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The 1907 Limited Partnership fund structure: an unregulated alternative to the Irish LP

16 June 2023

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Ireland’s growing reputation as a jurisdiction of choice for private capital funds has led to new interest in the historic 1907 Limited Partnership. Sarah McNamara, Head of Sales EMEA, Ireland, and Rob Childs, Business Development Director, UK, look at its pros and cons.

In 2021, Ireland updated the Irish Investment Limited Partnership Act (ILP), making the structure far more attractive to professional investors in private markets.

The updated ILP has created a buzz around Ireland’s growing potential as a fund domicile for private capital. Historically, the country has been more associated with open-ended funds and public markets.

It has also shone new light on a long-standing fund structure called the Irish 1907 Limited Partnership (1907 LP) which, as the name suggests, has been in existence for over a century.

Like the ILP, the 1907 LP offers an LP/GP structure that is familiar to private market managers and investors.

But the 1907 LP serves a different market segment.

The difference between the Irish Limited Partnership and 1907 LP

In many respects, the structures of the ILP and 1907 LP are much the same. Both are established with one or more limited partners and a general partner (GP), and both are based on common law. Their tax treatments are equally transparent.

In addition, both structures might appeal to private capital managers investing in private equity, venture capital, private credit, real estate, infrastructure, and other real assets. Together, they serve the closed, illiquid end of the fund spectrum.

So why choose one over another? To a large extent, it comes down to regulation.

An ILP (and also the Irish Collective Asset-management Vehicle, or ICAV) is authorised and regulated by the Central Bank of Ireland, while the 1907 LP is an unregulated structure.

In practice, that makes it faster to establish and significantly cheaper to run, because the 1907 LP doesn’t require the appointment of an Alternative Investment Fund Manager (AIFM) or a depositary.

Most asset managers will appoint a fund administrator for a 1907 LP, but even this is a best practice consideration rather than a regulatory stipulation.

Limitations of the 1907 LP

The 1907 LP has speed, simplicity, and cost-effectiveness in its favour, all of which are products of its unregulated nature.

But unregulated structures are limited in what they can do. In the case of the 1907 LP, the most obvious limitation is a cap on the number of investors or Limited Partners (LPs). That is usually set at 20, but can be extended to 50 under certain conditions.

At the same time, the 1907 LP can’t act as an umbrella structure. In contrast, an ILP can be structured to have multiple segregated sub-funds.

If it seems likely that the number of LPs is going to exceed the cap, or if the GP wants to launch a new strategy, the simple solution is to establish a parallel 1907 LP to enable a new cohort of LPs to invest.

Whilst in its basic form, the 1907 LP is unable to benefit from pan-European distribution, it can in fact be upgraded by adding a layer of regulation. To do so, the GP would have to appoint an AIFM and a depositary to comply with the Alternative Investment Fund Managers Directive (AIFMD). Like an ILP, the 1907 LP can then avail itself of the pan-European marketing passport under AIFMD.

The 1907 LP and Ireland as a fund domicile

Adding a regulatory layer adds expense and complexity, and at that point many managers might consider the fully regulated ILP as a better option. Large, institutional investors often require the more comprehensive investor protection the ILP provides.

By contrast, the 1907 LP appeals to some professional investors willing to accept the trade-off between cost and oversight.

In all likelihood, the managers they invest in may be newer players building a reputation or specialists in niche asset classes. Assets under management (AUM) in a 1907 LP may typically be lower than an ILP. Once asset values reach a certain level, the ILP may become a more obvious option due to its broader appeal.

The 1907 LP isn’t a competitor to the ILP and is likely to have niche appeal. But it’s another piece of the jigsaw in Ireland’s quest to be a domicile of choice for private market funds.

The 1907 LP offers an unregulated private market structure with lower cost barriers to entry, which will appeal to some investment managers and their professional investors.

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