Introduction to the Funds Industry in Ireland.
Ireland is considered as a leading jurisdiction for investment funds and the wider international financial services sector. Ireland is the domicile for 5.9% of worldwide investment fund assets, making it the 3rd largest global center and the 2nd largest in Europe.
Ireland’s prominence in the investment funds industry is largely attributed to its efficient and robust regulatory environment which promotes market development and foreign investment while protecting the interests of investors. Ireland’s reputation as a tax-efficient and pro-business jurisdiction has resulted in over 1,000 fund promoters choosing Ireland to domicile / and or service their funds.
Authorisation of Irish Funds
Irish domiciled funds are regulated and authorised by the Central Bank of Ireland (Central Bank). The regulatory framework consists of Undertakings for Collective Investments in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). Funds domiciled in Ireland are categorised, from a regulatory perspective, by the type of investor who may invest in them; retail or institutional.
UCITS are a highly regulated retail product with liquidity constraints, strict investment and borrowing rules and concentration limits concerning investments in any one issuer. The principal advantages of a UCITS structure are the strength of the UCITS brand and a UCITS’ “passport” which allows it to be marketed with limited restrictions across the EU once authorisation has been received in one EU country.
All investment funds which are not UCITS are referred to as AIFs. AIFs can be established in Ireland as Retail Investor Alternative Investment Funds (RIAIFs) or for more sophisticated investors, as Qualifying Investor Alternative Investment Funds (QIAIFs). QIAIFs have a minimum subscription of €100,000 and can avail of the Central Bank’s 24-hour fast-track approval process. AIFs are not subject to the same leverage limits and investment and borrowing restrictions as their UCITS counterparts and thus provide greater flexibility to investors.
Legal Structures & Fund Vehicles
There are several legal structures available to investment funds domiciled in Ireland which can be used for UCITS and AIFs.
Central Bank Regulated Structures:
ICAV
The ICAV is an Irish investment fund vehicle established under the Irish Collective Asset-management Vehicles Act 2015 (as amended). The ICAV structure was specifically designed to reduce administrative costs and accordingly, is not subject to much of the company law and accounting rules that would usually apply to investment companies (but that are not relevant to collective investment schemes (CIS)). An ICAV is a separate legal entity and a suitable vehicle for both UCITS and AIFs. It can be used for both self-managed or externally managed and open-ended or closed-ended CISs. One of the most popular features of the ICAV is its ability to elect for classification under the US “check-the-box” taxation rules as a ‘flow through’ entity for US tax purposes.
Investment Companies
Investment companies are established as public limited companies under the Irish Companies Act 2014. They have a separate legal personality and a similar corporate structure to an ICAV. However, they lack the administrative benefits available under the ICAV legislative regime and have a requirement to spread risk. Consequently, these are now considered somewhat of a “legacy structure” and are very seldom used for new fund launches.
Unit Trust
This is a contractual fund structure established by a trust deed, entered into by the manager and trustee of the fund. The trustee also acts as the fund’s depositary. A unit trust has no separate legal personality, and the trustee is the legal owner of the assets of the trust on behalf of investors. Investors (or unitholders) hold units, which represent the beneficial ownership in the unit trust. A unit trust may be authorised as a UCITS (in which case it must be open-ended) or as a RIAIF or QIAIF which may be open-ended, open-ended with limited liquidity or closed-ended. Unit trusts are subject to Irish trust law and can dispense with the requirement to hold annual investor meetings. Unit trusts are popular in certain instances where investors can avail of favourable tax treatment in certain jurisdictions.
Common Contractual Fund (CCF)
Common Contractual Funds (CCFs) are established, like a unit trust, by way of a contract entered into between the manager and the depositary. Investors own the assets of the fund directly as “co-owners” and there is no separate legal personality. CCFs were established to enable, typically large foreign pension advisors, to avail of tax treaty relief in their home country.
Investment Limited Partnership (ILP)
An ILP is a Central Bank authorised AIF structure (which is not available to UCITS), that is established by way of a limited partnership agreement between general partners (GP) (the equivalent of shareholders) and a number of limited partners (LP). The LPs hold the assets of the fund directly (on behalf of the ILP) which enables them to avail of certain tax treaty reliefs. As an AIF, an ILP is subject to the European Union (Alternative Investment Funds Managers) Regulations 2013 (as amended) as well as the Central Bank’s AIF Rulebook. Following the amendment of the Investment Limited Partnerships Act 1994 under the Investment Limited Partnerships (Amendment) Act 2020, ILPs have become popular structures with private equity managers and venture capital firms.
Unregulated Structures:
1907 Limited Partnership
This is a partnership that is created under the Irish Limited Partnerships Act 1907. The partnership is created between one or more GPs and one or more LPs and is constituted by a limited partnership agreement. The management functions of the business are carried out by the GP and the GP or a nominee company will generally hold the assets on behalf of the 1907 limited partnership. 1907 limited partnerships are commonly used as underlying holding vehicles for regulated fund structures whereby the partnership holds the assets separate from those of the regulated structure.
A 1907 limited partnership can itself be a fund structure, albeit an unregulated one. The 1907 limited partnership is faster to establish and significantly cheaper to run than an ILP because the 1907 limited partnership and its GP each have a lighter compliance burden and the 1907 doesn’t require the appointment of a fully authorised AIFM or depositary. However, a 1907 limited partnership can only benefit from a pan-European marketing passport if the GP appoints a fully authorised AIFM or if the GP is registered under the EuVECA Regulation.
Section 110
Section 110 of the Taxes Consolidation Act 1997 of Ireland governs the tax treatment of certain entities that meet the criteria of being a “qualifying company”. Section 110 entities are generally established as designated activity companies (DACs) and transactions can be structured as “tax neutral”.
Often, these unregulated structures can prove a cost-effective investment vehicle to regulated funds. Establishing a limited partnership or section 110 company for a specific project allows a regulated fund to save on the cost of setting up and maintaining a new sub-fund.
Who are we?
William Fry have one of the largest dedicated asset management and investment funds teams in Ireland, representing over 650 Irish domiciled funds, and we are the sole legal advisors to 6 of the 10 largest fund structures by AUM domiciled in the jurisdiction, maintaining our long-standing ranking among the top legal advisors to Irish domiciled funds. A deep understanding and knowledge of the funds sector sets us apart in advising on fund finance transactions.
Working closely with our leading asset management and investment funds team, our finance team acts for borrowers and lenders on subscription facilities, capital call facilities, NAV facilities, liquidity facilities, hybrid facilities, margin lending transactions, fund acquisition financings, asset-backed fund financings and investment limited partnership financings.
For more information, please get in touch with Vincent Coyne, Niall Crowley, David O’Shea or your usual William Fry contact.
