Ireland introduces new fund partnership structure to target "real asset" managers

The Investment Limited Partnerships (ILP) (Amendment) Bill 2020 (the ILP Bill) makes provision for a new ILP structure, which will add to the already extensive choice of fund vehicles available to asset managers including the ICAV, CCF and Unit Trust and also the unregulated 1907 partnership structure.

Key benefits of the new ILP structure

ILPs are specifically tailored for use as a collective investment scheme and, depending on how they are created, have no investment or borrowing restrictions. The ILP Bill will modernise and enhance the existing partnership framework in Ireland. It:

• permits the establishment of ILPs as umbrella funds with segregated liability between sub-funds;
• creates an extensive and enhanced list of safe harbour provisions to permit investors to undertake certain actions without being deemed to be taking part in the management of the ILP;
• removes the requirement for all LPs to approve amendments to the LPA. Instead such amendments will require approval by a majority of the GPs and LPs. The ILP also allows for amendments to be made without LP approval in certain instances.It is also possible for the ILP to make specific provision as to what constitutes a "majority of the limited partners" (eg. majority by value, number of class).
• allows for the statutory transfer of assets and liabilities on a change of GP without further formalities, so that the all the assets and property of an ILP will vest with the new GP.
• clarifies that upon the withdrawal of a GP, all rights and property of the ILP will continue to be held by the remaining GPs without further formality.The remaining GP shall be liable for the debts and obligations of the ILP.
• remove the burden on the GP to certify that the ILP is able to pay its debts in full as they fall due after the return of capital to an LP is completed.
• allows for ILPs to be migrated into and out of Ireland by way of continuation.
• introduces requirements around beneficial ownership to ILPs similar to those in place for ICAVs and other fund structures, namely, to maintain a register of beneficial owners that ultimately own or control, directly or indirectly,25% of the capital or profit or 25% of the voting rights in the ILP.

Central Bank reforms

In conjunction with the ILP Bill, the Central Bank is also in the process of updating and modernising its rules and requirements to accommodate these new structures, as ILPs will be regulated by the Central Bank. The Central Bank has already circulated a consultation paper on the issuance of guidance for closed-ended funds, which generally is how private equity and real asset investments will be structured. Of particular note are the provisions:

• permitting Closed-Ended funds to issue shares other than at NAV. This is currently permitted on a case by case basis and under the new proposals, prior Central Bank approval would no longer be required;
• setting out excuse and exclude provisions;
• permitting stage investing;
• management participation in share classes

This consultation closes on 22 December and new guidance is expected to issue early in the new year. This guidance will apply to all closed-ended funds and not just ILPs.

The Central Bank has also very helpfully clarified that it will not seek to separately authorise the GP as an AIF management company and as such it will not have a capitalisation requirement.  Its directors will be subject to the Central Bank's fitness and probity regime, however, it will not require any further authorisation or approval from the Central Bank, which is a very welcome development. 

With the legislation now approved by the Irish government and the Central Bank's new guidance expected to issue in January, it is expected that the first ILPs will be established early in the New Year. 

Investment funds expert Gayle Bowen of Pinsent Masons, the law firm behind Out-Law, said the ILP structure would be attractive across several asset classes.

“The new legislation forms part of the Irish government's strategic priority for the development of Ireland's international financial services sector to 2025 and will represent a huge step towards making Ireland the domicile of choice for private fund managers looking to access European capital via a partnership structure.  A number of clients have already expressed a keen interest in this new structure and we expect it to become the vehicle of choice for investing in this asset class."

Investment funds expert David Young of Pinsent Masons said: “The new ILP structure is an exciting development and should, in time, be a real game changer in terms of Ireland’s position as a domicile for funds targeting private markets and real asset investments.

“It will give managers a valuable option when looking to establish funds of this nature where the well understood benefits of a limited partnership structure set up in a respected jurisdiction can be combined with the ability to utilise the AIFMD passporting regime to raise capital from EU investors,” Young said.