In response to the liquidity challenges currently being experienced by a variety of funds and in particular fund of funds (where the underlying funds may have reduced or suspended redemptions), the FR has made a number of changes to existing policy.

Policy Changes

  • For qualifying investor funds (QIFs) and professional investor funds (PIFs), the FR will not limit the amount of assets which a QIF or PIF might allocate to a side pocket or partial suspension or partial redemption arrangement.
  • In addition, QIFs and PIFs may avail of reduced redemption gate provisions or may disapply the limit on compulsory redemptions in specie.
  • Non-UCITS retail funds may establish side pockets, apply reduced redemption gates, and provide for partial suspensions or the partial repayment of redemption proceeds. In specie redemptions must comply with existing policy for retail investment funds.  

Documentary requirements

  • The FR will require that the board of directors of the investment fund or management company and the trustee must provide written confirmation to it that the proposed action is in accordance with the fund rules and takes into account the interests of all investors.
  • The Financial Regulator will not require prior notification of actions taken (such as allocation of assets to side pockets, partial suspension arrangements, etc). The FR will accept notification after the event.  

Considerations for Directors

  • Each fund affected by liquidity issues must consider its own particular position , bearing in mind the fair treatment of incoming, existing and outgoing investors.
  • The extent to which any of the actions mentioned above are possible must be considered in the context of each set of fund rules. Because of the FR's requirements for a fund's constitutional document to set out detailed provisions regarding in specie redemptions ,redemption gates and such like, it is very likely that these documents will require amendment by way of shareholders' resolution.
  • Where amendments are necessary to constitutional documentation, normal procedures apply.
  • When action has been taken by a fund, the existing provisions of the fund prospectus may need to be amended.
  • The FR will not require the approval of investors for these proposed changes in policy per se; however, investors must be informed of the action taken.  

A&L Goodbody Comment

These are difficult times for a number of our funds and these changes are very welcome indeed, as is the speed of their implementation. We are concerned that funds will have to amend their constitutional documentation before availing of this eased regime, which may cause delays . For the future, we hope to see the FR permitting flexibility in constitutional documents to cover such situations.