Well-established regulated and unregulated financing vehicles in Ireland help attract the broadest investor base.
Ireland has long been a jurisdiction of choice for U.S., UK and European private capital managers. The country benefits from a strong and stable government, EU access, and a wide network of double tax treaties. It has the necessary foundations for efficient regulatory and fund administration, including a strong service provider base and deep expertise in relevant areas including legal, tax, and technology.
There are also well-established investment vehicles to suit a wide range of fund managers and investors. In Ireland, these flexible financing platforms have helped fill the gap in bank lending since the 2008 financial crisis. At the same time, they meet the contrasting risk appetites of investors attracted by private credit’s consistently high yields.
Assets in private credit funds worldwide now total USD 1.6tn, a rise of 53% over the past five years—astonishing growth highlighted in CSC’s recent private credit white paper.
The reassurance of regulation for funds in Ireland
European investors are moving to private capital from more liquid markets, with hedge funds managing significant equity and credit portfolios. However, investors can sometimes be wary. Private capital locks up cash for long periods, and information on portfolio companies can be opaque. Many investors seek the reassurance of regulation.
In Ireland, that’s provided by the Irish Collective Asset-management Vehicle (ICAV) and the recently updated Investment Limited Partnership (ILP). The ICAV and ILP are regulated investment funds with a relatively straightforward establishment process. Both benefit from the Irish tax regime and an extensive tax treaty network. These are particularly attractive to U.S. investors because, as regulated investment funds, from a U.S. federal income tax perspective, they’re tax-transparent entities.
Furthermore, the Irish regulatory environment provides investors and managers with certainty and experience. Global managers have been establishing regulated structures in Ireland for many years. The ICAVs and ILPs are regulated by the Central Bank of Ireland under the AIF rulebook, and are subject to the provisions under AIFMD.
A direct-lending ICAV typically qualifies as a loan-originating qualifying investor alternative investment fund (L-QIAIF). L-QIAIFs are popular with non-bank lenders and institutional investors, as they typically have a specific strategy (e.g., small- or medium-sized enterprise (SME) lending or real estate) and risk appetite while providing a much-needed alternative liquidity facility for businesses struggling to access funding from traditional lenders. In fact, it’s fair to say that their popularity means L-QIAFs have played a role in providing alternative funding facilities to European and U.S. businesses.
Some large investors, such as pension funds, require a regulated Alternative Investment Fund Managers Directive (AIFMD) investment fund, while others new to private capital also appreciate increased levels of investor protection. Managers benefit from enhanced governance models, and access to European passporting under AIFMD means that ICAVs and ILPs can be marketed and distributed across the continent.
Low entry requirements for alternative financing structures in Ireland
The alternative to regulated investment funds are special purpose vehicles (SPVs). SPVs attract investors with greater flexibility, thanks to lower fees to market and a straightforward set-up process.
For managers, SPVs can be more cost-competitive to establish and maintain. An ICAV or ILP must appoint an AIFM, a regulated depositary and a fund administrator. An SPV requires support from a corporate service provider and other agents to assist with cash management, loan administration, and where applicable, trustee services for ongoing maintenance.
SPVs are popular with both smaller and well-established managers and those new to private capital. Low entry requirements allow them to grow their investor base, gain a track record in origination and prove their eye for a deal. SPVs are the structure of choice for managers building a track record. Those who start with SPVs can convert into a regulated investment vehicle if investors so require at a later stage.
The trend is certainly towards investors demanding more transparency, oversight, and visibility of performance. And although SPVs are unregulated at present, they potentially face more scrutiny in future.
Private capital’s growing importance to the wider economy means regulators are taking more interest in the supervision of SPVs. The majority are already required to provide quarterly reporting to their national central banks.
Experience and expertise in Ireland’s funds
At present, the combination of regulated and unregulated alternative investment vehicles in Ireland allows managers to target the broadest range of investors. The success of ICAVs, in particular, has made Ireland one of Europe’s largest fund-domiciling locations.
Third-party providers such as CSC can help managers establish and maintain both regulated funds and SPVs. We’re a partner of scale for large funds and can provide complete back-office functions for managers wanting to focus on deal making and growing their investor base.
Why CSC?
CSC is regulated by the Central Bank of Ireland as an AIFM, fund administrator, and special asset depositary—and have a wealth of experience supporting direct lending platforms at fund and SPV level. As a strategic partner, our proprietary innovative technologies combine with global knowledge and experience to deliver value-added services catering to all asset classes while increasing manager visibility of portfolios on behalf of a fund’s investors.
CSC provides knowledge-based solutions for every phase of the business life cycle, helping businesses form entities, maintain compliance, execute transaction work, and support real estate, M&A, and other corporate transactions in hundreds of U.S. and international jurisdictions.
We work with some of the world’s largest banks and commercial lenders to reduce risk in their lien portfolios, improve their transaction speeds, and create a secure environment for their financial processing needs. We also provide solutions for secure real estate document preparation and recording.
We are the trusted partner for 90% of the Fortune 500®, nearly 10,000 law firms, and more than 3,000 financial organizations. Headquartered in Wilmington, Delaware, USA, since 1899, we are a global company capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve.
