Ireland set to revise its private funds regime

Ireland has been moving to position itself as a private funds domicile in recent times. In two separate publications, the Central Bank of Ireland (Central Bank) has

• updated its Q&As in respect of the position, under AIFMD, of the general partner (GP) of an investment limited partnership (ILP) and

• consulted on share class features for closed-ended Qualified Investor Alternative Investment Funds (CE QIAIFs)

Update of the AIFMD Q&As

The Central Bank has confirmed two points:

• the general partner of an ILP does not need also to be authorised as an AIF management company. Given that the GP of an ILP has statutory functions imposed on it under the Investment Limited Partnerships Act 1994 in respect of its authority to conduct the business of the ILP, it will not otherwise be authorised by the Central Bank

and, following on from that,

• a GP which is also approved as an AIF management company can seek revocation of that approval from the Central Bank - Email MancoFSPauthorisations@centralbank.ie for Information about how to make an application.

Share class features for CE QIAIFs

The Central Bank has also published CP 132, 'Guidance on share class features of closed-ended QIAIFs' (the CP).

In the CP, the Central Bank proposes changes to its AIF Rulebook concerning how certain rules are applied in the context of the share class structure for closed-ended AIFs.

The proposed updates to the Central Bank rules on private funds coincide with the passing of the Investment Limited Partnership (Amendment) Bill 2020 (see our article here) which is expected to become law before the end of this year.

Responses to the CP must be submitted to the Central Bank by 22 December 2020.

What's the background?

The Central Bank's proposals involve setting out regulatory guidance in relation to the scope of permissible share class features for share classes of closed-ended AIFs.

Closed-ended funds tend to combine exposure to less liquid assets with often complex investment strategies (such as, private equity, infrastructure and venture capital).

Subscription in such funds can often entail a capital commitment over a period of time, with the commitment capable of being drawn down when a suitable investment is identified.

Currently, the AIF Rulebook generally requires income arising from a QIAIF's assets to be distributed equal to a unitholder's participation in the QIAIF, with exceptions where share classes may be differentiated on the basis of  criteria (such as subscription/redemption procedures, hedging policies or asset exposure) which will be clearly disclosed in the prospectus and permitted by the QIAIF's constitutional document.

Where a QIAIF allocates assets to individual share classes in accordance with the AIF Rulebook this is generally done either through the use of financial derivative instruments (to generate the differentiated exposure) or through side-pocket share classes.

Scope

The proposals would limit the availability of the permissible features to

• closed-ended AIFs which are authorised as QIAIFs running strategies which
  • are generally described as relating to private equity, venture capital and real estate and
  • generally do not invest in assets that must be held in custody in accordance with the AIFMD or
  • generally invest in issuers or non-listed companies in order potentially to acquire control over such companies in accordance with the AIFMD.

What are the share class features?

The CP would allow CE QIAIFs to issue share classes which permit

• the profit, loss and capital of certain assets to be allocated to certain share classes

• investors to participate in some, but not all the assets of the CE QIAIF (this would be subject to certain investor protection conditions set out in the guidance) and

• management share classes to participate in the CE QIAIF and receive returns greater than, but subordinate to, the returns to which other share classes are entitled.