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New legislation helps Ireland’s status as the place to establish funds
By: Damien
22 Dec, 2021
New changes to the Irish private funds regime confirms Ireland’s status as a leading jurisdiction in which to establish investment funds and will give investors plenty of chances for growth and healthy returns.
On December 16, 2020, ministers in the Dail, Ireland’s lower house of parliament, gave the investment fund management industry an early Christmas present by passing the Investment Limited Partnerships (Amendment) Bill 2020.
This bill is anticipated to help the Irish money management industry to grow significantly in the coming years – some have said it could create 3,000 jobs in the next five years and bring up to €20 billion in private capital per year from around the globe.
It is thought that the amendments contained in the bill will enhance Ireland’s competitiveness as a place to establish private investment funds – it is already recognised as leader – and will help to bring new business and opportunities to the country, encourage established managers to change domicile and move to Ireland, as well as ensuring that business that may otherwise have gone elsewhere stays in Ireland. It is hoped it will make Ireland a more attractive base for capital raising, and therefore see more global private equity funds set up a base in the country.
In addition, firms in Ireland will now have the opportunity to use investment limited partnerships (ILPs) to develop their offerings in sectors such as private equity, property and infrastructure. They are also often used for green finance – something that is set to become increasingly important in the coming years with the ongoing fight against climate change and ambitious targets set for reducing greenhouse gas emissions such as carbon dioxide.
The growth in the industry is not just set to benefit Dublin; funds centres across Ireland, including Kilkenny, Cork, Galway and Limerick are also set to get their share in investment and jobs created.
The revisions contained in the act, as well as recent changes by the Central Bank of Ireland to its rules on closed-ended funds, have been widely welcomed by the industry in lreland.
The ILP is designed to be used as a collective investment scheme and can, in certain circumstances, have no restrictions on investment or borrowing. They are constituted by a limited partnership agreement and operate through a general partner. The limited partnership agreement is between the general partner and those who invest in the ILP. Investors are known as limited partners.
The new legislation modernises the existing framework. For instance, it allows ILPs to be set up as umbrella funds with liability separated between sub-funds. It also confirms that limited partners do not have to make a capital contribution to the fund and are therefore not liable for any partnership losses.
In addition, the changes bring ILPs more into line with EU standards, such as updating the requirements on registering ILPs and keeping record for them to be in line with international standards, and reforming capital withdrawal requirements to be in line with other Irish regulated investment funds.
While ILPs have been available in since 1994 in Ireland, they have been relatively little used, but these changes are set to transform that; interest in setting them up is already reported to be high, with investors looking to take advantage of the changes.
Alongside the legislation moving through the Dail, the Central Bank of Ireland (www.centralbank.ie) has also updated its rules to make ILFs more attractive. For instance, it has taken out some of the previously required approvals for general partners of ILFs, which could take up to six months. Now, the Bank will rely on the statutory obligations of the general partner under the ILP Act and apply its probity requirements to each director of a general partner.
In addition, the Central Bank of Ireland has updated its rulebook to deal with closed-end funds – be they ILPs or another form of fund – including to allow for stage investing, which will be of interest to those setting up evergreen funds.
The Irish funds industry was already performing very well, having grown by 40% since 2018, according to the Irish Funds Industry Association (www.irishfunds.ie), the voice of the Irish funds and asset management industry. In recent years, more than 100 businesses have entered the market or expanded their operations in Ireland. About 16,000 people are employed in the sector currently.
In 2020, total assets under management in Ireland were worth €5.2 trillion, according to figures from PricewaterhouseCoopers (www.pwc.ie/industries/asset-management.html). In addition, there were 7,707 funds domiciled in Ireland.
The sector has an established reputation as a world leader in asset management, and for the strength of its regulatory framework, and the expertise and knowledge of those who are involved in the sector.
Ireland is only behind Luxembourg in Europe in terms of the size of its funds hub, but has not been able to offer ILPs, which is becoming a more favoured option for fund managers.
The legislation also demonstrates the Irish Government’s ongoing commitment to the sector and belief that it can bring prosperity and jobs to Ireland. This is in addition to existing pro-business measures such as the low corporate tax rate in the country – just 12.5%.
Part of the desirability of Ireland as a base for funds stems from Brexit. Since the UK completed its departure from the European Union at the start of this year, Ireland is now the only one of the 27 member nations that has English as its first language. Of course, being a member of the EU means they have access to the single market and the 26 other nations that are part of the Union.
It is anticipated that money managers from countries including the US, Australia and particularly the UK will be interested in the passing of this bill and the opportunities it could bring and could look to set up funds in the country.
For instance, if UK private equity fund managers want to raise capital from EU-based investors now, they need to have an EU fund to be able to do so – and Ireland is the natural option for a base to do this given its proximity and language.
For those who want to set up an ILP in Ireland, it is established by a contract – known as the partnership agreement – between the general partner and the investor(s), who are known as limited partner(s). Limited partners are like a shareholder in a business, while the general partner is like the management company of a unit trust. ILPs are not incorporated and are not separate legal entities, so they don’t have the power to enter contracts – that is often done by the general partner on behalf of the ILP.
The Central Bank of Ireland authorises and regulates all ILPs and general partners.
For those who want to set up a fund in Ireland to take advantage of the new legislation – whether from the UK or elsewhere – then it is vital to get the right team in place, and that means appointing local advisers. Having firms with local knowledge can be invaluable including how to fill in the application forms to the Central Bank of Ireland and drafting other relevant documents and letters needed in the process.
Local advisors also know the market, how it works and the players in it and can give insights others from outside may not be able to. While Ireland may be geographically close to the UK, the funding and general business regimes can be quite different – and this can trip unwary investors if they don’t have access to the right information and lead to the application process taking longer.
But with local advisors in place, it can ensure the process of setting up a fund is as quick and as smooth as possible.
On December 16, 2020, ministers in the Dail, Ireland’s lower house of parliament, gave the investment fund management industry an early Christmas present by passing the Investment Limited Partnerships (Amendment) Bill 2020.
This bill is anticipated to help the Irish money management industry to grow significantly in the coming years – some have said it could create 3,000 jobs in the next five years and bring up to €20 billion in private capital per year from around the globe.
It is thought that the amendments contained in the bill will enhance Ireland’s competitiveness as a place to establish private investment funds – it is already recognised as leader – and will help to bring new business and opportunities to the country, encourage established managers to change domicile and move to Ireland, as well as ensuring that business that may otherwise have gone elsewhere stays in Ireland. It is hoped it will make Ireland a more attractive base for capital raising, and therefore see more global private equity funds set up a base in the country.
In addition, firms in Ireland will now have the opportunity to use investment limited partnerships (ILPs) to develop their offerings in sectors such as private equity, property and infrastructure. They are also often used for green finance – something that is set to become increasingly important in the coming years with the ongoing fight against climate change and ambitious targets set for reducing greenhouse gas emissions such as carbon dioxide.
The growth in the industry is not just set to benefit Dublin; funds centres across Ireland, including Kilkenny, Cork, Galway and Limerick are also set to get their share in investment and jobs created.
ILP changes
The revisions contained in the act, as well as recent changes by the Central Bank of Ireland to its rules on closed-ended funds, have been widely welcomed by the industry in lreland.
The ILP is designed to be used as a collective investment scheme and can, in certain circumstances, have no restrictions on investment or borrowing. They are constituted by a limited partnership agreement and operate through a general partner. The limited partnership agreement is between the general partner and those who invest in the ILP. Investors are known as limited partners.
The new legislation modernises the existing framework. For instance, it allows ILPs to be set up as umbrella funds with liability separated between sub-funds. It also confirms that limited partners do not have to make a capital contribution to the fund and are therefore not liable for any partnership losses.
In addition, the changes bring ILPs more into line with EU standards, such as updating the requirements on registering ILPs and keeping record for them to be in line with international standards, and reforming capital withdrawal requirements to be in line with other Irish regulated investment funds.
While ILPs have been available in since 1994 in Ireland, they have been relatively little used, but these changes are set to transform that; interest in setting them up is already reported to be high, with investors looking to take advantage of the changes.
Central Bank updates
Alongside the legislation moving through the Dail, the Central Bank of Ireland (www.centralbank.ie) has also updated its rules to make ILFs more attractive. For instance, it has taken out some of the previously required approvals for general partners of ILFs, which could take up to six months. Now, the Bank will rely on the statutory obligations of the general partner under the ILP Act and apply its probity requirements to each director of a general partner.
In addition, the Central Bank of Ireland has updated its rulebook to deal with closed-end funds – be they ILPs or another form of fund – including to allow for stage investing, which will be of interest to those setting up evergreen funds.
Strong performance
The Irish funds industry was already performing very well, having grown by 40% since 2018, according to the Irish Funds Industry Association (www.irishfunds.ie), the voice of the Irish funds and asset management industry. In recent years, more than 100 businesses have entered the market or expanded their operations in Ireland. About 16,000 people are employed in the sector currently.
In 2020, total assets under management in Ireland were worth €5.2 trillion, according to figures from PricewaterhouseCoopers (www.pwc.ie/industries/asset-management.html). In addition, there were 7,707 funds domiciled in Ireland.
The sector has an established reputation as a world leader in asset management, and for the strength of its regulatory framework, and the expertise and knowledge of those who are involved in the sector.
Ireland is only behind Luxembourg in Europe in terms of the size of its funds hub, but has not been able to offer ILPs, which is becoming a more favoured option for fund managers.
The legislation also demonstrates the Irish Government’s ongoing commitment to the sector and belief that it can bring prosperity and jobs to Ireland. This is in addition to existing pro-business measures such as the low corporate tax rate in the country – just 12.5%.
EU desirability
Part of the desirability of Ireland as a base for funds stems from Brexit. Since the UK completed its departure from the European Union at the start of this year, Ireland is now the only one of the 27 member nations that has English as its first language. Of course, being a member of the EU means they have access to the single market and the 26 other nations that are part of the Union.
It is anticipated that money managers from countries including the US, Australia and particularly the UK will be interested in the passing of this bill and the opportunities it could bring and could look to set up funds in the country.
For instance, if UK private equity fund managers want to raise capital from EU-based investors now, they need to have an EU fund to be able to do so – and Ireland is the natural option for a base to do this given its proximity and language.
Setting up a fund
For those who want to set up an ILP in Ireland, it is established by a contract – known as the partnership agreement – between the general partner and the investor(s), who are known as limited partner(s). Limited partners are like a shareholder in a business, while the general partner is like the management company of a unit trust. ILPs are not incorporated and are not separate legal entities, so they don’t have the power to enter contracts – that is often done by the general partner on behalf of the ILP.
The Central Bank of Ireland authorises and regulates all ILPs and general partners.
Get the right advice
For those who want to set up a fund in Ireland to take advantage of the new legislation – whether from the UK or elsewhere – then it is vital to get the right team in place, and that means appointing local advisers. Having firms with local knowledge can be invaluable including how to fill in the application forms to the Central Bank of Ireland and drafting other relevant documents and letters needed in the process.
Local advisors also know the market, how it works and the players in it and can give insights others from outside may not be able to. While Ireland may be geographically close to the UK, the funding and general business regimes can be quite different – and this can trip unwary investors if they don’t have access to the right information and lead to the application process taking longer.
But with local advisors in place, it can ensure the process of setting up a fund is as quick and as smooth as possible.
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