The Central Bank of Ireland (Central Bank) has clarified the restrictions on Irish Qualifying Investor Alternative Investment Funds (QIAIFs) providing third-party guarantees.

Background

Irish funds authorised as QIAIFs are subject to the Central Bank’s Alternative Investment Fund Rulebook (Rulebook). The Rulebook provides that QIAIFs shall not grant loans or act as a guarantor on behalf of a third party. Although the term ‘guarantor’ is not defined in the Rulebook, it is commonly understood that QIAIFs cannot guarantee or provide security for the obligations of a third party.

Central Bank Update

On 7 March 2025, the Central Bank published a revised version of its AIFMD Questions and Answers (Q&A). Following industry consultation, the Central Bank has clarified the ability of a QIAIF to act as a guarantor for third parties.

The Central Bank confirmed in the Q&A, among other things, that a QIAIF can provide a guarantee in respect of investments/or intermediate vehicles for such investments in which the QIAIF has a direct or indirect economic interest provided that:

1. The AIFM is satisfied that such guarantee arrangements are in the best interests of both the QIAIF and its investors and are ancillary to the QIAIF’s predominant investment strategy.
2. The AIFM (or, in the case of a non-Irish AIFM or registered AIFM, the authorised QIAIF) and the QIAIF’s depositary confirm that the proposed transaction is at arm’s length and in the best interest of the investor.
3. The prospectus discloses to investors that the QIAIF can provide a guarantee in respect of investments and/or intermediate vehicles for such investments in which the QIAIF has a direct or indirect economic interest, along with any associated material risks.
4. The liability of investors in the QIAIF under such arrangements (above the value of their current holdings of shares or other interests in the QIAIF) shall be limited to the amount, if any, unpaid on the shares or other interests held by them which shall include, in the case of a QIAIF that raises capital under a formally agreed capital commitment basis, the amount of the undrawn capital commitments per the prospectus and the constitutional document of the QIAIF.
5. The QIAIF complies with provisions of Central Bank AIFMD Q&A ID 1159.
6. The AIFM must comply with the relevant requirements under AIFMD as applicable in relation to leverage and its risk management, including regularly conducting stress tests and other applicable requirements of AIFMD, which must cover market risks and any resulting impact, including on-margin calls, collateral requirements, and credit lines.

What does this mean?

The clarifications in the revised Q&A are particularly helpful in the context of fund finance transactions. If the relevant conditions are satisfied, QIAIFs can provide direct guarantees and security for certain third-party obligations, offering a welcome alternative to complex cascading pledge arrangements. This also aligns the Irish regulatory position with other fund jurisdictions.

As with any fund finance transaction, extensive due diligence of the fund documents will be first required to ensure that the conditions in the revised Q&A are satisfied. William Fry has extensive experience in fund finance transactions, and our cross-departmental team is well-equipped to handle the intricacies of different transaction structures.

Please reach out to William Fry for more information.

Contributed by David O’Shea.