“Céad Mile Fáilte” is an often-used Irish expression that means a “hundred thousand welcomes” and is the standard salutation to foreign visitors to the Emerald Isle. Following several years of industry advocacy and consultation — not to mention a couple of false alarms — the Irish Government recently approved the text and publication of the Investment Limited Partnerships (Amendment) Bill 2020 (the Irish ILP Bill), which many hope will allow Ireland to extend its traditional welcome to many more global private equity, private debt, and real estate funds. The Bill adds to an already compelling proposition for global asset managers with stakes in the region as well as those managers eyeing Ireland as a fund domicile.
While generally welcomed by many, this latest enhancement to the Irish domicile toolkit presents a very exciting opportunity to global private market asset managers since it is framed to incorporate “best of breed” structural elements from other leading alternative fund domiciles. The Bill greatly enhances Ireland’s position to facilitate investment across the private markets from private equity and debt to real estate and infrastructure. Limited partnerships are the most common vehicle type for the fast-growing private market funds industry, so far dominated by Cayman Islands, Channel Islands, UK, and most recently, Luxembourg. Demand is shifting towards regulated jurisdictions as the investor base is now dominated by institutional investors. Indeed, one US-based private equity manager recently suggested that completion of the Irish ILP Bill would be a “gamechanger” for their product development plans and greatly enhance their ability to target distribution to EU institutional investors.
On Monday, September 21, the Irish Department of Finance confirmed that the Irish ILP Bill has been approved by the Irish government. The Bill is now scheduled to go before the upper house of the Irish Parliament, the Seanad, on Wednesday, September 23 for approval before being passed to the Irish President for signing into law.
Limited partnerships (LPs) have existed in Irish law since 1994, but the specifics of Irish law meant that many laws were not considered “fit for purpose” in an investment context, leaving Ireland somewhat at a competitiveness disadvantage. This revision provides flexibility and permissions akin to international best practices and alleviates many of those prior concerns.
This legislation brings several welcome changes that may help further Ireland as 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 Bill from the existing 1994 LP legislation includes:
- 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.
Why is this significant?
Put simply, the Irish ILP Bill enhances the options available to global asset managers in Ireland in terms of fund domiciliation. While viable options for private equity, private debt, and real estate vehicles already exist for managers (e.g.: ICAV, 1907 Unit Trusts), most global asset managers and general partnership’s (GPs) prefer to constitute their investment vehicles as LPs. The continued absence of a suitable ILP framework has been a competitive disadvantage for Ireland as a funds’ center compared to elsewhere, and there is a lot of pent up demand which can now be satisfied with this development.
It is also significant since Ireland has some specific legal advantages for US and UK asset managers and general partnerships. It’s also worth noting that Ireland is a “common law” jurisdiction, which presents synergies for other common law jurisdictions. For instance, common law jurisdictions such as the US, UK, Hong Kong, and Australia often prefer to establish their investment funds in a common law jurisdiction since many are already comfortable with the construct and culture of doing business under this legal structure. Following the departure of the UK from the EU following Brexit, Ireland will remain the leading EU fund domicile which utilizes common law. This makes Ireland a highly attractive location for investment managers from common law jurisdictions who wish to structure investment vehicles as limited partnerships.
What else needs to happen before Irish ILP funds can be launched?
The legislation is crucially important, but it is also necessary that the Central Bank of Ireland (CBI) constructs an authorization and supervision framework which supports the ILP laws. So far, the CBI has been a key stakeholder to the development of the ILP Bill and have previously committed to build the necessary authorization and supervisory framework which will serve to support the core ILP legislation. The Bill also incorporates a number of anti-money laundering (AML) and beneficial ownership transparency requirements as money laundering and tax avoidance remain under intense regulatory scrutiny across the globe. Market constituents – most notably Irish-domiciled PE funds – will continue to have dialogue with all regulatory stakeholders on the details, which will be an important factor in the final version. The devil is always in the details.
Where can I find more details on these Irish ILP updates?
Read our prior, more detailed paper on the Bill here (all points contained remain valid from before): Revised ILP – Worth Waiting For. We will also update the blog as new details and developments emerge.
Arrange a more detailed discussion on what this exciting update means for your business and Ireland as a private equity and private debt domicile by contacting one of our Alternative Fund experts in your region.
Ainun Ayub – London
Andrew Ritchie – London
Chris Adams – Luxembourg
Jeff Dorigan – Boston
Chris McChesney – Boston
Kevin Coughlan – Dublin
Chris Pigott – Hong Kong