Fund Finance In Ireland – An Overview Of Irish Fund Structures – Fund Finance

Introduction to the Funds Industry in Ireland.

Ireland is considered as a leading jurisdiction for investment
funds and the wider international financial services sector.
Ireland is the domicile for 5.9% of worldwide investment fund
assets, making it the 3^rd largest global center and the
2^nd largest in Europe.

Ireland’s prominence in the investment funds industry is
largely attributed to its efficient and robust regulatory
environment which promotes market development and foreign
investment while protecting the interests of investors.
Ireland’s reputation as a tax-efficient and pro-business
jurisdiction has resulted in over 1,000 fund promoters choosing
Ireland to domicile / and or service their funds.

Authorisation of Irish Funds

Irish domiciled funds are regulated and authorised by the
Central Bank of Ireland (Central Bank). The
regulatory framework consists of Undertakings for Collective
Investments in Transferable Securities (UCITS) and
Alternative Investment Funds (AIFs). Funds
domiciled in Ireland are categorised, from a regulatory
perspective, by the type of investor who may invest in them; retail
or institutional.

UCITS are a highly regulated retail product with liquidity
constraints, strict investment and borrowing rules and
concentration limits concerning investments in any one issuer. The
principal advantages of a UCITS structure are the strength of the
UCITS brand and a UCITS’ “passport” which allows it
to be marketed with limited restrictions across the EU once
authorisation has been received in one EU country.

All investment funds which are not UCITS are referred to as
AIFs. AIFs can be established in Ireland as Retail Investor
Alternative Investment Funds (RIAIFs) or for more
sophisticated investors, as Qualifying Investor Alternative
Investment Funds (QIAIFs). QIAIFs have a minimum
subscription of €100,000 and can avail of the Central
Bank’s 24-hour fast-track approval process. AIFs are not
subject to the same leverage limits and investment and borrowing
restrictions as their UCITS counterparts and thus provide greater
flexibility to investors.

Legal Structures & Fund Vehicles

There are several legal structures available to investment funds
domiciled in Ireland which can be used for UCITS and AIFs.

Central Bank Regulated Structures:

ICAV

The ICAV is an Irish investment fund vehicle established under
the Irish Collective Asset-management Vehicles Act 2015 (as
amended). The ICAV structure was specifically designed to reduce
administrative costs and accordingly, is not subject to much of the
company law and accounting rules that would usually apply to
investment companies (but that are not relevant to collective
investment schemes (CIS)). An ICAV is a separate
legal entity and a suitable vehicle for both UCITS and AIFs. It can
be used for both self-managed or externally managed and open-ended
or closed-ended CISs. One of the most popular features of the ICAV
is its ability to elect for classification under the US
“check-the-box” taxation rules as a ‘flow
through’ entity for US tax purposes.

Investment Companies

Investment companies are established as public limited companies
under the Irish Companies Act 2014. They have a separate legal
personality and a similar corporate structure to an ICAV. However,
they lack the administrative benefits available under the ICAV
legislative regime and have a requirement to spread risk.
Consequently, these are now considered somewhat of a “legacy
structure” and are very seldom used for new fund launches.

Unit Trust

This is a contractual fund structure established by a trust
deed, entered into by the manager and trustee of the fund. The
trustee also acts as the fund’s depositary. A unit trust has no
separate legal personality, and the trustee is the legal owner of
the assets of the trust on behalf of investors. Investors (or
unitholders) hold units, which represent the beneficial ownership
in the unit trust. A unit trust may be authorised as a UCITS (in
which case it must be open-ended) or as a RIAIF or QIAIF which may
be open-ended, open-ended with limited liquidity or closed-ended.
Unit trusts are subject to Irish trust law and can dispense with
the requirement to hold annual investor meetings. Unit trusts are
popular in certain instances where investors can avail of
favourable tax treatment in certain jurisdictions.

Common Contractual Fund (CCF)

Common Contractual Funds (CCFs) are established, like a unit
trust, by way of a contract entered into between the manager and
the depositary. Investors own the assets of the fund directly as
“co-owners” and there is no separate legal personality.
CCFs were established to enable, typically large foreign pension
advisors, to avail of tax treaty relief in their home country.

Investment Limited Partnership (ILP)

An ILP is a Central Bank authorised AIF structure (which is not
available to UCITS), that is established by way of a limited
partnership agreement between general partners
(GP) (the equivalent of shareholders) and a number
of limited partners (LP). The LPs hold the assets
of the fund directly (on behalf of the ILP) which enables them to
avail of certain tax treaty reliefs. As an AIF, an ILP is subject
to the European Union (Alternative Investment Funds Managers)
Regulations 2013 (as amended) as well as the Central Bank’s AIF
Rulebook. Following the amendment of the Investment Limited
Partnerships Act 1994 under the Investment Limited Partnerships
(Amendment) Act 2020, ILPs have become popular structures with
private equity managers and venture capital firms.

Unregulated Structures:

1907 Limited Partnership

This is a partnership that is created under the Irish Limited
Partnerships Act 1907. The partnership is created between one or
more GPs and one or more LPs and is constituted by a limited
partnership agreement. The management functions of the business are
carried out by the GP and the GP or a nominee company will
generally hold the assets on behalf of the 1907 limited
partnership. 1907 limited partnerships are commonly used as
underlying holding vehicles for regulated fund structures whereby
the partnership holds the assets separate from those of the
regulated structure.

A 1907 limited partnership can itself be a fund structure,
albeit an unregulated one. The 1907 limited partnership is faster
to establish and significantly cheaper to run than an ILP because
the 1907 limited partnership and its GP each have a lighter
compliance burden and the 1907 doesn’t require the appointment
of a fully authorised AIFM or depositary. However, a 1907 limited
partnership can only benefit from a pan-European marketing passport
if the GP appoints a fully authorised AIFM or if the GP is
registered under the EuVECA Regulation.

Section 110

Section 110 of the Taxes Consolidation Act 1997 of Ireland
governs the tax treatment of certain entities that meet the
criteria of being a “qualifying company”. Section 110
entities are generally established as designated activity companies
(DACs) and transactions can be structured as “tax
neutral”.

Often, these unregulated structures can prove a cost-effective
investment vehicle to regulated funds. Establishing a limited
partnership or section 110 company for a specific project allows a
regulated fund to save on the cost of setting up and maintaining a
new sub-fund.

Who are we?

William Fry have one of the largest dedicated asset management
and investment funds teams in Ireland, representing over 650 Irish
domiciled funds, and we are the sole legal advisors to 6 of the 10
largest fund structures by AUM domiciled in the jurisdiction,
maintaining our long-standing ranking among the top legal advisors
to Irish domiciled funds. A deep understanding and knowledge of the
funds sector sets us apart in advising on fund finance
transactions.

Working closely with our leading asset management and investment
funds team, our finance team acts for borrowers and lenders on
subscription facilities, capital call facilities, NAV facilities,
liquidity facilities, hybrid facilities, margin lending
transactions, fund acquisition financings, asset-backed fund
financings and investment limited partnership financings.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.