Growth in Private Funds

The last decade has seen a significant increase in funds investing in private asset classes such as private equity, real estate and infrastructure. As yields in the bond markets have plummeted investors have explored alternative asset classes which can deliver higher returns albeit in much less liquid structures. Similarly asset managers feeling the pressure on fees from passive managers and increased competition have sought to launch new products focussed on private assets.

Luxembourg

Seeking to benefit from the AIFMD EU wide passport, managers have been attracted to Luxembourg which offers both regulated and unregulated limited partnership structures (SCSp) which are the structure of choice for new funds investing in private assets. We have seen over 900 RAIFs launched since 2016 with over 330 in 2019 alone. There has also been a significant number of unregulated SCSp structures launched. With the UK exiting the transition period at the end of December 2020 UK LPs will no longer have access to the EU passport.

Irish Changes

These developments have not gone unnoticed in Ireland where the Investment Limited Partnership (ILP) regime is currently undergoing significant change. Having just passed through all stages of parliamentary approval  the new regime will introduce a number of welcome changes to ILPs:

• Under existing ILP rules a limited partner who engages in the management of an ILP will lose the benefit of limited liability. The new ILP Bill introduces safe harbours enabling LPs to sit on advisory committees and approve changes to LP agreements without putting their limited liability status at risk.
• It will now be possible to have an umbrella ILP with limited liability between sub-funds.
• The requirement for unanimous consent for changes to the LPA will also be removed. Amendments can be approved by a majority of LPs.

In addition to these changes at legislative level, the Central Bank of Ireland is also consulting on a number of rule changes to its AIF Rulebook. Under existing rules the profits and losses of a sub-fund must be allocated to on a pro-rata basis to shareholders. However, the consultation proposes to permit a Closed-ended QIAIF to issue share classes which enables:

• the profit, loss and capital of certain assets to be allocated to certain share classes,
• subject to certain conditions, investors to participate in some, but not all the assets of the CE QIAIF and
• Management share classes to participate in the Closed-ended QIAIF and receive returns which are greater than, but subordinate to the returns to which other share classes are entitled.

In effect this will allow for, excuse and exclude provisions, carried interest and distribution waterfalls and stage investing which would all be common in private fund structures.

In a recent Q&A the Central Bank has also clarified that it will not require the General Partner of an ILP to be a regulated entity.

The Central Bank’s consultation is due to end on 22^nd December. The introduction of this new regime is scheduled for early 2021. This may provide some healthy competition for Luxembourg giving managers a choice of domicile in this rapidly growing asset class.

Next Steps

To find out more about the Revised Irish Investment Limited Partnership Rules talk to your Carne Relationship Manager or contact a member of the team below.

CARNE CONTACT DETAILS

United Kingdom

Aymeric Lechartier​
Managing Director, UK​
T: +44 203 973 0108 | M: +44 7788 408 136
aymeric.lechartier@carnegroup.com​

Ireland

Des Fullam
Group Chief Product & Regulatory Officer
T: +353 1 489 6805 | M: +353 86 807 4436
des.fullam@carnegroup.com

Ireland

Yvonne Connolly
Country Head, Ireland
T: +353 1 489 6821 | M:+353 87 8258 925
yvonne.connolly@carnegroup.com

Ireland

John Skelly
Principal
T: +353 1 489 6806 | M: +353 86 8222 457
john.skelly@carnegroup.com

United Kingdom

Jeremy Soutter
Managing Director, UK​
T: +44 203 973 0104 | M: +44 7798 828 567
jeremy.soutter@carnegroup.com

USA

Nicola Cowman
Director, New York
T: +1 347 410 0927
nicola.cowman@carnegroup.com

USA

Joe Hardiman
Director, New York
T: +1 732 642 5808
joe.hardiman@carnegroup.com

UK & Asia

Christopher Day
Managing Director
+44 203 973 0107
chris.day@carnegroup.com