Like a dark stout settling, good things come to those who wait. The Irish government recently published the Investment Limited Partnerships (Amendment) Bill of 2019 (the 2019 bill), which means private investors may have more of an incentive to plant their funds in Ireland. Why? The 2019 bill substantially overhauls the Investment Limited Partnership Act 1994 (the 1994 Act). This overhaul may present a ripe opportunity for US private equity managers to choose Ireland as their alternative fund domicile as it incorporates “best of breed” structural elements from other leading alternative fund domiciles such as Cayman and Luxembourg. For many, it was worth waiting for.
Ireland has a long history of legislating for limited partnership structures for investment funds. It has had regulated limited partnership laws since 1994 and unregulated limited partnerships since 1907 – that’s even before formation of the current Irish State! But today, Investment Limited Partnerships (ILPs) based in Ireland are rare. There are currently six registered Irish LPs. That’s despite the global success of ILPs as the preferred legal structure for collective investment vehicles for a broad range of alternative asset classes, and the fact that Ireland has been a longtime hub for alternative investment fund administration.
Private equity is a story of notable growth with a record level of $3.41 trillion total industry assets, according to Preqin’s 2019 report. This growth has been driven by investor demand driven by a struggle for yield versus funding gaps globally, a strong and growing institutional preference for regulated fund structures and increased volatility across public markets. Based on the Preqin growth estimates for regulated private equity funds, if Ireland could take just a 2.5% share of the private equity fund market into the domicile, this would equate to more than 350 funds.
For many years, Ireland has substantially lagged other competing fund domiciles for ILPs as its underpinning legislation for these fund vehicles has failed to keep pace with innovations made in other major global ILP centers, such as Luxembourg and Cayman. This known anomaly has long been the subject of debate amongst Irish fund industry participants and was seen as an element missing from the domiciles suite of fund offerings. The 2019 bill is one of the longest awaited, most anticipated publications, further adding impetus to Ireland as an already vibrant and growing funds domicile.
This legislation brings several welcome changes that may help make Ireland an attractive location for setting up regulated limited partnerships. ILPs are the generally accepted legal form for accommodating investment strategies such as private equity, real estate, and infrastructure or any strategy where investments are of a longer tenure, with infrequent liquidity, and capital often drawn down over a period of years.
The main changes contained in the updated bill include:
- Redefines “limited partner” to allow for different sub-categories for regulatory reasons such as voting rights, variability of fee treatment etc.
- Provides for concept of “majority limited partners” aligned with structures in competing domiciles providing flexibility so that an ILP can specify a majority by number, value or unit class to differentiate them from minority holders.
- Confirms ability to establish ILPs as umbrella funds with segregated liability between sub-funds.
- Power to register the ILP in an alternative foreign name to help with the operation of an ILP in a non-English speaking jurisdiction (such as China or Japan for example) to have official recognition of the translated name in that jurisdiction.
- Allows for a statutory novation of assets and liabilities on the substitution of a General Partner (GP) without further formalities.
- More relaxed rules and requirements on capital withdrawals, such as, removal of requirement for the GP to certify that the ILP may pay its debts in full after the capital withdrawal.
- Removal of requirements for all partners to consent in writing to amendment of the Limited Partnership Agreement.
- Matching provisions for capital contributions and return of capital by limited partners to legislation for other types of Irish regulated fund vehicles as well as limited partnership law in other major fund jurisdictions.
- Far greater permissions for parties to agree specific terms applying in their limited partnership agreement.
- Generally amending terminology to align with AIFMD and all other governing fund legislation applying in Ireland.
The Irish Attraction
There are several reasons why the Irish ILP may be attractive to global alternative asset managers, but especially to US and UK managers. These include:
- The Irish ILP is a regulated common law partnership structure whose legal form is almost identical to that of the UK, Cayman, and Delaware making it intuitive for US and UK managers.
- Irish ILPs can avail of the Alternative Investment Fund Management Directive (AIFMD) pan-EEA cross-border marketing passport to sell to investors across the EU. This is important to both US and UK managers as an AIFMD third-country passport has still not been granted to non-EU funds and in a post-Brexit situation, UK LPs will lose their AIFMD passporting rights.
- The ILP has no legal personality since it acts through the GP. That means the Irish ILP is eligible to be treated as tax transparent for Irish tax purposes making it attractive for tax exempt underlying investors on par with the Irish Common Contractual Fund (CCF).
- It can be structured as a Qualifying Investor AIF (QIAIF) or Retail Investor AIF (RIAIF) which allows flexibility in the types of investors that funds can access using the ILP structure,
- ILPs may be established as part of a global master/feeder, co-investment, or joint venture structure and use a full suite of underlying special purpose vehicles and subsidiaries.
- There are a wide range of “white list” activities that limited partners may engage in without affecting limited liability status.
- There are wide ranging tax exemptions available as well as the LP ability to access the extensive double taxation treaty network between Ireland and several global jurisdictions.
- Ireland is fully compliant with international transparency obligations such as FATCA, OECD Common Reporting Standards (CRS), as well as the highest standards of data privacy and KYC/AML laws.
- QIAIFs are not subject to statutory risk-spreading obligations so fund may hold a single asset as required.
- ILP is eligible to avail of the Central Bank of Ireland’s enhanced 24-hour authorization process.
While there is huge excitement building about the ILP bill’s progression, the timeline for actual conclusion and implementation remains somewhat unclear. Per the prevailing rules, the 2019 bill remains subject to further parliamentary review and may be amended further before being ultimately signed by the President. Regardless, it does appear that it won’t be too much longer before the Irish funds industry is served up what it has desired for many years. Slainte!