As US asset managers look to expand their global footprint and pursue diversified investment strategies, the recently modernized Irish Investment Limited Partnership (ILP) is an attractive private fund structure that offers flexibility, efficiency and significant marketing advantages.
Responding to the competition
Key insights
- The Irish ILP offers a potentially attractive option for US asset managers who are transitioning into private assets and expanding their distribution footprint abroad.
- The ILP's flexibility enables managers to market products cross-border with little impediment.
- As a leading fund domicile, Ireland provides a robust regulatory regime and strong service provider community.
Operating in a highly competitive domestic market, active US asset managers are facing heightened pressure from low-cost fund providers, whose assets under management recently surged past the $10 trillion mark.1 Historic low interest rates are further compounding market dynamics, making it challenging for active managers to sustain and increase market share. At the same time, illiquid strategies such as private equity and private debt are successfully navigating the market volatility and attracting strong investor inflows.2
In response to the changing environment, traditional active US asset managers are looking to broaden their underlying client base outside the US by launching private asset strategies that align with investors' evolving buying preferences.3 “As US asset managers target new markets and introduce private asset capabilities, Ireland and its recently enhanced ILP fund structure are in a strong position to support these managers,” said David Giannone, Managing Director and Head of US, at RBC Investor & Treasury Services.
Top global fund domicile
Home to EUR 5.2 trillion ($6.3 trillion) of assets under administration – of which 25% comprises alternative investments – Ireland is an increasingly important fund hub.4 The country's EU membership, together with adherence to internationally-accepted best practices outlined by the OECD (Organisation for Economic Co-operation and Development), IOSCO (International Organisation of Securities Commissions) and FATF (Financial Action Task Force), make it a global leader.5 “Ireland has a deep pool of asset servicing expertise and talent, including administrators, global custodians, accountants and law firms. Offering a culture of innovation, the 'Emerald Isle' is an ideal domicile for global asset managers and particularly managers in the US,” commented Giannone.
But US managers are not just taking notice of Ireland due to its core strengths. The recently enhanced Irish ILP fund structure is key to the country’s value proposition for managers.
Adding unique value
Introduced earlier this year, the updated ILP is available to alternative asset managers, including those that offer private asset funds (e.g., private equity, private debt, infrastructure, credit and direct lending vehicles). Not subject to legal risk-spreading obligations, ILPs are especially attractive to private asset funds with highly concentrated portfolios.6 Moreover, the ILP is well regulated, falling under supervision of the Central Bank of Ireland (CBI) and subject to the EU's Alternative Investment Fund Managers Directive (AIFMD).7
Since the ILP is AIFMD-compliant, US managers who establish an EU-based AIFM can avail themselves of the pan-EEA (European Economic Area) marketing passport. This enables distribution of their products across the EU.8
“AIFMD has excellent investor protection, including a stringent depositary liability provision. This makes the Directive a popular international fund brand, with a particularly strong reputation in Asia-Pacific. In addition to attracting EU assets, US managers can use the ILP to secure mandates in markets such as Australia, Singapore, Hong Kong, Taiwan and South Korea," noted Giannone.
Offering flexibility and efficiency
Beyond its marketing advantages, the ILP regime is a highly flexible and efficient tool. “Most strikingly, ILPs can be established as an umbrella with multiple sub-funds. This enables managers to support a wide range of investment vehicles, strategies and structures with segregated liability between the sub-funds," said Giannone.
According to Ireland-based law firm William Fry, the ILP has a safe harbour provision outlining the activities that limited partners (LPs) are able to perform without losing their liability shield.9 The limited partnership agreement can be amended with the consent of a majority of LPs and the depositary; previously, it was necessary for all LPs to give their approval.10
The ILP also streamlines the capital withdrawal and distribution process, and institutional ILPs – qualifying alternative investment funds (QUAIFs) – have access to a fast-track approval procedure that generally takes no more than 24 hours to complete. In addition, ILPs can migrate into Ireland from other jurisdictions and bring their track record with them, while rules in the previous jurisdiction continue to apply.11
Favourable response
“I have received positive feedback from US asset managers since the enhanced Irish ILP private fund structure went into effect in early 2021. Managers are particularly drawn to its investor protection, passporting capabilities and speed to market. Equally important is Ireland’s highly reputable funds environment, which shares legal, cultural and linguistic norms with America. The ILP is a valuable resource for managers,” concluded Giannone.