Ireland’s advantages as a jurisdiction makes it ideal for US fund managers looking to access European markets, but selecting the right structure is key.
For US-based fund managers, Ireland has a lot of advantages as a fund domicile. Now that JTC is offering fund administration services to complement the AIFM, depositary, and corporate solutions offered by its Ireland offices, a recent webinar was held to discuss Ireland as a fund jurisdiction and what fund managers need to consider when thinking about expanding overseas.
The webinar, “Fund Services in Ireland: Enhanced Capabilities, New Opportunities,” featured a panel of experts covering the basics of Ireland as a fund jurisdiction as well as the intricacies of Irish fund structures and regulatory concerns. One thing that was clear from the outset was that Ireland is on the rise and offers specific advantages for US-based fund managers.
As explained by Graham Kennedy, CEO of JTC Fund Solutions Ireland Limited, Ireland is now “recognized as a center of excellence” when it comes to what it can offer private funds. “Certainly, over the last 30 years, Ireland has cemented its reputation as a European center of excellence when it comes to supporting and enabling investments”
With over 430 financial services companies and more than 1,000 fund promoters that have chosen Ireland to domicile or service their funds, Ireland is now the third-largest global center for funds and second-largest in Europe, providing access to over 500 million potential customers across the continent.
Ireland also offers a regulatory environment well-suited to alternative funds. As Kennedy noted, “we know that regulation is of substantial importance, and Ireland was the first regulated jurisdiction to provide a regulatory framework specifically for the alternative investment industry.”
As a result, “Ireland has an excellent reputation as a location for robust and efficient regulation. Additionally, the Irish funds and asset management industry plays a key role in leading and responding to regulatory developments at the EU and international level.”
As the only English-speaking common law jurisdiction in the Euro Zone, Ireland can offer a business culture that aligns with what US-based managers are used to. That bodes well for ease of communication, but as moderator Wouter Plantenga pointed out, if you want to fundraise or deploy capital in Europe, it’s important to understand the details.
“When you get to the point when you’re deciding on Ireland as a jurisdiction, obviously it’s important to understand the legal, regulatory, and tax considerations when implementing and considering fund structures,” said Plantenga. Indeed, Ireland offers advantageous fund structures, but to access the country’s benefits, it’s important to pick the right one.
Irish fund structures
Irish alternative funds are subject to Alternative Investment Fund Managers Directive (AIFMD) regulations as well as those imposed by Irish regulators. Qualifying Investor Alternative Investment Funds, or QIAIFs, should only be marketed to professional investors, pursuant to Article 4(1)(ag) of AIFMD.
QIAIFs have a minimum subscription amount of 100,000 Euro, no leverage limits, risk-spreading rules, and very few investment restrictions. One advantage QIAIFs have in Ireland is the relatively fast authorization process.
“In most circumstances, the authorization process with the Central Bank for a QIAIF is a fast-track approval process,” said Carol Widger, Managing Partner at Dechert LLP. “So if you file your final documents today by three o’clock, you will have your authorization by close of day tomorrow.”
Of course, she cautioned, many things need to happen to get to that point. “You will have to have selected all of your service providers” by then, as well as settled on a fund structure. While there are several possibilities, Widger focused on two in the webinar.
ILP vs. ICAV QIAIF
The most popular fund structure for alternative managers is the Irish Collective Asset-management Vehicle, or ICAV. An ICAV QIAIF doesn’t require annual shareholder meetings and allows for segregated audited financial statements. It operates with a corporate structure where the board of directors appoints the AIFM and depositary directly.
However, as Widger pointed out, some investors are “accustomed to acquiring a limited partner interest rather than a share,” and for these, the Irish Limited Partnership structure can be formed by way of a partnership agreement that does not have a separate legal entity. The General Partner (GP) is normally an Irish limited company.
These structures share many of the advantages Ireland offers. For example, both can be umbrellas with multiple sub-funds, and with the appointment of an EU-authorized AIFM, the fund can “passport” for sale in any country in the European Economic Area (EEA).
“It’s a really straightforward process,” added Widger. Pre-marketing is also “permissible by way of a simple registration” regardless of the fund structure. “Within 20 days, you can market your funds.”
The main difference comes down to oversight from both investors and the US-based fund manager. As the GP is generally an Irish limited company, the ILP structure requires a good relationship between the US-based manager, the limited partners, and the general partner. Under the ICAV structure, the board of directors many include individuals not based in Ireland.
These aren’t the only things to keep in mind. There are other complexities that could change your decision, and it isn’t always easy to figure out which scenario applies to your needs.
Compliance, taxes, and other considerations
Beyond the wealth of service providers and its connection to Europe, Ireland’s tax status is one of its biggest draws as a jurisdiction.
“Ireland has the lowest headline corporation tax in the OECD and has tax treaties with over 70 countries,” said Kennedy. “Irish regulated funds are exempt from Irish tax on income and gains derived from their investments and are not subject to any Irish tax on their net asset value.”
“You really can get a very efficient return through an Irish structure because of Ireland’s treaty eligibility, and particularly for US assets, we have a very, I would say, advantageous position over a number of our competitor domicile locations because we have a treaty network and we have a particularly good treaty with the US,” added Marie Coady, Partner and Global ETF Leader from PwC Ireland.
Coady talked through two of the many tax structures possible in Ireland and explained just a few of the differences that fund managers will have to think about.
As Coady explained, an ICAV can take advantage of Ireland’s tax treaty network, which gives it an advantage over some other jurisdictions. Under the ICAV structure, the fund holds investments directly and has no limited partners. Investors instead go through a feeder fund or a Delaware LP.
In contrast, the ILP structure, which is relatively new in Ireland, can hold investments directly or through an Irish or foreign holding company, sometimes all three simultaneously, and the permutations possible can make tax questions confusing for outsiders.
“There are hundreds of multiples of these scenarios, said Coady.
In addition to taxes, there are also a wealth of regulatory considerations, including European sustainability disclosures.
“You need to disclose what you do and do what you say,” said Widger.
To ensure compliance with AIFMD, an AIFM is required. At the webinar, Orla Philippon, CEO of JTC Global AIFM Solutions (Ireland) Limited, walked through what an AIFM does for regulatory matters and due diligence, stressing that the most important thing is to create an audit trail of evidence that proves what was done and when.
“An advantage of appointing a third-party AIFM like JTC is promoters and the product producers don’t need to worry about any of the regulatory requirements or local market knowledge and expertise,” said Philippon.
Each regulated alternative investment fund must also appoint a depositary that is based in Ireland and is approved by the Central Bank of Ireland. The depositary covers duties like cash flow monitoring, safekeeping of assets, oversight of the fund’s Net Asset Value (NAV), and ongoing due diligence.
As outlined by Padhraic McLaughlin, CEO of INDOS Financial (Ireland) Depositary Limited, “the depositary provides a key supervisory role ensuring the alternative investment fund complies with its offering documents and EU Fund regulations. The depositary works closely with the fund administrator and AIFM to fulfill its duties to the fund.”
Another important consideration is the choice of fund administrator, and the panelists took time to discuss what a fund administrator needs to have to properly service ILP and ICAV vehicles.
“For any product, the admin firm must have demonstrable experience” in the fund type in question, said Kennedy.
“The key role of the fund administrator is protecting investors by independently verifying the assets of the fund and the valuation while at the same time maintaining auditable books and records,” he added. But that isn’t all the fund administrator is responsible for. Other duties may include AML, transfer agency, reconciliation of broker accounts, financial statement preparation, and a lot more.
So how do you choose the right administrator, AIFM, depositary, and fund structure? One way is to get help from a partner that knows the Irish fund world inside and out.
How JTC can help
Thanks to its vast network of companies, decades of experience, and on the ground support in Ireland, JTC can offer fund administration, AIFM, and depositary services through its independent Central Bank of Ireland-regulated entities. What’s more, because of our team’s knowledge in all types of fund and tax structures, JTC can work with US-based funds to help them figure out which type of fund is best suited to their needs.
You can get in touch with your US-based JTC representative to discuss the possibility of expanding into European markets through JTC’s services in Ireland.
The webinar included discussion of many more topics, including premarketing of funds in Europe and specifics of AIFM and depositary functions. Watch the full webinar to hear insights from those entrenched in the Irish investment world that you won’t get anywhere else.
Watch the “Fund Services in Ireland: Enhanced Capabilities, New Opportunities,” webinar replay.