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Irish Funds - Partnering for Growth

AUTHORs: Liam Collins Services: Asset Management and Investment Funds DATE: 24/05/2019

Last year was yet another record breaking year for the Irish funds industry and asset levels in funds domiciled in Ireland have now passed the €2.5 trillion milestone, with over 7,290 Irish domiciled funds in existence, 986 fund managers having established funds in Ireland from over 53 countries and Irish funds being distributed in over 90 jurisdictions.

These impressive figures have been achieved as a result of Ireland’s strong regulatory environment, service provider expertise and our product range in a dynamic and ever evolving international funds industry.

The introduction of the Irish collective asset-management vehicle, or ICAV, in 2015 was a very innovative and welcome development for the Irish fund structure range, and has proved massively popular and successful, becoming the “go-to” vehicle for asset managers establishing Irish funds. Now it is time to focus on enhancements to another of our fund vehicles, the investment limited partnership (the “ILP”).

An ILP is a partnership vehicle established pursuant to the Investment Limited Partnerships Act 1994 and provides a Central Bank of Ireland regulated partnership structure for asset managers seeking to establish an Irish domiciled fund. The ILP is constituted pursuant to a limited partnership agreement between a general partner and the limited partner investors in the ILP.

Proposed reforms to the ILP are expected in 2019 in order to secure the Irish funds industry’s continued growth and its position as the domicile for choice for asset managers looking to establish European investment funds.

Limited partnerships have long been the preferred vehicle for private equity and venture capital asset managers and investors globally, and the absence of a suitable ILP has meant that Ireland has not been able to benefit from the increasing desire amongst asset managers in these sectors to establish onshore, regulated structures. Limited partnerships are also commonly used in other alternative investment strategies and “real economy” investing such as infrastructure, real estate and renewable energy. Asset managers in these sectors will often have pre-existing non-European structures. However, post-AIFMD, with the availability of a EU wide marketing passport for alternative investment funds, and the increasing demand amongst investors, particularly institutional investors, for regulated products, there is a significant demand for parallel European-domiciled funds. In addition, shifting investment styles have led to an increase in combined strategies, with private equity mixing with other alternative investment strategies. Unfortunately, to date, Ireland has not been able to benefit fully from this demand due to shortcomings in the existing ILP and there are currently only five ILPs established in Ireland. While the previously mentioned ICAV can be, and has been, used for the establishment of private equity and venture capital funds, and can include many of the common features of such funds, the conventional structure recognised by managers of, and investors in, such funds is very much the limited partnership.

It is expected, however, that this year will see the long-awaited enhancement of the ILP legislation to enable Ireland to increase its attractiveness as a domicile for private equity and venture capital funds.

On 26 April 2019, the Irish Government launched “Ireland for Finance”; the new strategy for the further development of the international financial services (IFS) sector in Ireland to 2025. This strategy aims for Ireland to be a top-tier global location of choice for specialist international financial services.

"Ireland for Finance" builds upon "IFS2020", the previous IFS five-year strategy for the development of the IFS sector launched in 2015. Within this new strategy, the Irish Government has identified headline action items for 2019, which include the progressing of ILP reform legislation to support the development of the growth finance and funds industry in order to develop Ireland as a global location for private equity funds. The strategy sets a deadline of Q2 2019 in relation to this action item. In addition, the IFS2020 Action Plan 2019 states that this plan will focus on three priority areas for 2019, which includes ILP legislation in addition to Brexit and green and sustainable finance.

It is to be greatly welcomed that after significant engagement between Irish Funds and the Irish Government over the past number of years, the Irish Government have emphasised the priority of the ILP reform as part of their continued commitment to increasing Ireland’s competitiveness and growth as a funds domicile.

The draft legislation to introduce enhancements to the existing ILP structure has also been included in the Irish Government’s legislative programme as priority legislation for publication in the Summer Session 2019.

While such legislation will need to go through the parliamentary process, it is anticipated that the key reforms to the current legislation will include a number of changes to reflect “best-in-class” features of limited partnerships in other jurisdictions. It is expected that these changes will include amendments aimed at ensuring consistency between the ILP and the other Irish fund structures and alignment with AIFMD, clarifying provisions relating to the rights and duties of limited partners and general partners, and provisions allowing for ILPs to be established as umbrella funds with separate sub-funds.

The introduction of this reform will be a significant development for the Irish funds industry and reflects an industry which is constantly seeking to develop and grow, building on the positive experiences of the many promoters who have already established funds in Ireland.  The enhanced and rebooted ILP will further strengthen Ireland’s fund product range and increase Ireland’s competitiveness in the international fund space. It is hoped that this welcome enhancement to the range of available vehicles will provide further options to asset managers and will allow Ireland to become a real player in the private equity and venture capital space, leveraging off our existing specialist international funds experience.

First published at the Irish Funds Annual Global Funds Conference 23 May 2019