Despite Ireland being among one of the largest asset servicing hubs for alternative funds, its track record relative to other EU domiciles, namely Luxembourg, in supporting private capital strategies such as private equity has been somewhat lagging behind.
ILPs – Strengthening Ireland’s reputation in private capital circles
Ireland sought to redress this imbalance in 2021 by updating its Investment Limited Partnership (ILP) regime, a reform, which if enacted successfully could attract more than €20 billion in private capital assets per year by 2025, according to Irish Funds.
With Ireland hoping to capitalise on the spectacular growth of private equity, an asset class now managing in excess of a record US$4.5 trillion, and private credit, the amended ILP regime creates a more flexible regulatory (i.e. the ability to launch multiple sub-funds in a single ILP structure) and tax environment for general partners (GPs).
One of the principal benefits of the latest ILP iteration is that managers leveraging the structure can avail themselves to a number of tax transparency benefits together with the tax treaties which Ireland has negotiated with various third countries. This is likely to prove particularly enticing for US managers, many of whom will be familiar with ILP structures in fund centres such as Delaware and the Cayman Islands. Investor protection is also at the heart of the Irish ILP.
Furthermore, the ILP is subject to stringent Central Bank of Ireland (CBI) oversight and the Alternative Investment Fund Managers Directive (AIFMD), something which investors will find reassuring. To many, the ILP will be yet another avenue for private capital firms to market seamlessly into the EU.
Having been launched less than one year ago during a period marred by extraordinary market turbulence, the ILP is still finding its feet among GPs and investors. However, Ireland has enjoyed remarkable success launching a number of other fund structures in the past, most notably the Irish Collective Asset Management Vehicle (ICAV) which has proven incredibly popular.
Many are therefore confident that the ILP will reap similar rewards as well. In addition to new fund launches, the ILP could be an attractive proposition for GPs looking to re-domicile, especially as more EU institutional investors increasingly demand that private capital managers locate their funds in regulated onshore centres like Ireland as opposed to offshore hubs. So what do GPs now need to consider when setting up an ILP structure?
Getting to grips with the ILP
An ILP can be operated by a GP which is resident in any recognised centre for GP operations but may also be resident in Ireland. As with asset managers subject to AIFMD, the ILP allows GPs to delegate investment management functions to a third party located either within or outside of the European Economic Area. In short, this means ILP funds can utilise the existing AIFM Management Company (Manco) model currently available to Alternative Investment Funds (AIFs).
Elsewhere, it is also required that ILPs appoint a depositary, a service provider which will be entrusted with on-going independent oversight of the fund such as monitoring of cash flows, asset ownership verification and ensuring managers are not deviating from their investment mandates.
It is crucial that GPs, who are considering unveiling ILPs, look to qualified service providers that are capable of supporting them with their governance obligations, chiefly AIFMD and depositary oversight.
JTC group can assist in project managing the establishment of an ILP and providing AIFM and Depository services via its Ballybunion Capital and INDOS Financial entities. In addition JTC can assist with the operation of GP structures in a variety of jurisdictions to suit a fund promoter’s needs.