The Central Bank of Ireland has announced positive changes to the rules applicable to Irish authorised Loan Origination Funds ("LO Funds") which increase the range of investments a LO Fund may make, and provide welcome additional flexibility to LO Fund managers.
With effect from 3 January 2017, the rules requiring Irish "Qualifying Investor" Alternative Investment Funds ("QIAIFs") authorised as LO Funds to restrict their operations to issuing loans, participating in loans and lending, and operations directly arising from those activities, including handling realised security, are being relaxed to allow other investments linked to the loan origination strategy.
The changes to the Central Bank's rules will allow LO Funds to invest in debt and equity securities of entities or groups to which the LO Fund lends. Investments in debt and equity securities for treasury, cash management or hedging purposes will also be permitted. LO Funds will also be able to engage in operations relating to its business of issuing and participating in loans and lending.
The changes which will allow LO Funds to acquire equity securities such as warrants and debt securities of borrowers and their group companies represent a significant development in Ireland's LO Fund offering. Once introduced, the new rules will allow LO Funds to seek to enhance returns for investors by investing in a broader range of assets and investment instruments which is positive for managers and investors alike.
Ireland was the first European Union ("EU") member state to introduce a specific regulatory framework for loan origination funds benefitting from the EU-wide marketing passport under the Alternative Investment Fund Managers Directive. The additional flexibilities being introduced will further align Ireland's QIAIF LO Fund regime with EU initiatives to enhance funding to the real economy including Capital Markets Union and EU-wide products such as the European Long-Term Investment Fund regime which permits investments in debt and equity securities in addition to the granting of loans.
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