The Investment Limited Partnership  (Amendment) Act, 2020 (the 2020 Act)  brought about much-welcomed updates  to the Irish investment limited partnership (ILP)  regime, ensuring that the ILP is a modern and  efficient partnership vehicle.

The 2020 Act modernises the ILP and aligns  it more closely with the well-established limited  partnership structures used in other international  fund domiciles such as the:

  • Cayman Islands exempted limited partnership;
  • Delaware limited partnership; and
  • Luxembourg special limited partnership.

The Group's funds and investment management  team advised on the first ‘ILP 2.0' to receive  authorisation from the Central Bank of Ireland  (the Central Bank) and are confident its speed to  market, its ability to access European investors  using the AIFMD marketing ‘passport' and the  flexibility it offers in terms of covering the full  suite of asset, strategy and liquidity options make  it a compelling choice for a regulated partnership  vehicle. As a result, we fully expect it will become  more prominent in the fund financing space  (subscription line and net asset value financing) in  the future.

What is an ILP?

An ILP is a regulated, tax-transparent common  law partnership structure. It is Ireland's flagship  partnership vehicle for use as an investment  fund and typically selected by managers availing  of closed-ended strategies in real estate, private  equity, credit, infrastructure, sustainable finance  and related asset classes.

Similar to partnership fund structures in  other fund domiciles, an ILP is constituted  pursuant to a limited partnership agreement (the  LPA) entered into by: (i) one or more general  partner(s) (each a GP), who manage the business  of the partnership; and (ii) any number of  limited partners (each an LP), and is subject to  authorisation by the Central Bank.

An ILP, unlike a corporate entity, has no  separate legal personality acting through its GP,  which is liable for the debts and obligations of the  ILP with the liability of an LP limited to the value  of its capital contributed or committed. The ILP  can be authorised as a qualifying investor AIF  (QIAIF) or retail investor AIF although the QIAIF  has historically proven to be the more popular  option with managers.

Reforms under the 2020 Act

The 2020 Act introduced a number of important  reforms to the ILP structure, which increase the  attractiveness of ILPs in Ireland to international  managers, investors and lenders. Some of the  main changes include:

  • Umbrella Partnerships – ILPs can now be established as umbrella funds (as distinct to  stand-alone funds), with segregated liability  between sub-funds accommodating different  investor types or strategies albeit under the  same umbrella.
  • Migration – the ability to migrate partnerships into and out of Ireland on a statutory basis.
  • Amending the LPA by majority – the removal of the requirement for all  partners to consent in writing to an  amendment of the LPA, and only  requiring a majority of partners.
  • Safe Harbour Provisions for an LP – The ability of LPs to undertake certain  actions without being deemed to be  involved in the management of the  partnership without losing their limited  liability status.
  • Majority of LPs – provision for the concept of a ‘majority of limited partners'  to align with partnership structures in  competing fund jurisdictions.
  • GPs – express confirmation of the ability to transfer a GP interest and provision for the  liability of incoming and outgoing GPs.
  • Withdrawal of capital – more flexibility on withdrawal of capital.
  • Naming – managers can select a second official name in another script and register  that name with the Central Bank, making  branding and marketing easier overseas.

Benefits of an ILP compared to other  Irish fund vehicles

The Irish collective asset management vehicle  (ICAV) has been the vehicle of choice for  private equity managers operating in Ireland  due to the nature of the ICAVs structuring  flexibility to accommodate many private  equity strategies and private equity-centric  features (such as capital commitment/ drawdown mechanisms, distribution  waterfalls, carried interest and ‘excuse and  exclude' allocation of assets).

Notwithstanding the success of the  ICAV, global asset managers have generally  preferred the limited partnership structure  for private equity funds, so we expect the ILP  to prove as popular as the ICAV as a flagship  regulated Irish vehicle for private equity  managers. International investors' familiarity  with limited partnership structures in other  leading jurisdictions and the similarities  between these structures are likely to be a  major draw of the ILP.

Fund financing and security

There are no restrictions on the use of  financing by an ILP with a full security  package available to lenders over all assets,  including contractual call rights in any  master/feeder structure. There is full  flexibility for an ILP to utilise subscription  financing, margin lending, net asset value  financing and other types of facilities  including total return swaps and other  derivative arrangements.

Given the fact that the Irish ILP is now  more in line with the limited partnership  structures in other fund jurisdictions  this lends itself to international lenders  considering lending to an ILP as they will  be much more familiar with the partnership  structure and the security package available.

While Irish regulated funds such as the  ILP are subject to a regulatory restriction on  acting as a guarantor for third parties (other  than wholly owned subsidiaries), alternative  security options are available in order to  allow lenders access to the ILP's capital call  rights in circumstances where the ILP is  not the borrower, including the ‘cascading  security' which we frequently see on fund  financings involving Irish funds.

Looking forward

Given the improvements made, we expect  the number of new ILPs will continue to  increase, and we anticipate that ILPs will  have a proportionally bigger impact and  create much more downstream work for a  range of legal and other professionals across  the corporate, tax and finance sectors.

Ireland, being one of the major players in  the creation and management of investment  funds worldwide, is well-positioned to take  advantage of the 2020 Act. We expect to see  ILPs play an increasingly important role  in attracting revenue, jobs and deal flow to  Ireland over competing jurisdictions and  featuring more regularly in international  fund finance transactions.

The In-House Lawyer Autumn 2021

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