1. AIFMD DEVELOPMENTS
1.1 Updated AIFMD Q&As
On 30 March 2021, ESMA published an updated version of its AIFMD Q&As which has been updated to add three new Q&As (as a new section XV) on ESMA's guidelines on performance fees in UCITS and certain types of AIFs (the "Guidelines"). The Q&As provide clarification on (i) the crystallisation of performance fees, noting that the Guidelines do not prevent payment of performance fees during the performance reference period of 5 years; (ii) the timeline of the application of the performance reference period, noting that managers of funds that are compliant with the relevant sections of the Guidelines should look at the past 5 years/whole life of the fund for the purpose of setting the performance reference period; and (iii) the scope of the Guidelines in respect of European Long Term Investment Funds ("ELTIFs"), noting that certain ELTIFs will be in scope.
1.2 Guidance on Share Class Features of Closed Ended QIAIFs
In its feedback statement, the Central Bank advised that respondents noted that while the guidance referred to closed-ended QIAIFs which invested in illiquid assets, there was a suggestion that only closed-ended QIAIFs investing in illiquid assets and following a private equity-type strategy could avail of the guidance. In this regard, respondents observed that closed-ended QIAIFs could utilise other strategies for which the features of the guidance would be important. The Central Bank has amended the guidance to clarify this point.
In addition, it published its final guidance entitled, "Share class features of closed-ended QIAIFs Guidance". The key changes to the draft guidance published as part of CP132 clarify that:
- the guidance applies only to closed-ended qualifying investor AIFs ("CE QIAIFs") which typically invest in illiquid assets, removing reference to those that "generally use private equity type strategies"; and
- the reference to "shares" or "share classes" includes reference to the nature of participation in the CE QIAIF (i.e. depending on the legal structure this may be by way of units, share classes or participations) and similarly, that references to a shareholder should be read as including reference to a "unitholder" or "partner" and reference to "prospectus" should be read as including reference to an "offering document".
1.3 Guidance for Depositaries of Assets other than Financial Instruments
On 2 February 2021, the Central Bank published guidance which sets out the Central Bank's requirements for depositaries seeking authorisation under Regulation 22(3)(b) of the AIFM Regulations, being depositaries of assets other than financial instruments ("DAoFI").
The guidance states that the Central Bank recognises that DAoFI may only act for specific types of AIFs (i.e. those which have no redemption rights exercisable for at least five years from the date of initial investment and which generally do not invest in financial instruments that can be held in custody). In addition, a DAoFI may only be appointed to authorised AIFs which are Qualifying Alternative Investor AIFs and it may not be appointed as depositary to authorised AIFs which are Retail Investor AIFs.
The Central Bank provides guidance under the following headings:
1.4 Central Bank AIFMD Q&As updated
On 2 February 2021, the Central Bank published an updated version of its AIFMD Q&As with five new Q&A (ID1136 to ID1139 relating to DAoFI and ID1140 relates to significant influence).
Q. I am a DAoFI, may I be appointed to an unregulated AIF?
A. No. A DAoFI may only be appointed to a Qualifying Investor AIF.
Q. May an existing firm established under the Investment Intermediaries Act 1995 be authorised as a DAoFI?
A. Yes, provided always that the firm is not also a fund administrator, management company or general partner.
Q. Where a DAoFI holds financial instruments in custody and seeks to benefit from a guarantee similar to that required by Regulation 22(3)(a)(iii) of the AIFM Regulations 2013 must the DAoFI be related to, or owned by, the guarantor?
A. No, the ability of a DAoFI to obtain a guarantee of this type is not dependent on the ownership structure of the DAoFI (and is thereby unrelated to the DAoFI's corporate relationship to the guarantor).
Q. What non-financial instrument assets may a DAoFI safe-keep?
A. The Central Bank expects the AIF in respect of which a DAoFI is appointed to materially invest in illiquid assets. The Central Bank expects these assets to be physical assets which do not qualify as financial instruments under Directive 2011/61/EU or could not be physically delivered to the depositary. It considers that ownership of these assets will generally be represented by documents of title. Currently, the Central Bank considers that a DAoFI can safe-keep asset classes such as:
- CIS (units or shares in collective investment schemes can only be safe-kept where, in accordance with applicable national law, they are directly registered with the issuer itself or its agent, in the name of the AIF or the AIFM acting on behalf of the AIF (in which case the provisions of Article 88(2) of the AIFMD Level 2 Regulation apply)
- Commodities (physical)
- Companies (private)
- Intellectual property and income therefrom (includes royalties)
- Life Assurance Policies
- OTC derivatives
- Plant and equipment
- Precious stones
- Real estate
- Trade claims
Applications for authorisation as a DAoFI must include details on the DAoFI's policies and procedures for the safe-keeping and ongoing monitoring of these assets as well as details on how proposals for such safe-keeping and ongoing monitoring of these assets accords with best practice.
Q. The AIF Rulebook provides, subject to some exceptions, that neither a Retail Investor AIF nor a Qualifying Investor AIF (nor its management company, general partner or AIFM) may acquire any shares carrying voting rights which would enable the Retail Investor AIF or the Qualifying Investor AIF to exercise significant influence over the management of an "issuing body". In this case, does an "issuing body" include an "issuer" as defined in Regulation 5(1) of the European Union (Alternative Investment Fund Managers) Regulations 2013?
1.5 Investment Limited Partnerships (Amendment) Act 2020
On 29 January 2021, the Investment Limited Partnerships (Amendment) Act 2020 (Commencement) Order 2021 was published in Iris Oifigiúil. This commencement order states that the majority of the provisions of the Investment Limited Partnerships (Amendment) Act 2020 (the "2020 Act") commence on 1 February 2021 with the exception of sections 27, 28(b), 29, 38, 39, 61 and 63. These sections contain the new provisions on beneficial ownership for investment limited partnerships and common contractual funds ("CCFs") and are effective from 1 March 2021.
In addition to amending the Investment Limited Partnerships Act 1994, the 2020 Act also amends the ICAV Act 2015 and the legislation governing CCFs.
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.