Once the appropriate investment fund vehicle is decided on (see our article here for further information), the investment fund will have to make a number of structural decisions.

An investment fund in Ireland is typically established as an umbrella fund – a fund which is divided into sub-funds with segregated liability. Each sub-fund will pursue its own unique investment strategy, have its own distinct liquidity profile and will constitute a separate pool of assets and liabilities. The sub-funds will though use largely the same service providers and offering documents. This will lower the costs involved in establishing and operating the sub-funds. Each sub-fund may have different share classes which, in the case of closed-ended funds, offers the possibility of: (a) allocating profit, loss and capital of certain assets to certain share classes only; (b) accommodating excuse or exclude investor requirements; and (c) creating management share classes. A sub-fund may also pursue a master-feeder investment strategy where the sub-fund will invest all of its assets in a ‘master’ fund.

QIAIFs

The qualifying investor alternative investment fund or QIAIF is the most commonly used structure when establishing a private fund in Ireland regardless of the investment strategy, i.e. real estate, private credit or private equity.

QIAIFs are not subject to investment restrictions, risk diversification requirements or borrowing and leverage limits. They are subject to a favourable tax regime which provides that QIAIFs are not subject to Irish tax on their income or gains. Similarly, non-Irish investors will not have withholding tax applied to their dividends or gains. QIAIFs also benefit from the QIAIF ‘brand’ and marketing passport when they are managed by an EU based Alternative Investment Fund Manager authorized by the relevant national competent authority.

Choosing a QIAIF structure

A QIAIF may be established as a plc, unit trust, ICAV or ILP. ICAVs and ILPs are the most common Irish regulated structures on fund finance transactions. ICAVs and ILPs that are structured as QIAIFs will have the following characteristics:

• No requirement to spread risk
• No investment restrictions (save for investment in unregulated funds).
• No borrowing or leverage limitations (other than for loan origination funds).
• Segregated liability among sub-funds.
• Can be closed-ended, open-ended or open-ended with limited liquidity.
• Cannot provide guarantees in respect of or secure the obligations of third parties.

ICAVs vs ILPs

The ICAV remains the corporate vehicle of choice for newly established QIAIFs and is most commonly used on fund finance transactions. However, the ILP is growing in popularity as:

1. the ILP is more flexible in terms of the ease with which investor preferences and cornerstone investor demands can be accommodated using side letters to the limited partnership agreement;
2. recent reforms to the ILP Act have now repurposed the ILP to match up with comparable options in other private fund domiciles such as the Cayman Islands, Delaware or Luxembourg; and
3. the ILP has an additional layer of product regulation as a CBI authorised AIF and thus may be more attractive to certain investors that the unregulated limited partnership options available in other jurisdictions.

For more information, please get in touch with Vincent Coyne, Niall Crowley, David O’Shea or your usual William Fry contact.

Contributed by Aoibhín Kelly.