Ireland's ILP: Operational Implications for Alternative Investment Managers

As one of the largest alternative investment fund centres in the world, Ireland has a reputation for being efficient and nimble when authorising and launching new funds, demonstrated by strong growth over the last decade with the total number of Irish domiciled funds increasing by more than 57% and total net assets more than tripling.  Recognising its attractiveness as a fund domicile, Ireland has continued to evolve its regulatory framework and introduce innovative investment structures to meet the evolving needs of the market.  This includes the Irish Investment Limited Partnership ("ILP"), which is of significant interest to international investment managers, particularly those in the private assets sector, marketing to European investors and wider global markets.  While the introduction of the ILP has been received positively by the market thus far, there are a number of considerations for investment managers looking to implement this structure.

The Evolution of Irish Structures

To date, investment managers looking to establish private asset funds in Ireland have used the Irish Collective Asset Management Vehicle ("ICAV"), a corporate vehicle designed specifically for Irish funds.  The ICAV has historically been the default Irish funds vehicle due to its structuring flexibility and its ability to accommodate many private asset strategies and nuances.  Despite the ICAV's popularity, both global investment managers and investors have generally preferred the limited partnership as the legal structure for a private asset fund.  The ILP is a common law partnership structure, allowing investors to invest in underlying assets, while also ensuring that liability is segregated within the ILP.  This ensures that any income and gains from investments remain taxable at the investor level.  An ILP can only be established as an alternative investment fund ("AIF") and is authorised and regulated by the Central Bank of Ireland ("CBI").  As such, it falls within the scope of the Alternative Investment Fund Managers Directive ("AIFMD") and is able to benefit from the marketing passports where it has an EEA alternative investment fund manager ("AIFM") and associated investor protection features, which will be of significant interest to international investment managers marketing to European and other investors globally. 

Initially introduced in 1994, the ILP has undergone significant reforms and late last year, the Investment Limited Partnership (Amendment) Act 2020 ("the Act") was signed into law.  The reform of the limited partnership regime is in line with international counterparts and makes Ireland an attractive location for private asset managers going forward.

Key Enhancements

The Act introduces a number of additions and amendments to the structure intended to make ILPs run in a more efficient manner while ensuring there is closer alignment with domestic and European legislation.  These include:

• LPs: The revision of the definition of "limited partners" to allow for the ability to divide LPs into sub-categories for regulatory reasons, fee treatment, rights and voting, etc. and expansion of the "white list" of activities which can be performed by LPs without affecting their limited liability status (e.g. involvement on LP committees etc.).
• GPs: The provision for a statutory novation of assets and liabilities on substitution of a GP without further formality, to simplify the administration of changes in GPs and express confirmation of the ability to transfer a GP interest and provision for the liability of incoming and outgoing GPs.
• Naming convention: The ability to register an "alternative foreign name" in order to enable an ILP operating in a non-English speaking jurisdiction (e.g. China) to have official recognition of a translated name in that jurisdiction.
• Amendment of limited partnership agreements: The removal of the requirement for all partners to consent in writing to the amendment of the limited partnership agreement.  Instead, provisions for the amendment of the limited partnership agreement will require approval by a majority of partners or certification by the depositary that the proposed amendment does not:  (a) prejudice the interests of LPs; and (b) relate to any matter specified by CBI as requiring approval by LPs.
• Umbrella partnerships: The ability to establish ILPs as umbrella funds, with segregated liability between sub-funds.
• Withdrawal of capital: The relaxation of requirements on withdrawal of capital, including the removal of the requirement for the GP to certify that: (a) the ILP is able to pay its debts in full as they fall due after the proposed return of capital is made; and (b) that an LP to be liable for repayment of capital with interest for a period of four months from the date of return of capital where the GP certification is not secured.
• Migration of partnerships: The ability to migrate partnerships into and out of Ireland on a statutory basis.

Outlook for the ILP

Ireland has always been highly regarded by international investors.  As the market gains familiarity with the ILP, it is expected that it will become an even more attractive domicile for both new funds, as well as for established investment managers with funds in other jurisdictions considering relocating domiciles.  There has already been increased interest from private asset managers looking to establish parallel European structures to their existing non-EU funds (e.g. Cayman and Delaware) to distribute to European investors via the AIFMD passport and this is expected to continue as the ILP gains traction.

Investment managers can benefit from increased flexibility in the choice of structures as well as providing a more cost effective solution by allowing multiple sub-funds within one ILP structure.  In addition, the enhanced ILP will avail of the CBI's fast track 24-hour authorisation process.  This speed to market is an attractive feature for investment managers.  Investment managers can also have peace of mind knowing that the ILP is supported by a robust regulatory framework, a feature that is likely to appeal to most investor types as well.  Furthermore, given that the enhancements to the ILP were introduced as a result of the Irish government working in collaboration with the Irish funds industry and the CBI, it is an up to date and efficient partnership vehicle supported by clear and helpful guidance.

Operational Implications for Investment Managers

With allocations to alternative investments continuing to increase and a growing interest in private asset strategies, there are many opportunities for investment managers in the immediate term.  With this in mind, many are looking to capitalise and may find the ILP to be an attractive structure.  

Despite the myriad benefits that the ILP can afford investment managers, there will naturally be challenges inherent with any new or enhanced structure, and various operational factors to consider. In particular, investment managers must have a robust operational and compliance infrastructure that can effectively accommodate partnership structures.  In many cases, the fund will seek to outsource fund administration and engage an AIFM to comply with the AIFMD.  This provides access to industry expertise to ensure that the fund complies with all local requirements while alleviating much of the operational, compliance and technology burden from the investment manager.  As such, it is critical that fund services providers have a demonstrated track record supporting private asset funds and have the proven processes, expertise and technology in place to deliver in this respect.     

However, this is a process that requires careful thought and consideration.  First and foremost, investment managers should focus their search on specialised, reputable providers who can provide high quality service and a high-touch experience.  Investors and regulators are demanding greater transparency and operational efficiency from investment managers and as a result, investment managers need to be confident that the support they are receiving can create efficiencies and add value.  In addition, it is also important for funds to consider their future growth and how the service providers they engage with can continue to support them as their needs change.  The provision of a comprehensive core offering that can be customised with other ancillary services and applied cross-jurisdictionally is increasingly a prerequisite for many investment managers.  Furthermore, this model is one that can more readily support a fund as it evolves. 

Perhaps most importantly, a relationship with the right fund services provider should foster trust and confidence.  Recent industry consolidation and subsequent degradation of service standards have been a cause for concern.  However, service providers who demonstrate long-term stability and a commitment to the provision of best-in-class service can act as true partners.  Ultimately, this relationship should seek to streamline a fund manager's operations and absorb as many pain points as possible.

The Maples Group Solution

The Maples Group is globally recognised in providing fund services solutions, including industry-leading fund administration and AIFM solutions, to private asset and closed-ended funds and is a leading service provider both in the Irish investment funds market and globally.  With experience supporting many of the established partnership structures in various domiciles around the world, we have deep expertise and a unique vantage point into how leading international investment managers and their investors are leveraging partnership structures.  We have developed an optimal balance of best-of-breed core systems coupled with bespoke proprietary solutions that are tailored to partnership structures and private asset strategies.  This enables us to supplement our core offering with automated processes and customised data and reporting, while also having the flexibility to be dynamic in responding to our clients' needs. 

Furthermore, as part of the Maples Group, we are able to complement of our core offering with a comprehensive suite of solutions that spans legal, regulatory and tax advice, as well as providing GPs and AIFM solutions, and registered office, board support and other fiduciary services to GPs.  This unique model enables us to provide end-to-end support that ensures investment managers are positioned for success today and in the future as their needs evolve.  

This approach and these capabilities have enabled us to naturally extend our offering to support the ILP.  To date, we have seen substantial interest across our global client base in launching new products or converting existing funds.  Among these is a leading credit manager who has seamlessly established the first CBI-authorised ILP under the enhanced regime with support from across the Maples Group. 

With Ireland now offering a partnership model for private assets that is regulated and adheres to international best practice, there is significant interest in both the jurisdiction and structure.  Investment managers should ensure they are supported by partners that operate to global standards, are familiar with the intricacies of Ireland's structures and regulations and are well-positioned to support an ILP with a range of services throughout its lifecycle.