1 Legislative and regulatory framework
1.1 In broad terms, which legislative and regulatory provisions govern alternative investment funds in your jurisdiction?
The Central Bank of Ireland is the national competent authority for the regulation of alternative investment funds (AIFs) in Ireland. Accordingly, the Central Bank is responsible for the authorisation and ongoing supervision of Irish domiciled AIFs.
Irish AIFs are creations of domestic Irish funds law. Under Irish funds law, AIFs can be established in one of five different forms. The legislative basis for the different forms of AIFs is found in the following pieces of Irish funds law:
- Irish collective asset management vehicles (ICAVs) are established pursuant to the Irish Collective Asset-management Vehicles Act, 2015;
- Unit trust structures are established pursuant to the Unit Trusts Act, 1990;
- Designated investment companies are incorporated pursuant to the Companies Act, 2014, as amended and authorised by the Central Bank pursuant to Part 24 of the act;
- Investment limited partnerships are formed under the Investment Limited Partnerships Act 1994; and
- Common contractual funds (CCFs) are formed under the Investment Funds, Companies and Miscellaneous Provisions Act 2005.
These pieces of product-level legislation are the foundations of Irish AIF products and must be complied with at all times.
How AIFs are to be managed and how they can be marketed are matters of European law. As a result, in addition to the Irish domestic funds legislation, AIFs in Ireland are subject to the following regulatory requirements:
- the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD);
- Commission Delegated Regulation (EU) 231/2013 supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (‘AIFMD Level 2 Regulation');
- Commission Delegated Regulation (EU) 694/2014 on 17 December 2013, which supplements the AIFMD with regard to regulatory technical standards determining the types of AIF managers (AIFMs). This delegated regulation determines whether an AIFM is the AIFM of open-ended AIF(s) and/or closed-ended AIF(s); and
- Commission Delegated Regulation (EU) 2015/514 of 18 December 2014, which deals with the information to be provided by EU competent authorities to the European Securities and Markets Authority (ESMA) to enable ESMA to evaluate the AIFMD passports (managing or marketing).
As the AIFMD is an EU directive, it had to be transposed into the domestic laws of EU member states to be legally effective. Accordingly, the EU (Alternative Investment Fund Managers) Regulations 2013 (‘AIFM Regulations') implemented the AIFMD in Ireland.
Sitting alongside Irish funds law, the AIFMD Framework and the AIFM Regulations are the Central Bank rules, which deal with AIFs as products and their Irish authorised AIFMs. These provisions are found in the Central Bank's AIF Rulebook. Pursuant to the AIF Rulebook, AIFs which are authorised and regulated by the Central Bank are may be classified as either:
- qualifying investor AIFs (QIAIFs); or
- retail investor AIFs (RIAIFs).
Both QIAIFs and RIAIFs are subject to the requirements of the AIFMD regime, and are required to appoint an AIFM. Two distinct chapters of the Central Bank's AIF Rulebook set out the specific requirements applicable to RIAIFs and QIAIFs. The Central Bank requires that RIAIFs appoint an AIFM which is subject to all of the regulatory requirements of the AIFMD.
Although the AIF Rulebook is stated to set out the rules which apply to Central Bank-authorised AIFs and AIFMs, the ‘definitive rules' for each AIF and AIFM are actually set out in the letter of authorisation for the individual AIF or AIFM, as issued by the Central Bank. The Central Bank has also published (and regularly updates) an AIFMD Q&A document which sets out answers to queries regularly raised on AIFMD-related matters. This has proved to be very helpful and is a useful resource.
In addition, AIFs which are structured as either ICAVs or investment companies and which have appointed an AIFM must have regard to relevant sections of the Central Bank's Fund Management Company Guidance. Corporate RIAIFs/QIAIFS (ie, ICAVs or investment companies) or the management companies/general partners of non-corporate RIAIFs/QIAIFs (ie, investment limited partnerships or CCFs) are also 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.
In addition to Irish funds law, the AIFMD Framework and the Central Bank's AIF Rulebook, the following legislation may apply to Irish AIFs in certain circumstances:
- the Prospectus (Directive 2003/71/EC) Regulations 2005 (for certain categories of closed-ended funds), as amended;
- the European Union (Key Information Document for Packaged Retail and Insurance-Based Investment Products) Regulations 2017 (Regulation (EU) 1286/2014); and
- Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.
Other domestic or EU legislation may apply to Irish AIFs from time to time, depending on matters such as asset type and whether the fund is listed on an EU exchange.
1.2 Do any special regimes or provisions apply to specific types of alternative investment funds?
As noted in question 1.1, AIFs which are authorised and regulated by the Central Bank are broken into two specific categories.
RIAIFs: RIAIFs are subject to more flexible investment and eligible asset restrictions than are applicable to undertakings for collective investment in transferable securities (UCITS) funds. RIAIFs are permitted to invest in certain types of alternative assets, such as real estate and hedge funds; as a result, they are an attractive alternative type of fund for investment strategies that do not fit easily within the UCITS framework. However, RIAIFs are far more restrictive in terms of investment and eligible asset restrictions than is the case for QIAIFs. In particular, RIAIFs are subject to the following key investment and borrowing restrictions:
- Investment in unlisted securities may be up to 20% of the net asset value (NAV) of the RIAIF.
- Investment in securities issued by the same institution may be up to 20% of the NAV.
- Index-tracking RIAIFs are subject to a limit of 35% of the NAV of investments in securities by the same institution.
- No more than 20% of the NAV may be invested in any class of security issued by a single issuer (this does not apply to investment in other open-ended funds);
- Investment of more than 20% and up to 100% of the NAV of the relevant RIAIF in government-backed securities requires the prior approval of the Central Bank.
- No more than 10% of the NAV may be held in deposits with any one institution (this limit may be raised to 30% for European Economic Area institutions or certain other credit institutions or the depositary of the RIAIF).
- Up to 30% of the NAV may be invested in any one open-ended regulated fund (this rule may be disapplied for certain categories of regulated funds under the AIF Rulebook).
- RIAIFs investing over 30% of their NAV in other investment funds must ensure that the investment funds in which they invest are prohibited from investing more than 30% of their NAV in other investment funds.
- No more than 20% of the NAV may be invested in unregulated, open-ended funds (this limit may be disapplied subject to further conditions in accordance with the requirements of the AIF Rulebook).
Furthermore, a RIAIF may borrow up to 25% of its NAV; but it is not permitted to offset credit balances against borrowings when determining the percentage of borrowings that remains outstanding. Repurchase or reverse repurchase contracts, securities borrowing and securities lending do not constitute borrowing for the purposes of the 25% limit.
Part II of the chapter of the AIF Rulebook dealing with RIAIFs sets out specific requirements in respect of RIAIFs which pursue certain investment strategies. In particular, the following types of RIAIFs have distinct requirements:
- venture or development capital or private equity RIAIFs;
- money market RIAIFs;
- real estate RIAIFs;
- funds of unregulated funds RIAIFs;
- RIAIFs which invest more than 30% of their net assets in another investment fund; and
- closed-ended RIAIFs or open-ended RIAIFs with limited liquidity.
As RIAIFs are categorised as a retail fund product by the Central Bank, RIAIFs cannot avail of the automatic right to market across Europe under the AIFMD marketing passport. The AIFMD passport is available only for AIFs which are marketed to professional investors as defined under the AIFMD. Particular jurisdictions may permit RIAIFs to access their markets, but this will be on a jurisdiction-by-jurisdiction basis. RIAIFs may, however, be marketed under the AIFMD passport, provided that such marketing is limited to professional investors (as defined under the AIFMD).
QIAIFs: A QIAIF is a regulatory classification applied by the Central Bank and QIAIFs are subject to a very limited number of investment or borrowing restrictions. As a result, QIAIFs can invest in the widest range of asset types. QIAIFs may be sold in Ireland only to ‘qualifying investors'; and when marketed throughout Europe under the AIFMD passport, only to ‘professional investors' (as defined under the AIFMD). QIAIFs may not accept subscriptions from an investor of less than €100,000 and accordingly are generally targeted at sophisticated and institutional investors.
A ‘qualifying investor' is as follows:
- an investor that is a professional client within the meaning of the Markets in Financial Instruments Directive (MiFID);
- an investor that receives an appraisal from an EU credit institution, a MiFID firm or a UCITS management company to the effect that it has the appropriate expertise, experience and knowledge to adequately understand the investment in the QIAIF; or
- an investor who certifies that it is an informed investor by providing the following:
- confirmation (in writing) that the investor has such knowledge of, and experience in, financial and business matters as would enable it to properly evaluate the merits and risks of the prospective investment; or
- confirmation (in writing) that the investor's business involves, whether for its own account or the account of others, the management, acquisition or disposal of property of the same kind as the property of the QIAIF.
QIAIFs are subject to very few investment restrictions and – other than in the case of loan origination QIAIFs (L-QIAIFs) – no borrowing or leverage limits apply (subject to appropriate disclosure). The main restrictions which apply to QIAIFs are summarised as follows:
- QIAIFs may not raise capital from the public through the issue of debt securities. However, that does not preclude the issue of notes by QIAIFs on a private basis to lending institutions to facilitate financing arrangements. Details of the note(s) issued must be clearly provided for in the prospectus.
- QIAIFs are not permitted to grant loans or act as a guarantor on behalf of third parties, other than where authorised as an L-QIAIF. This is without prejudice to the right of a QIAIF to acquire debt securities. It will not prevent QIAIFs from acquiring securities which are not fully paid or from entering into bridge financing arrangements where the financing extended to the QIAIF is backed by sufficient legally binding commitments to discharge the financing within a timeframe determined by the at least simultaneous triggering of obligations on unitholders to make capital contributions which they are previously contractually committed to making at the time the bridge financing is entered into.
- QIAIFs are not permitted to acquire shares carrying voting rights which would enable them to exercise significant influence over the management of issuing bodies; nor are they permitted to appoint an AIFM, management company or general partner which would do so. This requirement does not apply to investments in other investment funds. It is also disapplied where the QIAIF is a venture capital, development capital or private equity QIAIF, provided that its prospectus indicates its intention regarding the exercise of legal and management control over underlying issuers.
- Where a QIAIF invests in funds managed by its AIFM or its management company, or by an associated or related company of either the AIFM or management company, the manager of the underlying fund must waive any sales/initial charge/redemption charge that it would normally charge in respect of the investment.
- QIAIFs structured as investment companies must comply with the aim of ‘spreading investment risk' as required under Section 1386 (1)(a) of the Companies Act and must include this requirement in their constitutional document. It is left to the discretion of the board of directors to determine actual diversification with reference to particular strategies.
- A QIAIF may invest up to 100% of its assets in other funds, subject to a maximum of 50% of net assets in any one underlying unregulated fund (subject to the section of the AIF Rulebook dealing with QIAIFs which invest more than 50% of their net assets in another investment fund). A QIAIF must not make investments which circumvent this restriction – for example, by investing more than 50% of net assets in two or more unregulated investment funds which have identical investment strategies.
- QIAIFs investing in private equity type assets will need to consider and comply with the disclosure and notification obligations and anti-asset stripping rules set out under the AIFMD.
- QIAIFs must disclose in the prospectus:
- the circumstances in which they may use leverage;
- the type/source of leverage;
- the maximum leverage levels; and
- any collateral or asset reuse arrangements.
The QIAIF (if it is also the AIFM) must, however, be able to demonstrate that the leverage limit set by it is reasonable and that it complies with that limit at all times.
In a similar manner to the chapter of the AIF Rulebook dealing with RIAIFs, the chapter of the AIF Rulebook dealing with QIAIFs also sets down specific requirements in respect of QIAIFs which pursue certain investment strategies. In particular, the following types of QIAIFs have distinct requirements:
- money market QIAIFs;
- QIAIFs which invest more than 50% of their net assets in another investment fund;
- closed-ended QIAIFs or open-ended RIAIFs with limited liquidity; and
- L-QIAIFs (ie, products which lend to the real economy as an alternative to traditional forms of bank financing).
Reflecting the AIFMD itself, the Central Bank has not imposed any specific investment restrictions on QIAIFs investing in real estate or in real estate assets. Whereas RIAIFs making such investments are subject to a number of real estate-specific investment limits, QIAIFs investing in real estate or in real estate assets are simply subject to the general QIAIF restrictions.
Use of subsidiary vehicles: In the case of both RIAIFs and QIAIFs, the AIF Rulebook also applies specific requirements with respect to the use of wholly owned and controlled subsidiaries:
- The subsidiary must not be an investment fund or issuing body;
- The subsidiary cannot appoint third parties or enter into contractual arrangements unless the AIF is also a party to such appointments/arrangements;
- The directors of the AIF must form a majority of the subsidiary board;
- The assets of the subsidiary must be valued in accordance with the AIF's valuation rules; and
- The subsidiary's own constitutional document must include provisions which restrict it from acting other than under the control of the AIF and which restrict any person or entity other than the AIF from holding shares in the subsidiary.
1.3 Do the legislative and regulatory provisions governing alternative investment funds have extra-territorial reach?
Irish AIFMs which manage AIFs – regardless of whether the AIFs are domiciled in Ireland, another EU member state or other non-EU country – must comply with the requirements of the AIFMD Framework and the AIFM Regulations. However, the AIF Rulebook does not apply to non-Irish AIFs.
AIFs which are authorised and regulated by the Central Bank will be subject to Irish domestic funds legislation, the requirements imposed by the AIFMD Framework, the AIFM Regulations and the provisions of the AIF Rulebook. Accordingly, only those AIFs which are established in Ireland and which are regulated by the Central Bank will be subject to these requirements.
1.4 Are any bilateral, multilateral or supranational instruments in effect in your jurisdiction of relevance to alternative investment funds?
The AIFMD Framework aims to provide for an internal market for AIFMs and a harmonised and stringent regulatory and supervisory framework for the activities within the European Union of all AIFMs, including those which have their registered office in an EU member state (EU AIFMs) and those which have their registered office in a third country (non-EU AIFMs). The AIFMD Framework applies to and regulates AIFMs themselves, but it has a consequential impact on AIFs which are managed and marketed in the European Union.
In addition to the AIFMD Framework, the following pan-European regulatory regimes apply to specific types of specialist funds:
- Regulation (EU) 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds;
- Regulation (EU) 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds; and
- Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds.
1.5 Which bodies are responsible for regulating alternative investment funds in your jurisdiction? What powers do they have?
The Central Bank is responsible for the regulation of AIFs in Ireland, pursuant to the EU and domestic legislation referenced in question 1, as well as guidance issued and conditions imposed by the Central Bank itself. The Central Bank is responsible for the authorisation and ongoing supervision of AIFs domiciled in Ireland and for Irish-domiciled AIFMs. The Central Bank has extensive powers under the Central Bank Act, 1948, as amended; in particular, it has the power to issue regulations in respect of AIFs. Previously, the Central Bank has issued specific regulations in respect of UCITS funds. However, to date, the Central Bank has not issued regulations specifically in respect of AIFs, and has relied on the AIF Rulebook and the conditions of the authorisation letters issued by the Central Bank to authorised AIFs in order to regulate AIFs in Ireland.
The Central Bank seeks to utilise an assertive risk-based approach to supervision, which is supported by a credible threat of enforcement. The stated aim of the Central Bank's enforcement strategy is to promote principled and ethical behaviour in regulated entities (eg, AIFs) and those that work in such entities. The Central Bank may take enforcement action where regulated entities (eg, AIFs) fall short of the standards expected by the Central Bank.
As part of its supervisory role, the Central Bank may conduct reviews and inspections of AIFMs appointed to Irish AIFs in relation to specific areas – for example, cybersecurity risk management, liquidity management and fitness and probity. The Central Bank's enforcement division has a range of tools to take action against regulated entities, including:
- administrative sanctions, including the imposition of fines for breach of regulatory obligations;
- the issue of restriction notices in respect of persons holding particular roles or positions for breach of regulatory obligations;
- refusals and revocation of authorisations of AIFs;
- cancellation and refusal of registrations;
- summary criminal prosecutions;
- supervisory warnings;
- imposition of conditions;
- issuance of directions; and
- reports to other governmental and state agencies (eg, the police, the revenue authorities and the Competition and Consumer Protection Commission).
The Central Bank's enforcement division adopts an intrusive approach to investigations and routinely engages in data mining and conducts forensic interviews as part of the investigative process. As part of any such investigation, the Central Bank has, among other things, the authority to:
- compel the production of documents;
- access books and records of AIFs and AIFMs under its regulatory umbrella;
- undertake on-site inspections and investigations of AIFs and AIFMs, and hold detailed discussions with staff and senior management of such entities; and
- invite senior management to interview.
1.6 To what extent do the regulators cooperate with their counterparts in other jurisdictions?
Within Europe, the Central Bank must engage and cooperate with all of the other EU regulators and national competent authorities, as well as with the European Supervisory Authorities (ESAs), such as ESMA and the European Systemic Risk Board. The Central Bank will assist other competent authorities and ESAs with information required by such competent authorities and ESAs in order to discharge their respective regulatory obligations. This may include assisting another competent authority with respect to:
- supervisory matters concerning entities regulated by the relevant competent authority which have a link to Ireland; or
- ongoing regulatory investigations concerning entities regulated by the relevant competent authority which have a link to Ireland.
At a global level, the Central Bank is actively involved with international organisations. In this context, the Central Bank is a member of the Irish delegation to the Financial Action Task Force and is represented on 10 of the International Organisation of Securities Commissions committees, working groups and subgroups.
In terms of its own regulatory process, the Central Bank will often consider the views and positions taken by other competent authorities in respect of new regulatory developments, including the Commission de Surveillance du Secteur Financier in Luxembourg. The Central Bank will also cooperate with ESAs such as ESMA in the application of particular regulatory requirements.
2 Form and structure
2.1 What types of alternative investment funds are typically found in your jurisdiction?
As noted in question 1.1, AIFs in Ireland will be authorised as one of two categories:
- retail investor AIFs (RIAIFs), which may be marketed to retail as well as institutional investors; or
- qualifying investor AIFs (QIAIFs), which may be marketed to qualifying investors.
RIAIFs and QIAIFs are used for the following investment strategies:
- hedge fund strategies;
- fund of funds strategies (eg, fund of hedge funds/private equity/private debt/real estate);
- real estate strategies;
- private debt strategies;
- master-feeder strategies;
- private equity strategies; and
- commodity strategies.
In addition, QIAIFs which are authorised by the Central Bank as loan origination QIAIFs are permitted to originate loans, subject to compliance with the requirements of the AIF Rulebook, and have proven popular for loan origination managers.
2.2 How are these alternative investment funds typically structured?
The principal legal structures of RIAIFs and QIAIFs are set out below. Each of these fund vehicles (with the exception of investment limited partnerships (ILPs)) may be established as either a standalone entity or as an umbrella fund with separate sub-funds. ILPs cannot currently be established as umbrella funds.
The legal structures available in Ireland for AIFs are as follows.
Irish collective asset-management vehicles (ICAVs): ICAVs (formed) under the Irish Collective Asset-management Vehicles Act 2015, as amended, are corporate bodies. They have limited liability where the actual value of the paid-up share capital is at all times equal to the net asset value (NAV) of the ICAV. The assets of the ICAV belong exclusively to the ICAV and no shareholder has any interest in these assets.
Unit trusts: Unit trusts (established under the Unit Trusts Act 1990) 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: Designated investment companies (formed under Part 24 of the Companies Act 2014, as amended) are public limited liability companies incorporated with variable capital (ie, the actual value of the paid-up share capital is equal at all times to the value of the NAV of the company). Shares issued do not represent a legal or beneficial interest in the company's assets.
ILPs: ILPs (formed under the Investment Limited Partnerships Act 1994) are investment partnerships between one or more general partners and one or more limited partners, constituted by written agreements between the parties. 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. An ILP is a partnership of two or more persons having as its principal business the investment of its funds in property of all kinds and consisting of at least one general partner – ultimately liable for the ILP's debts - and at least one limited partner. The general partner acts in a role roughly equivalent to that of a management company of a unit trust, common contractual fund (CCF) or corporate fund.
CCFs: CCFs (formed under the Investment Funds, Companies and Miscellaneous Provisions Act 2005) 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.
Each of the legal structures detailed above is authorised and regulated by the Central Bank.
2.3 What are the advantages and disadvantages of these different types of structures?
ICAV: An ICAV is the structure of choice for a majority of AIFs established in Ireland. The ICAV was introduced as a bespoke vehicle designed for the funds industry. ICAVs offer the following advantages over other Irish fund structures:
- The ICAV legislation is distinct from Irish company legislation governing investment companies, some of which is not particularly relevant or appropriate for collective investment schemes. The ICAV structure protects investors and fund promoters from any inconveniences arising from changes to Irish company legislation.
- The Central Bank acts as both the registration and supervisory authority for the ICAV. The ICAV application process is administratively efficient for AIFs.
- In circumstances where amendments to the instrument of incorporation are required, prior approval of the investors will not be required, provided that the depositary certifies in writing that the relevant amendments do not prejudice the interests of the shareholders of the ICAV and the amendment does not require shareholder approval under Central Bank requirements.
- The directors of an ICAV can dispense with the general requirement to hold an annual general meeting, provided that they give the ICAV's shareholders 60 days' notice.
- ICAVs can be established as umbrella structures and benefit from statutory segregation of liability between sub-funds
- Irish company law requires that the accounts of all sub-funds of an umbrella-type public limited company (PLC) be included in the consolidated annual financial statements of that company. Separate financial statements for individual sub-funds of an umbrella ICAV may be prepared, which ensures that investors in a single sub-fund will receive only the information that is relevant to them. This reduces the cost and time spent by fund directors and their advisers in compiling and circulating financial statements.
- An ICAV can be treated as a partnership or a disregarded entity for US federal tax purposes, thus making it much more attractive to US taxable investors.
- An AIF ICAV may be structured as a single asset fund and is not subject to a statutory risk spreading requirement.
Unit trust: Unit trusts are very well known and regularly utilised regulated fund vehicles in Ireland. Unit trusts offer the following benefits to investment managers from a structuring perspective:
- The Central Bank acts as both the registration and supervisory authority for the unit trust. The process of establishing a unit trust is administratively efficient for AIFs and involves a single application to the Central Bank.
- Unit trusts do not require a separate board of directors. The AIF manager (AIFM) or management company which is a party to the trust deed is responsible for the management of the unit trust, which offers the opportunity to limit the costs associated with operating a separate board of directors.
- In circumstances where amendments to the trust deed are required, prior approval of the investors is not required, provided that the trustee of the unit trust certifies in writing that the relevant amendments:
- do not prejudice the interests of the unitholders of the unit trust; and
- do not require unitholder approval under Central Bank requirements.
- Unit trusts are not required to hold an annual general meeting.
- Separate financial statements for individual sub-funds of an umbrella unit trust may be prepared. This ensures that investors in a single sub-fund will receive only the information that is relevant to them. This reduces the cost and time spent by fund directors and their advisers in compiling and circulating financial statements. In addition, it is possible to have sub-funds with different accounting dates, thereby allowing investment managers to align reporting dates with investor requirements.
- Unit trusts can be established as umbrella structures and have segregation of liability between sub-funds.
- A unit trust may be structured as a single asset fund and is not subject to a statutory risk-spreading requirement.
- Unit trusts are very familiar to particular investor types (eg, Japanese investors)
Unit trusts must prepare unaudited semi-annual financial statements in each calendar year, which is a small added administrative burden; however, this does not apply in the case of ICAVs or investment companies.
Investment companies – PLCs: Prior to the introduction of the ICAV, investment companies were the only regulated corporate type structure available in Ireland. Since the ICAV was introduced, investment companies have been very infrequently used as the legal structure for AIFs. Designated investment companies share some of the same features as ICAVs, but there are some fundamental and importance differences which make the designated investment company less attractive for investment managers looking to establish and AIF in Ireland. Some of the features applicable to designated investment companies are as follows:
- They can be established as umbrella structures and benefit from statutory segregation of liability between sub-funds.
- They are subject to a statutory obligation to spread investment risk.
- Shareholder approval is required for any change to the constitutional documentation applicable to a designated investment company, regardless of materiality.
- They must hold an annual general meeting each year, which cannot be dispensed with.
- They cannot prepare separate financial statements at a sub-fund level.
- They cannot be treated as a partnership or a disregarded entity for US federal tax purposes.
- They are subject to Irish company legislation, some provisions of which are not particularly relevant or appropriate for investment funds.
CCFs: The CCF is a tax-transparent contractual arrangement – similar to the structures in other European jurisdictions – which enables the assets held on behalf of investors to be managed through a single pool in proportion to the assets or cash subscribed to the pool.
One of the most important differences between a CCF and the other fund structures available in Ireland is that the CCF is tax transparent. As a result, for investors, this means that they are treated as if they directly own a share of all underlying investments held by the CCF proportionate to their investment in the CCF. This tax-transparent feature allows for greater economies of scale that make the CCF of particular interest to pension funds and other asset pooling vehicles.
CCFs are, however, limited in the types of investors that can invest in them. The investors in CCFs must themselves be institutional.
ILPs: AIFs can also be established as ILPs under the Investment Limited Partnerships Act, 1994. The main advantage of an ILP is that the ILP does not have an independent legal existence in the way that a company or corporate entity does. All of the assets and liabilities belong jointly to the individual limited partners in the proportions agreed in the partnership deed. Similarly, the profits are owned by the limited partners.
ILPs are not currently used regularly in Ireland, but it is hoped that proposed amendments to the Investment Limited Partnerships Act, 1994 will make ILPs more attractive to investment managers in future.
2.4 What are the most widely used alternative investment funds structures used in your jurisdiction?
See question 2.3.
2.5 Is there a preferred alternative fund structure for particular investment strategies (ie, hedge fund/private credit/private equity)?
Since the introduction of the ICAV in 2015, the majority of AIFs – regardless of their investment strategy – have been structured as ICAVs. In certain limited circumstances, unit trusts and ILPs have been utilised, but the ICAV has become the preferred vehicle for AIFs in Ireland.
2.6 Are alternative investment funds required to have a local administrator appointed?
Yes, an Irish AIF must have an Irish authorised administrator. However, it is possible for the administrator to delegate certain elements of the administration process outside of the jurisdiction, subject to compliance with the requirements of the Central Bank. The Central Bank is responsible for the authorisation, regulation and supervision of administrators in Ireland under the domestic Investment Intermediaries Act 1995 regime. Fund administration activities include:
- calculation of NAV;
- preparation of periodic reports;
- calculation and payment of distributions;
- payment of expenses; and
- maintenance of a fund's financial books and records.
2.7 Are alternative investment funds required to appoint a local custodian to hold assets? If yes, what legal protections are in place to protect the alternative investment fund's assets?
One of the means through which the Alternative Investment Fund Managers Directive (AIFMD) Framework achieves greater levels of investor protection is by requiring the appointment of a depositary to carry out specific functions – including the monitoring of cash flows and safekeeping of assets, as well as general regulatory oversight responsibilities – and imposing stringent liability provisions on depositaries. The AIFMD requires every AIFM to ensure that:
- for each AIF it manages, a single depositary has been appointed; and
- the appointment is formalised in a written contract regulating at least the flow of information necessary to enable the depositary to perform its functions.
In this context, every Irish AIF must appoint a depositary located in Ireland as required by the AIFMD Framework and Regulation 22 of the AIFM Regulations.
A depositary must be one of the following:
- a credit institution;
- an investment firm subject to EU capital adequacy requirements and authorised under the Markets in Financial Instruments Directive; or
- another category of institution subject to prudential regulation and ongoing supervision.
Under the AIFMD, the depositary has restitution liability throughout the custody network for financial instruments lost while in custody, and has or will have more prescriptive duties relating to daily monitoring of all cash flows, reconciliations and verifications, due diligence and risk assessments, segregation arrangements and sub-custody oversight.
2.8 Is it possible for an alternative investment fund to redomicile to your jurisdiction? If yes, what considerations are required and what are the steps involved?
Yes, an AIF from another jurisdiction can migrate inwards and redomicile to Ireland.
Corporate AIFs from certain jurisdictions can redomicile to Ireland subject to the appropriate process being undertaken. In the context of a corporate type AIF redomiciling to Ireland, the Central Bank has issued guidance on the practical steps involved in the redomiciliation process for both corporate funds and unit trusts.
Redomiciliation is often a more efficient process than engaging in a cross-border merger, as it dispenses with the need to set up a new fund and it does not involve the sale or transfer of assets, shares or investors. In addition, by utilising the migration process, investment managers can preserve track records which have been built up over many years.
A foreign investment company which is an AIF wishing to redomicile to Ireland will need to undertake a number of steps, including the following:
- The AIF will need to have identified an AIFM that will be responsible for the application for redomiciliation to the Central Bank.
- The constitutional and offering documentation will need to be revised and updated to ensure that they are in compliance with the requirements of the AIFMD Framework and the AIF Rulebook;
- Agreements with a local administrator and depositary in Ireland will need to be prepared and agreed.
- Other service provider agreements will need to be prepared which comply with the requirements of the AIFMD Framework.
- The directors of the AIF will need to undertake the Central Bank's fitness and probity process, which involves the submission of an individual questionnaire to the Central Bank for review.
- A shareholder meeting will need to be convened to consider the proposed redomiciliation and the amended documentation applicable to the AIF after conclusion of the proposed redomiciliation.
- A director of the migrating AIF must make a statutory declaration confirming that the migrating AIF is solvent and that all necessary consents for both migration to Ireland and conversion to an ICAV (where relevant) have been obtained.
- A director of the migrating AIF must make a declaration of solvency of the migrating AIF, accompanied by a report of an independent auditor
If the migrating AIF is going to become a designated investment company, then the migrating AIF must apply to the Irish Companies Registration Office (CRO) to be registered as an investment company by way of continuation. The process of registering as a designated investment company with the CRO is undertaken simultaneously with the process of becoming authorised by the Central Bank as an AIF.
A migrating AIF wishing to redomicile to Ireland as an ICAV must apply directly to the Central Bank to be registered as an ICAV by way of continuation. The migrating AIF will also need to obtain the appropriate authorisation from the Central Bank. The ICAV Act 2015 provides for migration and conversion in a single streamlined process, rather than a separate redomiciliation and conversion process.
For AIFs which are structured as unit trusts and which are proposing to redomicile to Ireland, the process is relatively straightforward. As part of the redomiciliation process, a migrating unit trust is not required to go through any registration process with the CRO or the Central Bank in advance. Unit trusts which are authorised or registered in another jurisdiction and are subject to regulatory supervision or oversight in that jurisdiction must provide the following documentation:
- a certified copy of the certificate of registration or equivalent certificate or document issued with respect to the unit trust issued by the relevant local competent authority; and
- confirmation from the local competent authority that there is no reason why the unit trust cannot redomicile to Ireland. If this is not possible, a letter from a local legal counsel confirming this fact should be provided to the Central Bank.
All of the offering documentation and constitutional documents applicable to the migrating unit trust must comply with the requirements of the AIFM Regulations and the AIF Rulebook, and be submitted to the Central Bank together with the relevant material contracts as part of the migration process.
3.1 Must alternative investment funds be authorised or licensed in your jurisdiction?
As noted in question 1.1 the Central Bank is responsible for the authorisation and ongoing supervision of alternative investment funds (AIFs) in Ireland.
3.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
All applications for authorisation as an AIF (qualifying investor AIF (QIAIF) or retail investor AIF (RIAIF)) by the Central Bank will involve completion of relevant Central Bank application forms to ensure that the fund documents comply with the AIFM Regulations and the AIF Rulebook. Appropriate confirmation letters must also be submitted as part of the application for authorisation.
Applications for authorisation of a RIAIF/QIAIF must be made by the AIF manager (AIFM), together with
- the corporate AIF or management company/general partner in the case of a non-corporate AIF; and
- the depositary, in the case of a unit trust or common contractual fund.
All parties to a RIAIF/QIAIF must have been authorised by, or otherwise deemed acceptable to, the Central Bank prior to the application for authorisation (eg, the management company, general partner, AIFM, directors in the case of a corporate AIF, depositary and other service providers such as the fund administrator, investment manager). The directors of any entity authorised by the Central Bank (eg, the directors of a corporate AIF (RIAIF or QIAIF)) must meet certain standards of fitness and probity. As part of the Central Bank's fitness and probity requirements, each director proposed to be appointed to a regulated entity 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. This application must be made in advance of the proposed authorisation date for the RIAIF/QIAIF (ie, at least 20 working days in the case of a RIAIF and at least five working days in the case of a QIAIF).
Neither RIAIFs nor QIAIFs are subject to any minimum capital requirements, unless they are proposed to be internally managed (ie, no external AIFM) and are considered to be AIFMs in their own right. Most AIFs in Ireland are externally managed.
3.3 What is the process for obtaining authorisation of alternative investment funds and how long does this usually take?
The following documentation is required in support of an application for approval of an AIF:
- prospectus or offering document;
- constitutional document;
- depositary agreement/trust deed;
- administration agreement;
- AIFM agreement; and
- investment management agreement (if applicable).
In relation to the authorisation process for QIAIFs, there is no prior filing and review of QIAIF documentation by the Central Bank. Instead, there is a self-certification regime (ie, certification must be given that the Central Bank's disclosure requirements relating to the QIAIF documentation are met). As 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 (ie, as part of the fitness and probity process)). Once the documentation is filed online by 5:00pm 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' on a post-authorisation basis.
In contract, the authorisation process for RIAIFs by the Central Bank requires certain documents (eg, the prospectus) to be submitted for review and cleared of comment by the Central Bank in advance of submission of the formal application for authorisation. As a result, a RIAIF with an externally appointed AIFM can take approximately eight to 10 weeks to be authorised by the Central Bank from the date of submission of applicable documents for review.
4 Management and advisory relationships
4.1 How are alternative investment fund managers and advisers typically structured in your jurisdiction?
External alternative investment fund (AIF) managers (AIFMs), investment managers and investment advisers are typically structured as private companies limited by shares (LTDs) or designated activity companies (DACs).
External AIFMs in Ireland are authorised by the Central Bank pursuant to the AIFM Regulations and must comply with the regulatory capital requirements set out in the AIFM Regulations. Similarly, investment managers and advisers authorised by the Central Bank pursuant to the European Union (Markets in Financial Instruments) Regulation 2017 (‘MiFID II Regulations') must comply with the regulatory capital requirements set out in MiFID II. The directors, managers and senior personnel within an external AIFM authorised under the AIFM Regulations, and investment managers or investment advisers authorised under the MiFID II Regulations, must comply with the Central Bank's fitness and probity requirements.
4.2 What are the advantages and disadvantages of these different types of structures?
LTDs are the most basic form of company structure in Ireland and are the most regularly used corporate structure for Irish external AIFMs and investment managers. The key difference between a DAC and an LTD is the objects clause in the DAC's constitution, which specifically describes the DAC's business activity. The constitution of an LTD does not contain such an objects clause and consequently LTDs have unlimited powers to amend and change their business activity. While the Companies Act sets out the requirements with respect to LTDs and DACs, as part of the authorisation process by the Central Bank, additional regulatory requirements are imposed on DACs and LTDs.
Pursuant to the Companies Act, a DAC must have at least two directors, while an LTD need only have one director. However, in accordance with the requirements of the Central Bank, AIFMs must have a minimum of two Irish resident directors in order to be authorised pursuant to the AIFM Regulations.
LTDs can dispense with the need to hold an annual general meeting (AGM), provided that all the shareholders agree and sign an annual resolution which approves matters which would have taken place at the AGM (eg, the review and approval of financial statements). A DAC may also dispense with the requirement to hold an AGM in certain circumstances.
4.3 Must alternative investment fund managers be authorised or licensed in your jurisdiction?
All Irish AIFMs must be authorised by, and are supervised by, the Central Bank. They are subject to detailed organisational, conduct of business, capital adequacy and corporate governance requirements, as well as having other obligations in areas such as risk and liquidity management, record keeping, financial control and conflicts of interest in accordance with the requirement of the Alternative Investment Fund Managers Directive (AIFMD) Framework, the AIFM Regulations, the AIF Rulebook and other Central Bank requirements.
A non-EU AIFM must be cleared to act as a discretionary investment manager by the Central Bank in advance of being appointed in respect of any Irish AIF.
4.4 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
Applicants seeking authorisation as an AIFM pursuant to the AIFM Regulations must submit:
- an authorised AIFM programme of activity checklist;
- a completed individual questionnaire in respect of each director and senior manager, where relevant; and
- a detailed programme of activity which takes account of the requirements of the AIF Rulebook, the Central Bank Guidance and Fund Management Companies Guidance.
4.5 What is the process for obtaining authorisation and how long does this usually take?
The AIFM application is submitted online via the Central Bank's ORION system. The applicant must submit an application for authorisation to the Central Bank containing information and documentation regarding its ownership, management and organisational structure, and additional information as to how it intends to comply with the various obligations imposed on AIFMs.
In particular, the applicant must submit the following to the Central Bank:
- a completed application form signed by two directors of the applicant;
- individual questionnaires, completed online, in respect of each proposed director and senior manager of the applicant. Individual questionnaires must also be filed in respect of any individual with a direct or indirect shareholding or other interest representing 10% or more of the capital or voting rights in the AIFM (other than an internally managed AIFM), and for any other individual in a position to exercise significant influence over its management;
- a programme of activity which sets out the AIFM's organisational structure, as well as information on how it intends to comply with the various obligations imposed under the AIFM Regulations, including:
- operating conditions (governance, risk management, the management and valuation of assets, and custody obligations);
- transparency requirements; and
- obligations imposed on AIFMs that manage leveraged AIFs and those which seek to acquire control of non-listed companies;
- details of how it intends to manage and market EU AIFs and marketing generally;
- information on its proposed remuneration policies and practices, its delegation and sub-delegation arrangements and the AIFs it intends to manage; and
- a statement of responsibility addressing internal managerial controls.
Having reviewed the application, the Central Bank will issue comments and may request additional information or documentation. The normal timeframe for obtaining authorisation as an AIFM is four to six months from submission of a complete application to the Central Bank. The overall timing depends on:
- the response times of the Central Bank;
- whether any material issues arise during the application process; and
- the response times of the parties involved.
Care must be taken to ensure that the application is complete. Incomplete applications will be rejected and this will lead to delays. In addition, Irish AIFMs looking to avail of additional MiFID-type authorisations permitted by Regulation 7(4)(a) of the AIFM Regulations (eg, discretionary management of non-AIF assets) must submit a preliminary application to the Central Bank in the form of a key facts document prior to submission of the complete application; due to the additional regulatory review of such applications, the timeframe for such applications may take at least nine months.
4.6 What other requirements or restrictions apply to alternative investment fund managers and advisers in your jurisdiction?
In the case of an Irish AIFM authorised by the Central Bank which has a Central Bank PRISM impact rating of Medium Low or above, the AIFM must have at least:
- three directors resident in Ireland, or at least two directors resident in Ireland and one designated person (ie, a person designated by the board to carry out one or more managerial functions) resident in Ireland;
- half of its directors resident in the European Economic Area (EEA); and
- half of its managerial functions performed by at least two designated persons resident in the EEA.
In the case of an Irish AIFM authorised by the Central Bank which has a PRISM impact rating of Low, the AIFM must have at least:
- two directors resident in Ireland;
- half of its directors resident in the EEA; and
- half of its managerial functions performed by at least two designated persons resident in the EEA.
As part of the Central Bank's fitness and probity requirements, a proposed director/designated person must confirm (via the individual questionnaire referred to in question 1.5) his or her time commitment in days that will be provided per year in respect of that directorship or role as a designated person. In addition, the appointing entity, in validating the questionnaire, must confirm its expectation regarding the proposed director's/designated person's time commitment per year.
4.7 Can an alternative investment fund manager impose restrictions on the issue, redemption or transfer of interests in the funds under management?
Yes, in certain circumstances it is possible for AIFMs to restrict the issue, redemption or transfer of interests in the funds under management.
The Central Bank permits qualifying investor AIFs (QIAIF) and retail investor AIFs (RIAIFs) to be structured as follows.
Open-ended: An AIF is considered open-ended by the Central Bank where it:
- provides redemption facilities on at least:
- a monthly basis in the case of a RIAIF; or
- a quarterly basis in the case of a QIAIF;
- redeems, when requested, at least:
- 10% of net assets in the case of a RIAIF/QIAIF that redeems on a monthly basis or more frequently; or
- 25% in the case of a QIAIF that redeems on a quarterly basis; and
- does not impose a redemption fee in excess of:
- 3% of the net asset value per unit in the case of a RIAIF; or
- 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 that it classifies itself as open ended with limited liquidity.
Open-ended with limited liquidity: A RIAIF or a 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.
Closed-ended: 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.
Issue of shares/units /interests: As noted in question 4.7, shares in a QIAIF can be issued only to qualifying investors in accordance with the requirements of the AIF Rulebook. In addition, when availing of the marketing passport under the AIFMD Framework, RIAIFs/QIAIFs may be marketed only to professional investors in accordance with the AIFMD and as a result, investors must be professional investors in order to invest in RIAIFs/QIAIFs when such marketing is taking place.
AIFMs may also decide to permit investment only by particular categories of investors (ie, institutional investors), and to limit access by imposing minimum investment amounts. In addition, generally the AIFM of an AIF (RIAIF or QIAIF) will be permitted in accordance with the AIF's offering/constitutional documentation to reject applications for subscriptions from investors at its absolute discretion. Generally, details of restrictions on subscriptions and any particular requirements will be disclosed in the AIF's offering documentation. In addition, certain categories of investors may, by virtue of the constitutional documentation applicable to an AIF, be specifically prohibited from investing in AIFs (eg, US Employee Retirement Income Security Act (ERISA) investors).
During any period when the calculation of the net asset value (NAV) of an AIF is suspended, the relevant AIF may not issue any shares/units/interests.
Redemption of shares/units/interests: 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 above. Limited liquidity and closed-ended funds are not subject to these requirements. As previously noted, a RIAIF or a QIAIF which is classified as open-ended with limited liquidity must allow redemption at least once throughout the life of the AIF.
In addition, redemption proceeds may be withheld if an investor fails to provide all necessary AML documentation to the AIF.
Suspensions: A QIAIF or RIAIF may temporarily suspend the calculation of the NAV and repurchase or redeem its units, provided that it informs the Central Bank immediately and in any event on the working day on which such suspension takes effect.
Where a QIAIF is an investment limited partnership (ILP), it may not temporarily suspend the calculation of the NAV and redemptions, except in the cases and according to the procedure provided for in the partnership agreement. Suspension may be provided for only in exceptional cases where the circumstances so require and suspension is justified having regard to the interests of the partners.
Transfers: There are no legislative restrictions on transfers of investors' interests in RIAIFs/QIAIFs, other than in ILPs. A limited partner may only assign its partnership interest subject to the consent of all general partners to the assignee being admitted to the partnership as a limited partner. Notwithstanding the lack of regulatory or legislative restrictions on transfers, the constitutional documentation applicable to a RIAF or QIAIF may contain prohibitions on transfers to certain categories of investors (eg, ERISA investors) and specify certain criteria on the types of investors which are permitted to invest in the relevant AIF (eg, investors in QIAIFs must meet the definition of a ‘qualifying investor' in order to invest).
4.8 Are there any requirements regarding the ownership of alternative investment fund managers? If so, please provide details.
One of the key requirements arising from the AIFMD is that shareholders or members of the AIFM that have qualifying holdings be suitable taking into account the need to ensure the sound and prudent management of the AIFM (Article 8(1)(d) of the AIFMD). Accordingly, as part of any authorisation process for an AIFM, the Central Bank will require details in relation to the ownership structure of the AIFM. In this regard, the Central Bank will require the submission of an individual questionnaire in respect of:
- any individual with a direct or indirect shareholding or other interest representing 10% or more of the capital or voting rights in the AIFM (other than an internally managed AIFM); and
- any other individual in a position to exercise significant influence over its management.
All applications for authorisation require detailed organisational charts to be submitted in order to clearly show the ownership structure of the applicant AIFM.
The European Commission has stated in its interpretation of the AIFMD that Article 8(1)(d) applies to both external AIFMs and internally managed AIFs. In the case of internally managed AIFs, the Central Bank has determined that the following categories of qualifying shareholders are suitable:
- investors in the AIF that meet the criteria for investment in that AIF and satisfy anti-money laundering requirements; and
- shareholders that hold subscriber shares for the purposes of incorporating the AIF.
Once an external AIFM has been authorised by the Central Bank, the AIF Rulebook requires that any change in the ownership structure of the external AIFM be notified to the Central Bank. If the shareholding of a shareholder (directly or indirectly) in an external AIFM is proposed to rise above or drop below any of the qualifying holding thresholds, the relevant shareholder must complete an individual questionnaire and submit this to the Central Bank together with relevant supporting documents (including revised ownership charts).
The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 require companies to take "all reasonable steps" to obtain and hold "adequate, accurate and current information" in respect of beneficial owners of the company. The ‘beneficial owners' of a corporate entity are any natural persons who ultimately own or control a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity. A shareholding of 25% plus one share or an ownership interest of more than 25% in the entity held by a natural person is an indication of direct ownership. If no person has such a shareholding, then the persons identified as beneficial owners are deemed to be the senior managing officials. Corporate entities must establish a beneficial ownership register which must contain details of all beneficial owners of the corporate entity, as well as information on the date on which each beneficial owner was entered on the register and, where applicable, the date on which any such person ceased to be a beneficial owner.
Information held on the internal beneficial ownership registers of corporate entities must also be filed in the Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies. Certain limited information on the Central Register can be accessed by the public. Competent state authorities will have unrestricted access to the Central Register.
4.9 Can alternative investment fund managers delegate to third-party investment managers or investment advisers? If yes, please provide details of any specific requirements.
Yes, the AIFMD permits AIFMs to delegate activities such as portfolio management, risk management, administration, marketing and other activities relating to management of fund assets subject to quite strict parameters, which are expanded on in detail by the Level 2 Regulations. The principal requirement is that the AIFM cannot delegate the performance of investment management functions to an extent that exceeds by a substantial margin the investment management functions performed by the AIFM itself.
Additional requirements and criteria must be taken into account where an AIFM delegates investment management functions to an investment manager. In accordance with the AIFMD, where an AIFM proposes to delegate the investment management function, the mandate may be given only to entities which are authorised or registered for the purpose of asset management and subject to prudential supervision. Where the proposed investment manager is not located in Ireland and is given to a third-country undertaking, cooperation between the supervisory authorities concerned must be ensured. Supervisory cooperation generally takes the form of a memorandum of understanding between both jurisdictions.
Where a proposed delegate is regulated in a jurisdiction which has not previously been considered by the Central Bank, it will be necessary to make a formal submission to the Central Bank in order to demonstrate that the regulatory regime for the proposed delegate investment manager is comparable to the model of prudential regulation employed by the Central Bank. The Central Bank has accepted the following jurisdictions as having a comparable regulatory regime: Abu Dhabi; Australia; Bahamas; Bermuda; Brazil; Canada; Dubai; Guernsey; Hong Kong; India; Japan; Jersey; Malaysia; Qatar; Singapore; South Africa; South Korea; Switzerland; and the United States.
Article 21 of the AIFM Regulations provides that an AIFM which intends to delegate to third parties the task of carrying out functions on its behalf must notify the Central Bank before the delegation arrangements become effective. In order to delegate tasks, the AIFM must be able to satisfy the requirements and conditions imposed by the AIFM Regulations – in particular, the following:
- The AIFM must be able to justify its entire delegation structure to the Central Bank on objective grounds.
- The delegate must dispose of sufficient resources to perform the respective tasks and the persons who effectively conduct the business of the delegate must be of sufficiently good repute and sufficiently experienced.
- Where the delegation concerns portfolio management or risk management, it shall be conferred only on undertakings which are authorised or registered for the purpose of asset management and subject to supervision or, where that condition cannot be met, subject to prior approval by the Central Bank.
- Where the delegation concerns portfolio management or risk management and is conferred on a third-country undertaking, in addition to the requirements above, cooperation between the Central Bank and the supervisory authority of the undertaking must be ensured.
- The delegation must not prevent the effectiveness of supervision of the AIFM and, in particular, must not prevent the AIFM from acting, or the AIF from being managed, in the best interests of its investors.
- The AIFM must be able to demonstrate that:
- the delegate is qualified and capable of undertaking the functions in question;
- the delegate was selected with all due care; and
- the AIFM is in a position to monitor effectively at any time the delegated activity, to give at any time further instructions to the delegate and to withdraw the delegation with immediate effect when this is in the interests of investors.
In accordance with the requirements of the AIFMD, no delegation of portfolio management or risk management can be conferred upon:
- the depositary or a delegate of the depositary; or
- any other entity whose interests may conflict with those of the AIFM or the investors of the AIF, unless:
- such entity has functionally and hierarchically separated the performance of its portfolio management or risk management tasks from its other potentially conflicting tasks; and
- potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF.
Where an AIFM proposes to delegate investment management to an investment manager which is located outside Ireland, the Central Bank must be satisfied that the delegate firm is appropriately regulated in its home jurisdiction. Specifically, the delegate firm must be authorised and subject to prudential regulation by its home competent authority. In addition, information concerning the proposed delegate's expertise, integrity and adequacy of financial resources must also be submitted as part of its application to the Central Bank. This information must include, among other things:
- background details and experience;
- organisational structure, including details of shareholders;
- assets under management; and
- latest audited financial statements.
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 and can avail of a fast-track process:
- undertakings for collective investment in transferable securities (UCITS) management companies authorised under Directive 2009/65/EC;
- investment firms authorised under MiFID II to provide portfolio management;
- credit institutions authorised under Directive 2006/48/EC with the approval to provide portfolio management under MiFID; and
- externally appointed AIFMs authorised under the AIFMD.
The Central Bank distinguishes between an investment adviser with discretionary power and an investment adviser with no discretionary power.
Where an investment adviser to an RIAIF/QIAIF will act in a discretionary capacity, the Central Bank will consider such application as an investment manager and the entity must comply with the regime outlined above. Where an investment adviser will not act in a discretionary capacity, no clearance of the entity is required.
4.10 Can alternative investment fund manager provide investment management services to clients other than alternative investment funds? If yes, do any additional requirements apply?
Yes, it is possible for an Irish AIFM to provide investment management services to clients other than AIFs, subject to the Irish AIFM having the appropriate regulatory approvals to provide such services. Provision of investment management services to clients other than when acting as AIFM requires an Irish AIFM to be authorised pursuant to Regulation 7(4)(a) of the AIFM Regulations, which permits an Irish AIFM to manage portfolios of investments, including those owned by pension funds and institutions for occupational retirement provision in accordance with Article 19(1) of Directive 2003/41/EC, in accordance with mandates given by investors on a discretionary, client-by-client basis.
In providing services in accordance with Regulation 7(4)(a) of the AIFM Regulations, the AIFM must comply with various provisions and requirements of the MiFID II Regulations and Commission Delegated Regulation (EU) 2017/565 and Commission Delegated Directive (EU) 2017/593.
AIFMs looking to avail of MiFID-type top-up authorisation permitted by Regulation 7(4)(a) of the AIFM Regulations, which is required in order to allow the Irish AIFM to manage non-AIF assets on a discretionary basis, must submit a preliminary application to the Central Bank in the form of a key facts document in advance of the full application for such an authorisation.
5.1 Is the marketing of alternative investment funds subject to authorisation in your jurisdiction?
Yes, AIFs must be marketed in accordance with the requirements of the Alternative Investment Fund Managers Directive (AIFMD) Framework, which requires that certain authorisations and approvals be granted by the Central Bank.
5.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?
Marketing in Ireland to retail investors: A non-Irish AIF must be approved by the Central Bank to market in Ireland to retail investors. Non-Irish AIFs which propose to market their units in Ireland to retail investors must be authorised by a supervisory authority set up in order to ensure the protection of unitholders and which, in the opinion of the Central Bank, provides an equivalent level of investor protection to that provided under Irish laws, regulations and conditions governing retail investor AIFs (RIAIF)s).
A non-Irish AIF which proposes to market its units/shares or interests in Ireland to retail investors must make an application to the Central Bank in writing, enclosing certain prescribed information. The following AIFs will receive approval to market their units in Ireland to retail investors on completion of the information and documentation requirements:
- those established in Guernsey and authorised as Class A schemes;
- those established in Jersey and authorised as recognised funds; and
- those established in the Isle of Man as authorised schemes.
Other AIFs must demonstrate an equivalent level of investor protection to that provided under Irish laws, regulations and conditions governing RIAIFs. The marketing of AIF units in Ireland to retail investors may not take place until the AIF has received a letter of approval from the Central Bank.
If a RIAIF managed by an Irish AIFM is proposed to be marketed in Ireland to Irish retail investors, Regulation 44 of the AIFM Regulations permits the marketing of AIFs to retail investors in Ireland. An Irish RIAIF which is authorised and regulated by the Central Bank may be marketed to Irish retail investors by the relevant AIFM of the RIAIF.
Marketing in Ireland to professional investors: The marketing of EU AIFs (including Irish qualifying investor AIFs (QIAIFs)) by an Irish AIFM to professional investors in Ireland must be notified to the Central Bank in accordance with Regulation 32 of the AIFM Regulations. Where the AIF is regulated by the competent authorities of another EU member state, the Central Bank must inform those competent authorities that the Irish AIFM may start marketing units or shares of the EU AIF in Ireland. Within 20 working days of receipt of a complete notification file, the Central Bank must inform the Irish AIFM as to whether it may start marketing the EU AIF in Ireland.
Irish AIFMs proposing to market EU AIFs – including QIAIFs – to professional investors in another EU member state must notify the Central Bank in accordance with Regulation 33 of the AIFM Regulations. The notification letter and accompanying prescribed form (available on the Central Bank website) should be submitted by the Irish AIFM to the Central Bank for each member state in respect of the AIF(s) it intends to market, together with the following:
- the AIF rules or instruments of incorporation for each AIF being marketed;
- any additional information referred to in Regulation 24(1) of the AIFM Regulations for each AIF that the AIFM intends to market;
- a description of, or any information on, the AIF available to investors; and
- a letter, signed by a director of the AIFM, stating that the AIFM will market the relevant AIFs in accordance with AIFMD.
The Central Bank will inform the AIFM once transmission to the relevant host member state competent authorities has taken place and the AIFM can then commence to market the QIAIF in the relevant member states. Transmission of marketing notifications to host member states must be completed within 20 working days of receipt of a complete application.
When an AIFM from another EU member state proposes to market shares or units of an EU AIF to professional investors in Ireland, it must comply with the requirements set down by its own local competent authority.
Irish AIFMs or AIFMs from other EU member states proposing to market non-EU AIFs to professional investors in Ireland must apply to the Central Bank for approval in accordance with the requirements of Regulation 37 of the AIFM Regulations.
A non-EU AIFM proposing to market an AIF to professional investors in Ireland must apply to the Central Bank for approval in accordance with Regulation 43 of the AIFM Regulations, and the marketing of such AIFs can commence only once the Central Bank has informed the relevant non-EU AIFM that it can start marketing. The relevant AIFM must comply with basic depositary and custody requirements under the AIFMD Framework (eg, the safekeeping of assets and the supervision of administrative functions) and also the substantive transparency and other requirements set out under Articles 22, 23, 24 of the AIFMD and where relevant, Articles 26 to 30 of the AIFMD for private equity funds.
Furthermore, a cooperation arrangement for the purpose of systemic risk oversight must be in place between the authorities of each EU member state in which the non-EU AIF is marketed and those in the third countries in which the AIFM and the AIF are established. Finally, the non-EU country in which the AIF is established must not be listed as a non-cooperative country or territory by the Financial Action Task Force on anti-money laundering and terrorist financing.
Marketing of AIFs other than in accordance with the AIFM Regulations: The marketing of units in collective investment schemes (CIS) in Ireland, other than in accordance with the requirements of the AIFM Regulations, must be undertaken by entities authorised to provide such marketing services. The regulation of the receipt and transmission of orders in relation to, and the placing of financial instruments (including shares and units in CIS) by, Irish entities is regulated by the European Union (Markets in Financial Instruments) Regulation 2017, as amended, the Investment Intermediaries Act 1995 and consumer protection legislation.
Non-Irish EU AIFMs marketing EU AIFs to professional investors in Ireland must comply only with their local rules. Non-Irish-registered EU AIFMs (as opposed to non-Irish-authorised EU AIFMs that can avail of the passport pursuant to Article 33 of the AIFM Directive) cannot market AIFs that they manage to professional investors in Ireland.
5.3 What is the process for obtaining authorisation and how long does this usually take?
Marketing in Ireland to retail investors: The process for obtaining authorisation for marketing to retail investors is outlined in question 5.2. The timeline for authorisation depends on the quality of the application and the manner in which queries raised by the Central Bank as part of the application are addressed and responded to.
Marketing in Ireland to professional investors: The process for obtaining authorisation for marketing AIFs to professional investors is outlined in question 5.2.
5.4 To whom can alternative investment funds be marketed?
Subject to compliance with the relevant notification requirements, an EU authorised AIFM has the ability – subject to completion of the requisite passporting notifications to its home regulatory authority – to freely market its EU domiciled AIFs to ‘professional investors' (as defined in question 4.6) in its home member state and in other EU member states. Particular jurisdictions may permit AIFs to be marketed to different categories of investors (ie, retail/semi-professional) and to access their markets, but this will be determined on a jurisdiction by jurisdiction basis.
5.5 What are the content criteria that marketing materials for alternative investment funds must satisfy?
See question 5.3.
5.6 What other requirements or restrictions apply to marketing materials for alternative investment funds?
See question 5.3.
5.7 Can alternative fund managers from other jurisdictions market alternative investment funds in your jurisdiction without authorisation?
See question 5.3.
5.8 Is the appointment of local marketing entities required in your jurisdiction?
5.9 Is it possible to market alternative investment funds to retail investors in your jurisdiction? If so, are there specific requirements?
Yes, see question 5.2.
6 Investment process
6.1 Do any investment or borrowing restrictions apply to the portfolios of alternative investment funds?
See question 1.2.
6.2 Are there any specific legal or regulatory requirements regarding investments in particular assets?
See question 1.2.
7 Reporting, governance and risk management
7.1 What key disclosure requirements apply to alternative investment funds in your jurisdiction?
Irish alternative investment funds (AIFs) must comply with the disclosure requirements detailed in the Alternative Investment Fund Managers (AIFM) Directive Framework, the AIFM Regulations and the AIF Rulebook.
7.2 What key reporting requirements apply to alternative investment funds in your jurisdiction?
Annual and half-yearly reports: A newly established qualifying investor AIF (QIAIF) or retail investor AIF (RIAIF) must submit to the Central Bank a set of accounts (whether an interim report or an annual report) within a certain period of the launch date (ie, within nine months for a RIAIF and 12 months for a QIAIF) and publish it within two months if it is an interim report or six months if it is an annual report.
The first annual reports must be made up to a date within 18 months of incorporation/establishment and published within six months. On an ongoing basis, a RIAIF/QIAIF must publish an annual report within six months of the end of the financial year. In addition, a QIAIF (established as a unit trust or CCF) and a RIAIF must publish, within two months of the reporting period, a half-yearly report covering the first six months of the financial year.
Regulatory reports: Each RIAIF/QIAIF must file the following regulatory reports with the Central Bank:
- a monthly return setting out prescriptive information relating to the relevant AIF;
- a quarterly survey of collective investment undertakings returned within 10 working days of the end-quarter to which it refers; and
- a funds annual survey of liabilities return, filed with the latter return. A RIAIF or a QIAIF structured as a money market fund that meets the definition of a ‘monetary financial institution' in Regulation of the European Central Bank (EU) 883/2011 is also obliged to file statistical information on a monthly and quarterly basis with the European Central Bank.
Other reports: A RIAIF/QIAIF may be obliged to file reports on a periodic basis with the Central Bank, depending on the composition of its portfolio – for example, where the AIF has side pocket assets, an annual report is required confirming whether the Central Bank's parameters continue to be respected, and the prospects and/or plans for the side pocket assets must be outlined.
7.3 What key governance requirements apply to alternative investment funds in your jurisdiction?
All Irish AIFs that are structured as corporate entities (ie, Irish collective asset management vehicles (ICAVs) and investment companies) must have a minimum of two Irish-resident directors and an Irish corporate secretary. The directors of an Irish corporate AIF or the management companies or general partners of non-corporate AIFs must comply with the Central Bank's Fitness and Probity Standards issued under Section 50 of the Central Bank Reform Act 2010 and must be pre-approved by the Central Bank. Applications to become a director of an AIF or a management company or general partner of non-corporate AIFs must be made to the Central Bank.
In addition, corporate AIFs and the management companies or general partners of non-corporate AIFs 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.
Finally, AIFs which are structured as either ICAVs or investment companies and which have appointed an AIFM must have regard to relevant sections of the Central Bank's Fund Management Company Guidance.
7.4 What key risk management requirements apply to alternative investment funds in your jurisdiction?
External AIFMs are responsible for the portfolio management and risk management applicable to the AIFs they manage. Notwithstanding that the AIFMs are responsible for risk management applicable to the relevant AIFs under management, AIFs which are structured as either ICAVs or investment companies must have regard to relevant sections of the Central Bank's Fund Management Company Guidance, which include a responsibility to ensure that the AIF satisfies itself that the delegation to the AIFM is working effectively for investors.
While externally managed AIFs are not regulated as fund management companies, externally managed AIFs retain ultimate responsibility for their management, including the appointment and oversight of the AIFM, which is its principal delegate.
In ensuring that it monitors the performance of the AIFM, the boards of corporate AIFs in Ireland are expected to receive and be satisfied with regular reports from the AIFM describing, among other things, its performance (whether directly or delegated) of the risk management tasks outlined in the Central Bank's Fund Management Company Guidance.
8.1 How are alternative investment funds treated for tax purposes in your jurisdiction?
Qualifying investor AIFs (QIAIFs) and retail investor AIFs (RIAIFs) are not subject to any tax on the income (profits) or gains arising on their underlying investments. While dividends, interest and capital gains that an AIF receives with respect to its investments may be subject to taxes, including withholding taxes, in the countries in which the issuers of investments are located, these foreign withholding taxes may nevertheless be reduced or eliminated under Ireland's network of tax treaties, to the extent applicable.
8.2 How are alternative investment fund managers and advisers treated for tax purposes in your jurisdiction?
Compensation paid to Irish managers and advisers (eg, management/advisory fees, as well as performance fees) of RIAIFs/QIAIFs is generally subject to corporation tax at the trading rate (ie, 12.5%).
With regard to carried interest, aside from a regime introduced in 2009 for certain venture fund managers in respect of qualifying venture capital funds (which must be structured as partnerships and which are quite limited in their activities), Ireland does not have specific legislation dealing with carried interest. Nevertheless, generally speaking, it should be possible to structure funds such that carried interest could be treated for Irish tax purposes as a capital gains tax receipt subject to tax at the standard rate (currently 33%) in the hands of an individual manager. The aforementioned venture fund managers regime (where applicable) reduces the capital gains tax rates even further to 15% (as opposed to 33%) for an individual and 12.5% (as opposed to an effective 33% rate) for a company.
8.3 How are alternative investment fund investors treated for tax purposes in your jurisdiction?
RIAIFs/QIAIFs are not subject to any taxes on their income (profits) or gains arising on their underlying investments. The tax treatment of investors depends on whether they are Irish resident or ordinarily resident in Ireland.
RIAIFs/QIAIFs other than common contractual funds (CCFs) or investment limited partnerships (ILPs):
Non-Irish residents: There are no Irish withholding taxes in respect of a distribution of payments by such AIFs to investors or in relation to any encashment, redemption, cancellation or transfer of units in respect of investors that are neither Irish resident nor ordinarily resident in Ireland, provided that the AIF has satisfied and availed of certain equivalent measures or the investors have provided the AIF with the appropriate relevant declaration of non-Irish residence.
- Exempt investors (including pension funds): Again, no Irish withholding taxes apply in respect of a distribution of payments by the AIF to such investors (eg, approved pension schemes, charities, other investment funds) or any encashment, redemption, cancellation or transfer of units in respect of investors that have provided the AIF with the appropriate relevant declaration.
- Non-exempt investors: If an investor is an Irish resident and not an exempt Irish investor, tax at the rate of 41% (or 25% where the unitholder is a company and an appropriate declaration is in place) must be deducted by the AIF on distributions (where payments are made annually or at more frequent intervals). Similarly, tax at the rate of 41% (or 25% where the unitholder is a company and an appropriate declaration is in place) must be deducted by the AIF on any other distribution or gain arising to the investor on an encashment, redemption or similar of units by an investor that is Irish resident or an ordinary resident in Ireland. While this tax will be a tax liability of the AIF, it is effectively incurred by investors out of their investment proceeds.
RIAIFs/QIAIFs established as CCFs or ILPs: For Irish tax purposes, CCFs and ILPs (authorised on or after 13 February 2013) are treated as ‘tax transparent'. This means that the income and gains arising or accruing to the AIF are treated as arising or accruing to its unitholders/partners either:
- in the case of a CCF, in proportion to the value of the units beneficially owned by them; or
- in the case of an ILP, in accordance with the apportionment terms of the partnership agreement.
The income and gains are treated as if they did not pass through the hands of the CCF or ILP. Consequently, for tax purposes, the profits that arise to this type of AIF are treated as profits that arise to the unitholders/partners themselves. Currently, natural persons cannot invest in a CCF without negatively affecting their Irish tax transparent status. This may change in the future.
Irish real estate funds (IREFs): Ireland has recently introduced a new withholding tax regime in respect of certain Irish property-related distributions and redemptions made by IREFs to certain unitholders. An IREF is a non-undertaking for collective investment in transferable securities authorised fund where:
- 25% or more of the market value of its assets is derived from certain types of Irish real estate-related assets (‘IREF assets'); or
- it would be reasonable to consider that the fund's main purpose (or one of its main purposes) is to acquire IREF assets or carry on an IREF business (ie, activities involving IREF assets the profit or gains of which would, but for the general tax exemptions applied to funds, be within the scope of Irish taxation).
Where a fund is an umbrella fund, the new rules will be applied at the sub-fund level. In summary, subject to certain exceptions, a 20% withholding tax will be imposed on distributions and redemptions made out of IREF profits, which are essentially the accounting profits of the IREF with certain exclusions (eg, distributions/dividends made by unquoted companies which derive the greater part of their value from Irish relevant assets).
The Finance Act 2019 introduced certain anti-tax avoidance measures in respect of excessive debt financing of IREFs and expenses not wholly and exclusively incurred for the purposes of the IREF business (both of which could be used to reduce the profits of the IREF and thus the amount of withholding tax suffered on a distribution). The anti-avoidance provisions do not apply to genuine third-party debt.
8.4 What effect do international laws such as the US Foreign Account Tax Compliance Act and international standards such as the Common Reporting Standard have in your jurisdiction?
Foreign Account Tax Compliance Act (FATCA): The Irish and US governments signed a Model 1 intergovernmental agreement (IGA) on 21 December 2012. Provisions were included in the Irish Finance Act 2013 for the implementation of the IGA and to permit regulations to be made by the Irish Revenue Commissioners with regard to registration and reporting requirements arising from the IGA. Subsequently, the Irish Revenue Commissioners (in conjunction with the Department of Finance) issued Regulations SI 292 of 2014, which were effective from 1 July 2014. Supporting guidance notes have also been issued by the Irish Revenue Commissioners and are updated on an ad hoc basis. RIAIFs/QIAIFs that are Irish reporting financial institutions for FATCA purposes have certain registration, due diligence and reporting requirements. Compliant RIAIFs/QIAIFs will not be subject to, and need not apply, FATCA withholding taxes.
Common Reporting Standard (CRS): As Ireland was one of the early adopter countries, the legislation to implement the CRS in Ireland was introduced in the Finance Act 2014 by inserting Section 891F into the Taxes Consolidation Act 1997, and the Regulations SI 583 of 2015) came into effect on 31 December 2015. The legislation to implement the Revised EU Directive on Administrative Cooperation in the Field of Taxation (which essentially imports the CRS into EU legislation) in Ireland was introduced in the Finance Act 2015 by inserting Section 891G into the Taxes Consolidation Act 1997. Section 891F will not apply where Section 891G applies. RIAIFs/QIAIFs that are Irish reporting financial institutions for CRS purposes have certain registration, due diligence and reporting requirements.
Mandatory disclosure rules: Council Directive (EU) 2018/822 (amending Directive 2011/16/EU), commonly referred to as ‘DAC6', became effective on 25 June 2018. Relevant Irish tax legislation has since been introduced to implement this directive in Ireland. DAC6 creates an obligation for persons referred to as ‘intermediaries' to make a return to the relevant tax authorities of information regarding certain cross-border arrangements with particular characteristics, referred to as ‘hallmarks' (most of which focus on aggressive tax planning arrangements). In certain circumstances, instead of an intermediary, the obligation to report may pass to the relevant taxpayer of a reportable cross-border arrangement. There is still a certain degree of ambiguity in respect of the implementation of DAC6 in Ireland – in particular, its exact scope as it relates to AIFs. Revenue guidance is currently in the process of being drafted which should provide clarity on a range of matters.
8.5 What preferred tax strategies are typically adopted in the alternative investment fund context?
The tax strategy adopted for any given AIF will depend on numerous factors, some of which will be non-Irish factors. Therefore, in order to achieve the optimum structure, expert advice should be sought on a case-by-case basis. Notwithstanding this, there are several strategies/structures available in Ireland that may assist in achieving an optimum result.
9 Trends and predictions
9.1 How would you describe the alternative investment fund landscape and prevailing trends in your
The alternative investment fund (AIF) industry in Ireland continues to grow strongly; as at the end of January 2020, there were 2,950 AIFs established in Ireland with more than €760 billion in assets. In recent years there has been a trend towards asset managers establishing private market strategies in Ireland with strong growth in the areas of loan origination and alternative credit strategies. The introduction of the Irish collective asset management vehicle (ICAV) has afforded greater flexibility for asset managers seeking to use Ireland as a domicile for AIFs and ICAVs are now being used to accommodate private equity, infrastructure and real estate strategies.
In addition to the growth in private market strategies, there has been noticeable growth in the area of environmental, social and governance (ESG) investing. With increased interest from investors and the introduction of EU rules on ESG, it is anticipated that there will be further growth in this area.
9.2 Are any new legal or regulatory developments anticipated which will impact on alternative investment funds or alternative investment fund managers in your jurisdiction?
Amendments to the Investment Limited Partnerships Act, 1994 are in the process of being considered by the Irish Parliament. It is hoped that, once enacted, the amended Investment Limited Partnerships Act will facilitate greater use of Ireland as a domicile for private equity-type AIFs.
In relation to AIFMs, over a number of months the Central Bank has given clear indications of what funds and fund management companies can expect to be the focus of the Central Bank from a regulatory and perspective during 2020.
The Central Bank's priority areas for funds and fund management companies will include the following.
Fund Management Company Guidance (CP86) reviews: It is expected that the Central Bank intends to finish its CP86 reviews during the first half of 2020. The outcome of the review process may lead to additional consultation processes and future correspondence with industry participants detailing the outcome of the CP86 reviews and identifying positive and negative industry practices (as well as in certain instances requiring individual firms to undertake risk mitigation programmes).
Liquidity management: The area of liquidity management is of significant interest in light of the global pandemic arising from COVID-19. The liquidity arrangements and tools employed by AIF managers (AIFMs) are of vital importance; and due to the situation regarding COVID-19, the Central Bank has requested that AIFMs and undertakings for collective investment in transferable securities (UCITS) management companies engage early with the Central Bank where key risk indicators may prompt them to take significant action (eg, if liquidity risk or valuation risk requires AIFMs and UCITS management companies to consider management tools such as gating or suspension).
In addition, the European Securities and Markets Authority (ESMA) guidelines on liquidity stress testing will apply from 30 September 2020, which will require AIFMs to comply with common parameters when designing and conducting liquidity stress testing. These are intended to supplement the existing legislative requirements under the Alternative Investment Fund Managers Directive Framework in respect of liquidity stress testing. The Central Bank has not yet confirmed how it will incorporate the ESMA Guidelines on Liquidity Stress Testing into its supervisory regime (whether in the form of revised legislation or through the issue of web-based guidance); but we can expect this framework to be in place in advance of 30 September 2020.
9.3 Do you envisage any particular industry strategy of attracting particular interest in the next 12 months?
No answer submitted for this question.
10 Tips and traps
10.1 What are your top tips for the smooth establishment and management of an alternative investment fund in your jurisdiction, and what specific challenges would you note?
Establishing an alternative investment fund (AIF) in Ireland can be a very efficient process and the qualifying investor AIF regulatory environment is adaptable to many alternative investment strategies. When establishing an AIF in Ireland, it is important to ensure that investment managers:
- identify and engage with service providers, legal and tax advisers early, so that relevant offering documentation and material agreements can be prepared, reviewed and negotiated in a timely fashion;
- understand the regulatory environment applicable to AIFs in Ireland and how such regulation impacts on the management of the AIF, particularly where an investment manager has investment structures in other jurisdictions;
- decide on the appropriate legal structure which will be utilised for the proposed AIF, in order that the establishment/incorporation process can be initiated quickly;
- determine the economic features of the proposed AIF and ensure that they are in compliance with any regulatory requirements (eg, performance fees);
- identify and engage with proposed Irish directors in order that the Central Bank fitness and probity application process can be initiated quickly; and
- determine whether marketing of the proposed AIF will take place in particular jurisdictions and ensure that relevant steps are put in place to facilitate same (ie, AIF Manager Directive marketing passport for marketing within the European Union).
One of the issues which can delay the timelines for authorisation of an Irish AIF relates to the time required to have the directors of Irish collective asset management vehicles or investment companies approved by the Central Bank, and hence the need to identify and engage with proposed Irish directors early in the process in order that the Central Bank fitness and probity application process can be initiated. In addition, when dealing with structures utilising special purpose vehicles and investing in complex structures, additional consideration must be given to the features applicable to such structures, which may impact on the timeframe for obtaining authorisation. For example, investment in securitisations may require that specific advice and provisions be included in relevant offering documentation and material agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.