Further to recent discussions with industry representatives through the Irish Funds Industry Association (“IFIA”) to consider the current liquidity challenges facing investment funds (and in particular fund of funds where underlying funds may have suspended dealing or imposed other limitations on redemptions), the Irish Financial Services Regulatory Authority (the “Financial Regulator”) has confirmed changes to its existing regulatory provisions in a move to alleviate liquidity difficulties for Irish funds in current market conditions.
A number of possible measures were reviewed as part of the dialogue between the Financial Regulator and the IFIA, and the changes which have now been confirmed by the Financial Regulator are as follows:
FUNDS AUTHORISED AS QUALIFYING INVESTOR FUNDS (“QIFS”) AND PROFESSIONAL INVESTOR FUNDS (“PIFS”)
- The Financial Regulator has agreed not to limit the amount of assets which a QIF or PIF might, in current market conditions, allocate to a side pocket, partial suspension or partial redemption arrangement. Until now, such arrangements have been agreed for QIFs on a case by case basis with the Financial Regulator, but in practice QIF side pockets had been limited to a maximum of 20 per cent of NAV, with a requirement for shareholder approval. The new measures mean flexibility for QIFs and PIFs to go beyond this 20 per cent limit with shareholder approval
- QIFs and PIFs may avail of reduced redemption gate provisions or may disapply the limit on compulsory redemptions in specie.
The Financial Regulator has notified the industry that each fund affected by liquidity issues must consider the position in its own context, taking into account the fair treatment of incoming, existing and outgoing investors however the Financial Regulator will not require prior notification of actions taken in the above context, with notification after the event sufficient. The board of directors of the investment fund (or management company as appropriate) and the trustee will be required to provide written confirmation to the Financial Regulator that the proposed action is in accordance with the fund’s rules, and that it takes into account the interests of all investors.
QIFs and PIFs considering the options outlined above will of course need to consider the extent to which such steps are possible within their own rules, and if amendments to fund documents are necessary. In this regard however, given the additional regulatory flexibility which has now been agreed, it will be possible to amend fund constitutional documents in the usual course as appropriate to reflect the amended regulatory position, as opposed to the previous status quo which would have involved individual shareholder consents for such actions being required. This will mean that fund directors can take decisions with a view to easing liquidity based on the options facilitated by the measures outlined above in the best interests of the fund as a whole, without additional delays being incurred through the pursuit of individual shareholder consents.
With respect to retail funds, the Financial Regulator has now confirmed that non-UCITS retail funds may also establish side pockets, apply reduced redemption gates, and provide for partial suspensions or the partial repayment of redemption proceeds, in accordance with the conditions outlined above (in specie redemptions will be expected to comply with the existing policy for retail investment funds).