There are many investment structures, particularly in the private equity, venture capital and property asset classes, which although originally established as unregulated structures, are now caught within the scope of the AIFMD. Our Financial Services Team explains.
Private Equity and Property Funds – New Regulatory Requirements
The Financial Services Team at LK Shields have been busy finding solutions for clients who have found themselves caught within the reach of the Alternative Investment Fund Managers Directive (AIFMD).
There are many investment structures, particularly in the private equity, venture capital and property asset classes, which although originally established as unregulated structures, are now caught within the scope of the AIFMD.
The AIFMD applies to the managers of alternative investment funds (AIFs) as opposed to the funds themselves. An AIF is any collective investment undertaking which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors.
The use of the Qualifying Investor Alternative Investment Fund (QIAIF) is becoming increasingly popular in terms of achieving compliance with the AIFMD. The QIAIF can provide a tax efficient structure for managers who need an AIFMD solution for their business. Our Financial Services Team have extensive experience of restructuring existing unregulated private equity and property portfolios into the QIAIF product.
Although the AIFMD defines an AIF as a collective investment undertaking which raises capital from a number of investors, a QIAIF can be used as a vehicle for the investments of a single high net worth family, or a small group of individuals.
Advantages of a QIAIF
QIAIFs are exempt from Irish tax on their income and gains and no withholding tax applies to payments made by an Irish QIAIF to non-Irish resident investors.
The primary benefit of using a QIAIF is that QIAIFs are subject to very few investment restrictions and are not subject to any borrowing or leverage limits. QIAIFs are not subject to any risk diversification requirements save that in the case of investment companies, they must observe the general principal of risk spreading. This flexibility can make a QIAIF the ideal vehicle for holding investments in property and private equity.
QIAIFs can also avail of an EU marketing passport which allows the units of a QIAIF to be marketed and sold to professional investors across Europe. Hopefully this will reduce the cost and effort involved in marketing a fund across Europe via private placement regimes.
Key features of a QIAIF
A QIAIF can be structured so that it is established as a company, a unit trust, an investment limited partnership or a common contractual fund.
The AIFMD dictates that QIAIFs must appoint an Alternative Investment Fund Manager (AIFM). QIAIFs can be self-managed or alternatively they may appoint an external AIFM. There are a number of investment management companies who are already authorised under the AIFMD and can act as the AIFM of the QIAIF.
QIAIFs are also subject to a fast track authorisation process which means that if the QIAIF's service providers (including the AIFM) and directors have been previously approved by the Central Bank, a QIAIF can obtain authorisation within 24 hours of the application being made.
Due to the relatively light regulatory touch that applies to QIAIFs, the range of investors to whom QIAIFs may be offered is limited. Investors must self certify that they meet certain criteria and are aware of the risks involved in the investment.
In particular, QIAIFs are subject to a minimum subscription requirement of €100,000, or €500,000 where the QIAIF invests more than 50% of its net assets in unregulated investment funds.