Ireland bids to attract private assets investment funds

Ireland’s improved ILP structure and central bank-approved depositary licensing scheme are expected to further enhance the country as a choice destination for private funds. Since securing a depositary license in May, we are perfectly placed to help managers take advantage of these opportunities.

Ireland’s reputation as a key destination for internationally distributed investment funds  – aided by  its open, transparent and well-regulated investment environment – has taken off in recent years on the back of the enormous transfer of capital into private markets.

As record low interest rates made fixed-income investing less appealing, they fuelled a boom in private equity deal-making, as firms could borrow more cheaply to fund acquisitions.

As a result, capital has flowed out of traditional assets into private assets. Assets under management (AUM) in private-market asset classes reached USD 15tn in 2019 – and are now growing at a 21% annual rate.

They grew nearly twice as quickly as public markets AUM, which saw a 6% growth over the same period, according to BCG’s Global Asset Management 2020 survey.

The Alternative Investment Fund Managers Directive (AIFMD), came into force in July 2011, setting high standards for alternative investment funds (AIF) across the Union and bolstering growth in the sector.

For alternative fund investors and managers, the framework enhanced investor protection and transparency, while harmonising rules across the EU.

AIFMD has been an enormous success since it became effective. According to the European Fund and Asset Management Association (EFAMA), there is more than EUR 7.7tn in AUM.

The growth in AIF has had a profound impact on established fund centres such as Ireland and Luxembourg. Luxembourg benefited from first-mover advantage thanks to its well-established fund and legal infrastructure.

Now Ireland aims to close the gap after introducing new structures specifically aimed at private and real asset investors in the AIF sector, including a Central Bank of Ireland-approved depositary licensing scheme.

AIFs in Ireland

Ireland has a track record as a key AIF domicile in the EU, with a sophisticated financial infrastructure that can support international investors and fund managers. It is also the only English-speaking EU jurisdiction with a common law legal system.

In 2021, AIFs in Ireland overtook Luxembourg for the first time since inception with just under EUR 1tn of assets, according to EFAMA monthly statistics.

However, until last year the country lacked a regulated structure that specifically catered for private asset funds.

But amendments to the Investment Limited Partnership (ILP) Act, which came into effect in February 2021, gave international private fund managers wishing to set up in Ireland access to a comprehensive set of flexible structures.

This new improved ILP structure is making Ireland a destination domicile for private assets. Its benefits include:

• LP safe harbours, which allow LPs to undertake certain actions without being deemed to take part in the management of ILP and will not lead to the LP losing its limited liability status
• Improved operation for managers and investors (including excuse-and-exclude provisions and stage investing)
• More straightforward capital withdrawals and distributions
• The ability to establish umbrella ILPs. This allows the manager to launch a multiple-strategy fund with sub funds encompassing private equity, debt and infrastructure under one umbrella
• The possibility of migrating a limited partnership to Ireland
• The ability to create European structures and distribute these funds to European investors via the AIFMD passport

The role of depositaries in Ireland

An ILP must appoint a depositary to provide safekeeping of the assets, oversight and cash monitoring services. The depositary must be based in Ireland and approved by the Central Bank of Ireland, which grants so-called Depositary of Assets Other than Financial Instruments (DAOFI) licences for this purpose.

This grants the right to act as a depositary for closed-ended qualified investors funds subject to AIFMD (QIAIF) and depositary-lite funds – non-European Economic Area AIFS marketed to European investors.

This covers a wide spectrum of asset classes and fund strategies, including private equity, debt, property and infrastructure funds.

Under AIFMD, entities that are not banks or financial institutions can act as depositaries for certain AIFs.

As a result, Luxembourg set up a new category of financial sector firms called Professional Depositary of Assets Other than Financial Instruments. Unlike the traditional UCITS and AIFMD depositaries that were also custodial banks, these entities are firms with private asset expertise that service private equity and real estate structures as their core business.

Ireland’s DAOFI license now allows private fund managers to use these specialist providers and their bespoke solutions for private equity and real estate services.

Along with Ireland’s enhanced ILP regime, these highly specialised providers are expected to further enhance Ireland’s reputation as a location of choice for real-asset fund managers.

Why Intertrust Group?

Intertrust Group in Ireland recently secured a depositary licence, allowing us to provide a true one-stop shop for funds investing in private assets.

The licence enables us to act as a depositary for QIAIFs and depositary lite funds, over a wide spectrum of asset classes and fund strategies, including private equity, debt, property and infrastructure funds, as well as assets such as aircraft, ships and forestry.

We can now offer a holistic service, bundling together AIFM depositary, fund administration and capital markets – including special purpose vehicle (SPV) and loan administration – and corporate services as a one-stop-shop.

This gives us a unique position in the market in Ireland, underlining the continuing enhancement of our funds service.