1 Regulatory Framework
1.1 What legislation governs the establishment and operation of Alternative Investment Funds?
Where an AIF is a collective investment scheme authorised and supervised by the Central Bank of Ireland (the "Central Bank"), Irish legislation that governs the establishment and operation of the collective investment scheme applies, as further detailed in question 1.3.
However, all Irish AIFs are impacted operationally by:
- the European Communities (Alternative Investment Fund Managers) Regulations 2013 (S.I. 257 of 2013) (the "Irish AIFM Regulations") which transposed Directive 2011/61/ EU (the "AIFM Directive") into Irish law; and
- Commission Delegated Regulations and Commission Implementing Regulations adopted by the EU Commission in specified areas in order to ensure that the AIFM Directive is implemented consistently across the EU, the principal one of which is the Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFM Directive with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (the "Commission Delegated Regulation").
1.2 Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?
Unless availing of transitional arrangements under Article 61 of the AIFM Directive or unless exempt from authorisation pursuant to Article 3 of the AIFM Directive:
- Irish AIFMs managing Irish AIFs are required to be authorised under the Irish AIFM Regulations; and
- non-Irish EU AIFMs managing Irish AIFs are required to be authorised in their home jurisdiction and to have availed of the passporting provisions pursuant to Article 33 of the AIFM Directive.
Although a non-EU AIFM currently has no passporting rights, a non-EU AIFM may avail of transition benefits allowed by the Central Bank for such entities (until such time as passporting rights are extended to non-EU AIFMs by the European Commission) and manage an Irish AIF constituting a collective investment scheme authorised and supervised by the Central Bank and marketed to qualifying investors (a "QIAIF") provided it is designated by the QIAIF as the AIFM. Such transition benefits will vary depending on when the QIAIF was authorised by the Central Bank. However, in such circumstances the non-EU AIFM must be approved by the Central Bank to act as an investment manager of Irish authorised collective investment schemes (see below).
An Irish AIF constituting a collective investment scheme authorised and supervised by the Central Bank and marketed to retail investors (a "RIAIF") must have an authorised AIFM. Consequently a non- EU AIFM cannot avail of the transition benefits allowed by the Central Bank as referred to above and manage a RIAIF on the basis it is designated by the RIAIF as the non-EU AIFM.
Non-AIFM Irish Management Companies/General Partners
RIAIFs and QIAIFs, depending on their legal form, may be required to appoint a management company/general partner to carry out the management of those AIFs. Where such a management company/ general partner is not the AIFM, it must be approved by the Central Bank and meet the requirements relating to such entities as set out in the Central Bank's AIF Rulebook (the "AIF Rulebook"), e.g.:
- minimum capital requirement of at least EUR 125,000 or one quarter of its total expenditure taken from the most recent audited accounts (whichever is higher);
- organisational requirements such as the appointment of a compliance officer who must be located in the State, policies and systems to identify, control and monitor risk, accounting policies and procedures, maintenance of records, etc.; and
- adequate management resources.
Investment managers or sub-investment managers which are one of the following entities will not usually be subject to an additional regulatory review process by the Central Bank:
- UCITS management companies;
- MiFID investment firms;
- EU credit institutions; and
- externally appointed AIFMs.
Investment managers which are not one of the entities listed above may only be appointed where (i) an MOU is in place between the Central Bank and the competent authority in the home jurisdiction of the investment manager, and (ii) the Central Bank has approved the investment manager following receipt of a completed Investment Manager Clearance Form.
The Central Bank does not apply an approval process to investment advisors in order for such entities to provide investment advice in relation to a RIAIF/QIAIF provided that the manager/directors of the RIAIF/QIAIF confirm that the advisors in question will act in an advisory capacity only and will have no discretionary powers over any of the assets of the RIAIF/QIAIF.
1.3 Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a regulatory body?
RIAIFs/QIAIFs (depending on the legal form) are authorised by the Central Bank under the following Irish legislation:
- unit trusts under the Unit Trusts Act 1990;
- investment companies under Part XIII of the Companies Act 1990;
- investment limited partnerships ("ILPs") under the Investment Limited Partnerships Act 1994;
- common contractual funds ("CCFs") under the Investment Funds, Companies and Miscellaneous Provisions Act 2005; and
- Irish collective asset-management vehicles ("ICAVs") under the Irish Collective Asset-management Vehicles Act 2015.
(Collectively referred to as the "Irish Funds Legislation".)
Under the Irish Funds Legislation, the Central Bank is responsible for the authorisation and supervision of these AIFs and has the power to impose conditions on them. The current conditions which the Central Bank imposes are contained in the AIF Rulebook.
1.4 Does the regulatory regime distinguish between open-ended and closed-ended Alternative Investment Funds (or otherwise differentiate between different types of funds) and if so how?
The Central Bank allows RIAIFs/QIAIFs to be structured as follows:
An AIF is considered open-ended by the Central Bank where it:
- provides redemption facilities on at least a (i) monthly basis in the case of a RIAIF, and (ii) quarterly basis in the case of a QIAIF;
- redeems when requested at least (i) 10% of net assets in the case of a RIAIF/QIAIF that redeems on a monthly basis or more frequently, or (ii) 25% in the case of a QIAIF that redeems on a quarterly basis; and
- does not impose a redemption fee in excess of (i) 3% of the net asset value per unit in the case of a RIAIF, or (ii) 5% in the case of a QIAIF.
An AIF, which provides for a period of greater than 30 days in the case of a RIAIF and 90 days in the case of a QIAIF between the dealing deadline and the payment of redemption proceeds, will not be subject to the above requirements provided it classifies itself as open-ended with limited liquidity.
(b) Open-Ended with Limited Liquidity
A RIAIF/QIAIF is classified as open-ended with limited liquidity if it does not meet one or more of the requirements for an open-ended AIF but does permit the redemption of units throughout the life of the AIF.
The Central Bank considers a closed-ended RIAIF/QIAIF to be one which does not facilitate the redemption of units at the request of the unitholders during the life of the AIF.
1.5 What does the authorisation process involve?
The application for authorisation of a RIAIF/QIAIF must be made by (i) the AIFM together with (ii) the corporate AIF or management company/general partner in the case of a non-corporate AIF and (iii) the depositary, in the case of a unit trust or CCF.
All parties to a RIAIF/QIAIF must have been authorised or otherwise deemed acceptable to the Central Bank prior to the application for authorisation (e.g. the management company, general partner, AIFM, directors in the case of a corporate AIF, depositary, other service providers such as the fund administrator, investment manager, etc.).
The directors of any entity authorised by the Central Bank (including inter alia the directors of a corporate RIAIF/QIAIF) are required to meet certain standards of fitness and probity. As part of the Central Bank's fitness and probity requirements, any director proposed to be appointed must be pre-approved by the Central Bank. In this regard, an individual online questionnaire must be completed by the proposed director and validated and submitted on behalf of the appointing entity by a certain time period in advance of the proposed authorisation date for the RIAIF/QIAIF (i.e. at least 20 working days in the case of a RIAIF and at least five working days in the case of a QIAIF).
A RIAIF/QIAIF is not subject to any minimum capital requirements unless it is internally managed and constitutes the AIFM.
In relation to the authorisation of QIAIFs, there is no prior filing of QIAIF documentation with, or review by, the Central Bank.
Instead, there is a self-certification regime (i.e. certification has to be given that the Central Bank's disclosure requirements relating to the QIAIF documentation are met). Because there is no prior review by the Central Bank, the timeframe for authorisation of a QIAIF is within the control of the relevant parties based on the length of time it takes to negotiate and agree the QIAIF documents (subject to the pre-clearance of any persons or parties required by the Central Bank). Once the documentation is filed by 3pm on the business day prior to the date for which authorisation is sought, a QIAIF will be authorised on the requested date without a prior review. The Central Bank may carry out a "spot check" post-authorisation review.
This contrasts with the authorisation process for RIAIFs, as the Central Bank requires certain documents (e.g. the prospectus, risk management process, and agreement/deed appointing the depositary) to be submitted for review and cleared of comment by the Central Bank in advance of the formal application for authorisation being submitted.
Internally Managed RIAIF/QIAIF Constituting the AIFM
Where it is proposed that a RIAIF or QIAIF will be internally managed and constitute the AIFM, a separate application for authorisation of an AIFM must be submitted to the Central Bank (together with other supporting documentation including inter alia a programme of activity) and such authorisation must be obtained before formal application for authorisation of the RIAIF/QIAIF may be submitted to the Central Bank.
Any such RIAIF/QIAIF is required to meet the minimum capital requirements of an AIFM as set out in Regulation 10 of the Irish AIFM Regulations (equivalent to Article 9 of the AIFM Directive).
The Central Bank is obliged to inform the AIFM in writing as to whether or not authorisation has been granted, within three months of a complete application. However, the Central Bank may extend this period for another three months where it considers it necessary because of the specific circumstances of the case.
1.6 Are there local residence or other local qualification requirements?
A minimum of two directors in a corporate RIAIF/QIAIF, or in any entity which is authorised by the Central Bank and provides management or other services to such an AIF (e.g. an AIFM, management company, general partner, fund administrator or depositary), must be Irish-resident.
As part of the Central Bank's fitness and probity requirements, a proposed director is required to confirm (via the individual questionnaire as referred to in question 1.5) his/her time commitment in days that will be provided per year in respect of that directorship. In addition the appointing entity, in validating the questionnaire, is required to confirm its expectation regarding the proposed director's time commitment per year.
Fund Governance Code
Corporate RIAIFs/QIAIFS or the management companies/general partners of non-corporate RIAIFs/QIAIFs are recommended to adhere to a voluntary corporate governance code for funds put in place by the Irish Funds Industry Association at the request of the Central Bank. Such code provides inter alia for a majority of non-executive directors and at least one independent non-executive director.
Local requirements regarding the appointment of a non-Irish AIFM, investment manager or investment advisor are detailed in question 1.2 above.
1.7 What service providers are required?
The service providers involved in a RIAIF/QIAIF will depend on:
- the legal structure of the AIF as detailed in question 1.3 (e.g. a management company/general partner will be required to be appointed in the case of a non-corporate AIF);
- whether an external valuer, distributor and/or prime broker will be appointed; and
- whether a fund administrator authorised by the Central Bank will be appointed (as is customary) to calculate the net asset value of the AIF and to provide fund accounting and transfer agency services.
The appointment of a depositary is required under the Irish AIFM Regulations.
A RIAF/QIAIF must appoint auditors and a money laundering reporting officer and, if a corporate AIF, will need to appoint a secretary. In addition, if it is intended to list the units of the AIF on the Irish Stock Exchange, it will be necessary to appoint an Irish listing sponsor. It is also customary for Irish legal advisers to be appointed.
1.8 What co-operation or information sharing agreements have been entered into with other governments or regulators?
As at 18 February 2015, the European Securities and Markets Authority approved co-operation agreements between EU securities regulators and 45 non-EU authorities. See the ESMA website at http://www.esma.europa.eu/content/AIFMD-MoUs-signed-EUauthorities- updated for a full list. The Central Bank has signed all of these agreements other than those with the competent authorities in the Maldives and Turkey.
2 Fund Structures
2.1 What are the principal legal structures used for Alternative Investment Funds?
The principal legal structures of RIAIFs/QIAIFs are set out in question 1.3, the principal features of which are set out below:
- unit trusts are contractual arrangements created under a trust deed made between a management company and a depositary. Unit trusts do not have their own legal personality and contracts are entered into by the management company and, in certain cases, by the trustee. A unit represents an undivided beneficial interest in the assets of the unit trust;
- investment companies are public limited liability companies incorporated with variable capital, i.e. the actual value of the paid-up share capital is equal at all times to the value of the net asset value of the company. Shares issued do not represent a legal or beneficial interest in the company's assets;
- ILPs are partnerships between one or more general partners and one or more limited partners, constituted by written agreements between the parties known as partnership agreements. A general partner is personally liable for the debts and obligations of the partnership and a limited partner contributes or undertakes to contribute a stated amount to the capital of the partnership;
- CCFs are funds constituted under contract law by means of a deed of constitution executed under seal by a management company. The CCF is an unincorporated body and does not have a legal personality and therefore may act only through the management company. Participants in the CCF hold their participation as co-owners and each participant holds an undivided co-ownership interest as a "tenant in common" with other participants; and
- ICAVs are corporate bodies with limited liability where the actual value of the paid-up share capital is at all times equal to the net asset value of the ICAV and the share capital is divided into a specified number of shares without assigning any nominal value to them. The assets of the ICAV belong exclusively to the ICAV and no shareholder has any interest in the assets of the ICAV.
Each of the above-referenced AIFs may be established as an umbrella fund with separate sub-funds.
2.2 Please describe the limited liability of investors.
In investment companies and ICAVs, the liability of the shareholders is limited to the amount, if any, unpaid on the shares held by them. In unit trusts, the limited liability of the unitholders under the trust deed will depend on the contractual provisions in the trust deed.
In ILPs, the liability of the limited partners is limited to the stated amount of capital they have contributed or undertaken to contribute and, except in limited circumstances set down in the Investment Limited Partnerships Act 1994, does not extend to the debts of the partnership beyond the amount contributed.
In CCFs, the liability of a unitholder is limited to the amount agreed to be contributed for the subscription of units.
2.3 What are the principal legal structures used for managers and advisers of Alternative Investment Funds?
The principal legal structure used for managers and advisers of RIAFs/QIAIFs is a private company incorporated with limited liability.
2.4 Are there any limits on the manager's ability to restrict redemptions in open-ended funds or transfers in open-ended or closed-ended funds?
Although RIAIFs/QIAIFs may apply redemption gates if provided for in the applicable fund documentation, the Central Bank currently imposes limits on an AIF's ability to restrict redemptions on any one dealing day in the context of open-ended funds. These limits are detailed in question 1.4.
2.5 Are there any legislative restrictions on transfers of investors' interests in Alternative Investment Funds?
There are no legislative restrictions on transfers of investors' interests in RIAIFs/QIAIFs other than in ILPs. A limited partner may only assign his partnership interest subject to the consent of all general partners to the assignee being admitted to the partnership as a limited partner.
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