of the project, which includes large institutional investor signatories like The California Public Employees’ Retirement System (CalPERS), is to streamline the private equity industry’s historically fragmented approach to collecting and reporting ESG data in order to create a critical mass of material, performance-based, comparable ESG data from portfolio companies.
“This will allow GPs and portfolio companies to benchmark their current position and accelerate progress toward ESG improvements, which the group believes drives better financial outcomes. This will also enable greater transparency and provide more comparable portfolio information for LPs,” a press release for the project details.
Sustainability and ESG are on the minds of many investors and as managers in US gain ground in this area to catch up with their European counterparts, the ILP can serve them well in supporting their efforts to shore up their sustainability profile.
Madigan outlines: “The regulation in Europe is going to affect US managers indirectly – it will impact those managing European funds or wanting do sell their funds into Europe. Therefore, in terms of distribution, Ireland as an English speaking jurisdiction under common law is a key and important gateway for those players, especially those whose European home was previously London. Ireland can serve to centralising distribution and also support them in classifying their funds according to European regulation.”
Although more managers are now launching Article 8 and Article 9 funds, Madigan notes this move to reclassify Article 6 funds into those categories: “This exercise involves a lot of work to ensure managers have the correct policies in place and that the manager has the capabilities to integrate sustainability into investment decision making and risk profiling. As AIFM we work with our clients including calls with our ESG advisory experts to assist these managers to offer funds with sustainable investment objectives to meet their investor demand.
“There is still much to be done, especially on the data side in ESG and sustainability but these developments are all steps in the right direction.”
Vanora Madigan, Executive Director, Waystone
As an Executive Director within the relationship management and client solutions team of Waystone Management Company (IE) Ltd., Vanora provides corporate governance advice leading and developing business relationships including the design and implementation of internal controls and operating procedures associated with regulated investment funds.
