Ireland and Luxembourg are attractive to a variety of fund managers and offer advantages for fund managers entering the EU market for the first time.
Globally, alternative investment funds are growing rapidly, including strategies like private equity, real estate, debt, infrastructure, and others. Two of the most popular European domiciles for funds are Ireland and Luxembourg. Both offer a good starting point for setting up funds and beginning distribution into Europe. They also offer access to a large and diverse market of 500 million consumers[1], one of the largest markets in the world, as well as the very stable investment framework required for investor protection. Excerpts from our recent webinar discuss why the markets are attractive and which fund structures are most popular for alternative funds.
Benefits of setting up a fund in Luxembourg
Luxembourg is strategically located in the heart of Europe, and with more than €5 trillion in net assets under management, it’s the largest investment fund center in Europe and the second largest in the world after the U.S. Luxembourg is also a major center for alternative asset classes with more than €1.8 trillion of assets managed by alternative fund managers[2].
It’s a large and diverse market that offers the stable framework necessary for investor protection. It has a robust environment not just from an economic perspective, but also in terms of an established infrastructure of legal, tax, and financial professionals to assist clients from multiple jurisdictions with setting up investment funds. Our guide to Luxembourg fund structures offers additional details about setting up a fund in Luxembourg.
Benefits of setting up a fund in Ireland
Ireland is the smaller, but fastest growing domicile and is internationally recognized as an open and tax efficient jurisdiction. It has the lowest headline corporate tax rate in the Organisation for Economic Co-operation and Development and has tax treaties with more than 70 countries. A leading domicile for more than 30 years, net assets in Irish domiciled funds reached €3.7 trillion in 2022, with €90 billion in net sales. According to the Central Bank of Ireland, 23% of Irish domiciled funds are alternatives[3]. Our guide to Ireland’s fund structures offers additional details about setting up a fund in Ireland.
What are the most popular fund types for private assets?
There are two prominent fund structures for private assets in Luxembourg. The Reserved Alternative Investment Fund (RAIF) was developed by Luxembourg authorities in 2016 to provide a type of alternative fund that combines some of the legal and tax features of existing regimes in an unregulated fund. It eliminates the need for prior authorization and oversight by the Commission de Surveillance et du Secteur Financier (CSSF) and allows for an authorized Alternative Investment Fund Manager (AIFM) instead. These funds are similar to specialized investment funds, and because they don’t require CSSF approval prior to launch allow a shorter time to market.
The Special Limited Partnership (SLP) is also known as société en commandite spécialé or SCSp. As with similar U.S. partnerships, the limited partner’s liability is limited to their contributed participation interest while the general partner is liable for commitments of the company on their private assets and property.
In Ireland, there are two fund structures that seem the most appropriate for private assets. The Irish Collective Asset Management Vehicle, the ICAV, and the Investment Limited Partnership, or ILP. Both are appropriate vehicles for private assets due to their flexibility and efficient structures. And they’re both tax efficient. Another advantage is both can be structured with a high degree of flexibility and customization – an important consideration for private funds.
Both ICAV and ILP structures are considered modern, progressive structures, with a high level of investment protection and transparency. This makes them particularly appealing to private asset managers for whom the complexity and liquidity of the assets can create additional risks.
Additional considerations for launching a European Fund
Once you’ve decided to launch, the process for establishing a fund in Europe can be straightforward, particularly in Ireland and Luxembourg. There are additional types of fund structures, and domiciles you may want to consider to successfully navigate the challenges of establishing a European fund.
Making careful and informed decisions about fund operations, structure, and domicile—along with choosing experienced partners from the beginning—will lead to a smooth launch of a European fund even for managers entering the market for the first time.
Interested in reaching European investors? Watch our webinar, as our experts discuss how to enter into this dynamic market. Learn more about our global solutions for fund managers here.
[1] https://trade.ec.europa.eu/access-to-markets/en/content/investing-eu