Ireland's enhanced private fund structure delivers growth for managers

One of Europe’s fastest-growing funds markets, Ireland is becoming an increasingly popular domicile for private funds following the modernization of its Investment Limited Partnerships (ILP) regime.

A new and improved approach

Asset managers are facing pressure from low-cost investment products, including exchange-traded funds, whose assets have been growing at a record pace globally.1 Although interest rates are rising in response to inflationary pressures, they are likely to remain relatively low for the foreseeable future, limiting the ability of traditional fixed income investments to meet investors’ return expectations.



Siobhan Moran
Director, Client Coverage
RBC Investor & Treasury Services

Investor interest in alternatives has grown in recent years based on their potential to provide above-average returns. Alternative assets—including private equity, private debt, hedge funds, real estate and infrastructure—increased by more than 10% annually to USD 11 trillion over the decade ending in 2020. This growth is projected to continue at an annual average rate of nearly 10% to USD 17 trillion by 2025.2

In response to these changes, asset managers are asking:  “How can I expand market access to my private funds within a safe and reliable funds structure?” According to Siobhan Moran, Director of Client Coverage at RBC Investor & Treasury Services, Ireland’s recently modernized ILP fund regime is a worthy option for managers to consider.

Why Ireland?

A leading offshore funds domicile, Ireland has been supporting global fund distribution for more than 30 years. With approximately 15 million funds and assets under administration of EUR 5.4 trillion, the “Emerald Isle” supports funds with investors in more than 90 countries.3 Ireland has a highly-regarded regulatory framework, complemented by a tax regime that is open, transparent and fully compliant with international and European Union (EU) law.

Ireland is an attractive domicile for asset managers, wherever they’re located

Ranked #1 in the world for attracting and retaining talent,4 Ireland is home to more than 16,000 well-educated professionals employed within the funds industry.3 “We are the only fully common-law country in the EU and the only native English-speaking member,” said Moran. “Ireland is an attractive domicile for asset managers, wherever they’re located.”

While managers are drawn to Ireland’s core strengths, it’s the recent modernization of the country’s private fund structure that’s capturing the attention of asset managers internationally.

Why the Irish ILP?

Ireland is becoming a domicile of choice for private funds, following adoption of the enhanced ILP regulatory framework that is exclusively for use as an alternative investment fund. “The new ILP provides asset managers with a number of attractive features,” said Moran. “In modernizing the private funds framework, Irish authorities benchmarked against other popular private fund regimes, resulting in the adoption of ‘best-in-class’ practices within the updated ILP regime.”

Safety and certainty

The detailed statutory underpinning through The ILP (Amendment) Act, 2020 provides a source of legal certainty. And unlike unregulated partnerships in various other jurisdictions, the ILP is subject to an extra layer of Central Bank of Ireland (CBI) regulation. “This provides an enhanced level of security—generally adding value and balancing the needs of managers and investors alike,” Moran added.

Scope and flexibility

CBI authorization of ILPs is available as a retail investor alternative investment fund (RIAIF) but normally has greater appeal to institutional investors as a qualifying investor alternative investment fund (QIAIF). The QIAIF has a longstanding reputation as Ireland’s flagship alternative investment solution—testament to the country’s position as the world’s largest alternative investment fund centre.

The QIAIF is Ireland’s flagship alternative investment solution

“While the central bank’s QIAIF rules offer additional protection, they should not hinder the flexibility and features that are typical of private fund structures,” said Moran. “For example, there are no material investment restrictions, and QIAIFs generally include the main features of closed-end private funds, such as capital drawdowns and catch-up payments,” she added.

Tax transparency

Moran emphasizes the ILP’s tax advantages:  “The ILP is tax transparent under Irish law. This means that relevant income, gains and losses arise directly to the partners.” In addition, Irish withholding taxes do not apply to fund distributions, there is no stamp duty on the transfers of ILP interests, and the provision of management, administration and safekeeping services to the ILP is VAT-exempt.

Market access

The ILP requires an EU-authorized alternative investment fund manager (AIFM), which provides ease of fundraising from investors throughout the European Economic Area—a particular advantage over non-EU funds, said Moran. “And as an added benefit, managers can utilize the ILP passport to secure mandates across the Asia-Pacific and other regions as well."

It’s about growth—and security

“Ever since the enhanced Irish ILP private fund structure was implemented in early 2021, we have seen increasing interest from asset managers, who are looking to grow their businesses in what is an extremely volatile market,” said Moran. “You can’t overstate the importance of Ireland’s strong brand as a secure and stable offshore funds domicile,” she concluded.

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Sources

  1. ETFGI, Global ETFs Industry Ended 2021 with Record Assets, January 25, 2022
  2. Preqin, The Future of Alternatives 2025, November 2020
  3. Irish Funds, Why Ireland, March 2021
  4. IMD World Competitiveness Rankings, November 26, 2020
  5. Irish Funds, Five Reasons Why LPs Want to Invest in an Irish ILP, Fall 2021