Ireland is set to become a jurisdiction of choice for the domiciling and servicing of real assets, private equity and infrastructure funds, following the publication of the Investment Limited Partnerships (Amendment) Bill 2019 (the “Bill”). Once the revised limited partnership framework is in place, Ireland will offer the full suite of preferred legal structures for real asset/private equity investment. This Q&A provides a quick overview of the main changes proposed in the Bill (here).
What is an Investment Limited Partnership?
An Investment Limited Partnership (“ILP”) is a regulated common law partnership structure. ILPs are tailored specifically for investment in a collective investment fund. While it is possible to establish a private equity fund as a corporate structure, such as an Irish Collective Asset Management Vehicle, investor and manager preference can sometimes be for a limited partnership structure for this particular asset class.
What is the Investment Limited Partnership Act 1994?
In Ireland, the Investment Limited Partnership Act 1994 (“ILP Act 1994”) provides for the establishment of a regulated ILP structure.
An ILP authorised under the ILP Act 1994 can be used as a structure for an alternative investment fund (“AIF”): an AIF, which is managed by a manager authorised under AIFMD, can be marketed throughout the EU under the AIFMD marketing passport.
What are the main features of an ILP under the ILP Act 1994?
An ILP is constituted pursuant to a limited partnership agreement (“LPA”) entered into by one or more general partner(s) (“GPs”) on the one hand and any number of limited partners (“LPs”) on the other hand. An ILP must be authorised by the Central Bank of Ireland ("Central Bank") (but will benefit from the Central Bank’s 24-hour approval process) and will, therefore, be a regulated fund vehicle which can be attractive to certain investors. Significantly, from a manager and investor preference perspective, the ILP is tax transparent.
An ILP is not incorporated and all of its assets and liabilities belong jointly to the partners in the proportions agreed in the LPA. Similarly, the profits are directly owned by the partners also in the proportions agreed in the LPA.
The GP is responsible for managing the business of the partnership and, as an ILP does not have power to enter contracts in its own name, the GP usually enters into contracts on its behalf. The GP is also liable for the ILP’s debts and obligations: an LP’s liability in this respect is generally limited to the value of the capital it contributed or which it has undertaken to contribute, save where the LP takes part in the conduct of the business of the ILP (an issue which the proposed “safe harbours” mentioned below are designed to, in part, address).
Why is the Irish Government proposing to update the ILP Act 1994?
The Bill is intended to update the existing framework for regulated limited partnerships, set out in the ILP Act 1994, in order to reflect changes in the global private equity market, both in terms of the modernisation of the Irish ILP structure and in terms of applicable EU legislation. The updated framework will also contribute to achieving the Government’s aim to make Ireland a global location for private equity funds, as set out in “IRELAND FOR FINANCE - Strategy for the development of Ireland’s international financial services sector to 2025”.
What changes does the Bill propose making to the ILP Act 1994
Key proposed changes include:
- creating certain “safe harbours” for LPs, thereby allowing them to participate in advisory committees, vote on changes to the LPA and engage in other related activities without losing their limited liability status;
- providing for the ability to make changes to the LPA with a simple majority, rather than unanimous approval, of the LPs and providing for the ability to make changes to the LPA if the depositary certifies that the proposed amendments do not prejudice the interests of limited partners and certain other requirements are fulfilled;
- modifying the provisions relating to withdrawals or redemptions to reflect other forms of collective investment schemes;
- creating a statutory transfer of assets and liabilities on the admission or replacement of a GP, so that all rights or property of the Investment Limited Partnership shall vest in the incoming partner or existing GPs;
- providing for the ability to establish an ILP as an umbrella fund, with segregated liability between sub-funds;
- harmonising the liability provisions (including those which apply to service providers) with standards under other Irish regulated investment funds and under AIFMD standards and updating the ILP legislation to conform to recent statutory updates;
- providing for the register of a "dual foreign name" in order to enable an ILP operating in a non-English speaking jurisdiction (e.g. China) to have official recognition of a translated name in that jurisdiction.
We expect that ultimately, once adopted, the amending Act will, in addition to the above, provide for certain other changes which will enhance the management and operation of an ILP.
What else does the Bill do?
In addition to the amendments to the ILP, the Bill provides for technical amendments to the ICAV Act 2015.
What difference will the Bill make, if enacted?
Once enacted, we expect that the amendments to the ILP Act 1994 will greatly enhance the attractiveness of the ILP structure for private equity managers and investors. The ILP can be structured to suit all major investment strategies and is a suitable vehicle for private equity, real estate, venture capital, infrastructure, credit, lending vehicles, managed accounts, hybrid funds and hedge funds. Significantly, ILPs are not subject to legal risk spreading obligations, making them suitable for single asset funds and/or funds with highly concentrated positions.
Are there any other changes coming down the track for limited partnerships?
The Irish Government is also planning to review the Limited Partnerships Act 1907 (“1907 Act”), which provides for the unregulated limited partnership structure. In this respect, the Department of Business, Enterprise and Innovation published a consultation in January 2019, seeking views on the 1907 Act. While not authorised by the Central Bank, certain limited partnerships established under the 1907 Act fall within the AIFMD regulatory regime. Updating and modernising the 1907 Act will increase the attractiveness of such partnerships, and ensure that both regulated and unregulated investment limited partnerships are subject to an appropriate regulatory framework.