The Investment Limited Partnerships Act 1994 was overhauled at the end of last year in an important piece of legislation whereby the Irish Investment Limited Partnership (“ILP”) is set to become the fund structure of choice for international managers of private assets.
In our recent webinar “Irish ILP Regime: Key Features & Manager Considerations”, John Bohan, BD Head at the Apex Group, along with panellists Derbhil O’Riordan from Dillon Eustace, Benjamin Lamping from Reframe Capital and Paul Spendiff from Fund Rock, discussed how Ireland is expected to become the jurisdiction of choice for private investment fund structures.
Big win for Ireland
Derbhil O’Riordan kicked off the discussion with an overview of the amended legislation which followed significant industry engagement with the regulator and with government. “The result of that really prolonged engagement”, she said, “is that we now have a limited partnership product which does meet the needs of our private equity and real asset manager clients. So it’s a big win for Ireland, a huge step forward we expect.”
The 2020 Act introduces a lot of new welcome changes, noted Derbhil, stating that while the legislation isn’t specifically drafted for private equity, it is envisaged that it’s in the private equity and real asset market that this product will be used most.
She highlighted one takeaway for managers who haven’t previously used Irish or European structures, and that is that the ILP will meet the definition of an Alternative Investment Fund (“AIF”) under The Alternative Investment Fund Managers Directive (“AIFMD”), so it will be subject to this overarching European legislation which brings with it both benefits and obligations, with the big benefit of AIFMD being that it affords a marketing passport to the ILP, enabling capital to be raised in any other European jurisdiction by way of simple regulatory notification.
John Bohan noted that the new legislation will effectively reflect the same structure as capital accounting like the Delaware partnership, or Cayman partnerships like the General Partner/Limited Partner regime that’s going to facilitate the capital commitments that we are used to in the funds industry, commenting that “It’s a huge departure from what we had previously and puts us into the mix from a competitive perspective across Europe.”
The catalyst for rapid growth
Ben Lamping described his thoughts on how the new ILP legislation will be received in the UK and further afield, echoing predictions that it will be the catalyst for rapid growth in the Irish market, and in time become a leading structure for private market managers in Europe.
He pointed out a number of clear reasons why firms might be attracted to Ireland and the new structure, and these included:
Ben commented that the structure has gained great interest from both UK and US managers particularly, with both having long-standing connections with the
Irish market, and he echoed Derbhil’s point that through the AIFM the ILP can avail of the cross-border marketing passport to sell to investors across the EU.
Paul Spendiff relayed the soundings he’s had back from clients: “I think the Irish Limited Partnership has been a long time coming and I think people are delighted to see it coming into fruition. I think there’s a natural cohort of clients, as Ben said, who are drawn to Ireland as a service hub.”
Paul observed that what we see today is that most managers are looking to run one fund – one offshore fund and one onshore fund – and ideally with one service hub; and at the moment a lot of these Cayman funds are being serviced in Ireland.
He pointed out that among the benefits of the ILP are, for instance, the ability to have the funds in an umbrella structure; the ability to launch closed-ended and open-ended funds within the ILP; and you can actually have a foreign language ILP alongside the English one, and both will be recognised. “It’s the 2021 version of what these partnership structures should look like”, he said.
Key questions for managers
Ben pointed out a number of key challenges for managers from any domicile which they must consider when weighing up whether the ILP is right for them. For new market entrants, it requires a selection of appropriate vendors who can support their operational needs, but it’s a more complex picture for managers with an existing business and parallel funds in other domiciles. Do they re-domicile or run off their existing products? Can they achieve a consistent vendor framework and service model to manage parallel funds? As Ben stated, managers have to engage with their vendors and confirm their ability to support ILPs alongside, under the same terms, by the same teams, and based on the same technology reporting standards and accounting platforms.
ILP on the global stage
John solicited opinions from the panelists on how the legislation compares on the global stage, in particular with European neighbours and given that the UK in the post-Brexit era will be offering its own competitive, formal structures.
Paul stated that at the moment the UK and the passporting issue is really the key. “It’s the ability to sell these products with the minimum amount of friction into as many markets as possible”, he said. “And I think that’s not just within Europe, but also the recognition that European funds have under AIFMD, and its historic uses elsewhere in the world. So there’s a brand that the Irish partnership regime will be able to piggyback on the back of when marketing to Asia or to the US or elsewhere.”
As far as the UK goes, he believes that even if the UK launches its own brand, its own funds regime – an equivalent of AIFMD – the recognition will be much more limited because it will take time for that specific piece of legislation and the equivalency of those funds to be recognised.
Ben stated that there are two main inputs for any manager in this decision – how do you intend to build your presence in the region, and then what is your distribution model? If it’s broad distribution, he believes that passporting is without question becoming the only real stable basis for broad sales on a global basis, and particularly within Europe.
John commented that, “This is extremely exciting for us. It’s a significant change and a gap that has been in our legislation. We’re seeing an awful lot of inquiries coming in.”
Derbhil concluded the discussion by stating that everything is now set to go to market, and there are certainly a number of ILPs that are underway and ready to hit go with the approval process.
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