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ILP to boost Ireland as preferred domicile for private market limited partnerships

The Irish Investment Limited Partnership (ILP) structure has now been modernised with flexibility to rival its overseas counterparts. This enhanced vehicle fills the significant gap in the overall Irish Funds product suite and the revisions provide a good balance between regulation and versatility.

The Irish Investment Limited Partnership (ILP) structure has now been modernised with flexibility to rival its overseas counterparts. This enhanced vehicle fills the significant gap in the overall Irish Funds product suite and the revisions provide a good balance between regulation and versatility.

After several years of discussions with the financial industry and regulators, the Irish government passed the Limited Partnership (Amendment) Act 2020, which is arguably regarded as ‘the last piece in the puzzle’ for fund structures in Ireland.

“The ILP is particularly suited to hedge fund or private market clients,” notes Kevin Hogan Head of Product, Private Markets, EMEA, State Street Alternative Investment Solutions, “While the structure now has the flexibility to rival its Luxembourg, Cayman and Delaware LP competitors, we expect it will attract most initial interest from clients looking to enter EMEA for the first time.”

Hogan anticipates most interest to come from UK or US investment managers who are familiar with the Irish Regulatory environment via their traditional assets, wishing to avail of EU passporting rights. These players would require a common law environment, similar to their own, in which to operate and are confident that the Irish expertise in fund servicing coupled with English as a first language, will simplify the launch and ongoing relations with service providers.

This is a newly enhanced product and will take time to adopt. Hogan outlines: “We have many clients enquiring about the ILP and we have some clients live. However it is early days and the movement to the ILP has yet to gain proper momentum.

“Those using the product are very satisfied not just with the legal vehicle itself but also with the array of service providers supporting the launch. The ongoing client experience of dealing with the Irish Funds Industry including the strong but pragmatic regulatory approach demonstrated by the CBI has been positive.”

It takes time for the global investment community to research, choose, approve and adopt a new product any time one is launched so, in Hogan’s view, the initial challenges are likely to be marketing the ILP and introducing it to the consumer base. “Ireland has an impressive support infrastructure, specifically the service providers, legal firms, industry bodies and government agencies which have served as the main advocates for new products in the past. We expect the same in this situation and once established we expect the ILP will be widely adopted,” he says.

Established clients who use a Cayman, Delaware or a Luxembourg LP vehicle may be apprehensive in setting up again as an Irish ILP. Hogan explains: “This is a commercial decision and is not something within our control. However, the statutory facility enabling migration into Ireland as an ILP may assist in easing that move.”

Defining characteristics

Although it offers a certain level of flexibility, the regulatory regime governing the ILP monitors, provides independent oversight, identifies conflicts of interest, guarantees reporting, conduct, fitness and probity of directors. Further, the regime provides protection for investors.

“The ILP partnership vehicle has been available in Ireland since 1994, however it never gained any real popularity with the global investment managers and promoters of private markets funds (specifically private equity, private credit, real estate, infrastructure and real assets) chiefly because the ILP legislation did not keep pace with the development of similar Irish and foreign fund products,” Hogan points out.

However, the ILP now has a number of defining characteristics which make it competitive compared to its foreign counterparts.

Hogan explains: “The ILP umbrella structure now enables the establishment of multiple sub-funds launching underneath that umbrella. Each sub-fund will have segregated liability allowing them to operate as standalone investment vehicles in their own right, for example one could have a private equity, real assets, infrastructure and a private credit investment sub-funds all under the same umbrella but in four different investable pools. Clearly far more cost efficient than establishing a vehicle for each individual portfolio.”

The legislation also provides managers with the ability to rebrand or re-script the name of the ILP to allow for marketing in different jurisdictions, for example in non-English speaking countries including the likes of Japan or China with different text characters.

Further, ILPs structured as an AIF (QIAIF)s are not subject to legal risk spreading obligations making them suitable for concentrated portfolios. And, assuming all participants are already approved by the CBI an ILP can avail of the CBI 24-hour approval process.

Discussing other attributes of the ILP, Hogan notes: “The ILP facilitates common partnership allocation rules such as excuse and exclude, allows stage investing and permits management participation through ‘Carry’. Also, new beneficial ownership rules, such as a 25% threshold, for ILPs are now aligned with existing rules that apply to funds established as companies, ICAVs and unit trusts.”

Exciting developments

The ILP is an AIF under the AIFM Directive and AIFMD is now a brand which rivals UCITS. Hogan’s outlook for the growth in Ireland on the back of the ILP is optimistic. He expects to see significant momentum building and believes the ILP represents a tipping point where Ireland will be seen as a preferred domicile for private market limited partnerships going forward.

“As more investors have been on-shoring their investments, motivated often by tax implications, a regulated alternative is all the more attractive. Having some countries go on and off the European blacklist increases the need for regulated products in trusted jurisdictions.

“This is a tremendously exciting development for the hedge funds and private markets industry in Ireland. The jurisdiction already services 40% of the world’s alternative assets but lags behind in the servicing of private markets assets. With the monstrous growth seen in private equity, real assets and private credit/debt investment globally, and no signs of this slowing down, Ireland is perfectly positioned to capitalise on this directional move,” Hogan states.

Kevin Hogan, Managing Director, Head of Product, Alternatives EMEA, State Street
With over twenty-five years of experience in the funds industry, Kevin has held a number of senior and managerial positions at State Street, Northern Trust, Macquarie Group and RBC Investor Services. Kevin re-joined State Street in 2014 as a Head of Strategic Operations and subsequently COO for Private Markets in Europe with his responsibilities including the development of the EMEA and Global location strategy, Target Operating Model Deployment, leading the change management process and facilitating large client transition initiatives.

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