Ireland’s Investment Limited Partnership Reform – The Future Looks Bright
16 March 2021 - Ireland is poised to become the jurisdiction of choice for managers pursing private equity, real estate, private credit/debt and other real asset strategies following the adoption of a new regulatory framework set out in the Investment Limited Partnerships (Amendment) Act 2020 (the Act).
The Act is intended to modernise Ireland’s existing legal framework applicable to regulated investment limited partnerships (ILPs) bringing it in line with comparable partnership vehicles available in other leading fund jurisdictions.
What is an ILP?
An ILP is a common law partnership structure that is subject to regulation by the Central Bank of Ireland (the CBI) in accordance with the provisions of the CBI’s AIF Rulebook. An ILP may be authorised as a qualifying investor alternative investment fund (QIAIF) or a retail investor alternative investment fund (RIAIF), with the QIAIF being the most popular due to the great flexibility it allows in terms of asset types, leverage and liquidity. The QIAIF also benefits from the CBI’s fast track 24-hour authorisation procedure.
Key Enhancements to the ILP
The Act provides a number of positive changes including the:
- Ability to structure an ILP as an umbrella fund with limited liability among sub-funds. This provides managers with significant structuring flexibility allowing for separate strategies or investor types to be accommodated in different sub-funds of the same umbrella rather than having to establish stand-alone ILPs for each;
- Introduction of an enhanced list of ‘safe harbour’ provisions to permit LPs to undertake certain actions without being deemed to be taking part in the management of the ILP. This is a welcome clarification in terms of the scope of LP activities that can be undertaken without the risk of losing the benefit of limited liability;
- The removal of the requirement for unanimous approval to amend the LPA. The Act also allows for certain amendments to proceed without LP approval where the depositary certifies that the changes do not prejudice the interests of LPs; and
- The possibility for ILPs to be migrated into and out of Ireland by way of continuation, which provides scope to redomicile existing partnerships without significant impediments.
Following on from a consultation published in November 2020, the CBI has issued its guidance in relation to permissible features of closed-ended QIAIFs. CBI has confirmed that a closed-ended QIAIF will be permitted to establish differentiated share classes to reflect one or more of the following features:
- The issuance of interests at a price other than NAV (without the prior approval of the CBI);
- Management participation;
- Stage investing; and
- ‘Excuse and exclude’ provisions.
In addition, the CBI also confirmed in a recent Q&A that it will not require the GP of an ILP to be separately authorised. This is a welcome change as it removes the regulatory requirement for a GP to maintain €125,000 minimum capital at all times. The directors of such GP will be subject to the CBI’s fitness and probity regime.
The aforementioned enhancements are aimed at ensuring that Ireland has a ‘best-in class’ regulated partnership vehicle building on Ireland’s position as the domicile of choice for asset managers wishing to establish private funds.
By Fidelma Walshe, Senior Legal Counsel, Citco Fund Services (Ireland) Ltd.