A new structuring option for private funds in 2021

Ireland’s Investment Limited Partnership (ILP) has undergone a significant overhaul to enhance its features in line with limited partnership fund regimes internationally. The Investment Limited Partnership (Amendment) Bill (Bill), a reform bill to the Investment Limited Partnerships Act 1994, passed through the Dáil this week and can be expected to be enacted in early January 2021. 

The ILP will be a welcome addition to the fund structuring options for private fund sponsors looking to fundraise in the EU and beyond, and which compares well to alternatives elsewhere in the EU.

Outcome of Reform Process

The reforms under the Bill introduce several key enhancements to the ILP: 

• The ILP can be established as an umbrella structure such that it can have multiple sub-funds with statutory ring-fencing of liabilities. This presents a useful degree of flexibility to accommodate parallel vehicles or co-investment structures or to add additional strategies.
• The safe harbour/white list activities that a limited partner can be involved in without losing its liability shield have been modernised and extended.
• The limited partnership agreement can be amended by approval of a majority of limited partners or with the consent of the ILP’s depository, as opposed to consent of all limited partners. 
• Statutory recognition that customary limited partner default protections are not unenforceable solely on the basis that they may be penal in nature. 
• Streamlining of the process around capital withdrawals and distributions.
• A statutory process to facilitate migration of limited partnerships to Ireland.

An ILP must be authorised by the Central Bank, as either a retail AIF or as a qualifying investor AIF (“QIAIF”). The Central Bank is shortly introducing several helpful reforms to its AIF Rulebook to accommodate the classic elements of private funds. These include measures around differentiation of participation interests, stage investing, distribution waterfalls, carried interest and excuse/exclude provisions. In addition, the general partner of an ILP no longer needs to be specifically authorised or capitalised, but its directors will need to be approved as fit and proper by the Central Bank. 

Impact of ILP Reform

The conclusion of the ILP reform process should make the ILP an attractive option for private fund sponsors who are seeking to establish an investment fund in the EU with access to the AIFMD marketing passport.