Following its consultation, CP60, the Central Bank of Ireland (Central Bank) has issued the second draft of its AIF handbook. This sets out the regime which will apply to non-UCITS funds in Ireland, following the implementation of the Alternative Investment Fund Managers Directive (AIFMD) on or before 22 July 2013. The new AIF handbook will be effective from 22 July 2013 and will cover all aspects of regulation for AIFMs, QIAIFs, RIAIFs, Depositary and Administrator requirements.

The current Qualifying Investor Fund (QIF) regime will be replaced with a new Qualifying Investor Alternative Investment Fund (QIAIF) regime. It will include a number of interesting new characteristics.

  • Removal of the long-standing promoter regime.
  • Removal of specific additional Prime Broker and Counterparty credit rating requirements.
  • Provision for the fair as opposed to equal treatment of investors in different share classes (which will allow for more flexibility than is currently possible, while still ensuring fair treatment of investors).
  • Provision for QIAIFs to purchase distressed or illiquid assets and immediately side pocket these. A QIAIF with this flexibility must describe itself as a QIAIF which is ‘open-ended with limited liquidity’.
  • Master–Feeder QIAIFs with a minimum subscription limit of €500,000 may disapply the prohibition on investing more than 50% in any one unregulated investment fund (subject to adequate disclosures).
  • QIAIFs investing in illiquid assets (including real estate and private equity) may provide for a longer initial offer period of up to 2 years and 6 months. This period will commence as soon as the first closing has occurred.
  • Provision for the verification of performance fees by a suitable independent party appointed by the AIFM.
  • Provision for transitional provisions for QIAIFs where the AIFM is below the threshold. For retail investors in non-UCITS products, a separate Retail Investor Alternative Investment Fund (RIAIF) regime will be created. These will have a number of interesting characteristics.
  • No prohibition on short sales by RIAIFs.
  • RIAIFs may establish side pocket share classes.
  • RIAIFs are permitted to get exposure to any commodity through financial derivative instruments. RIAIFs are also permitted to invest directly in gold. The Central Bank may permit RIAIFs to invest directly in other commodities, at a later stage. For Professional Investor Funds (PIFs) The Central Bank is discontinuing the PIF regime. PIFs in existence as at 22 July 2013 will be permitted to continue. Existing PIFs will not be permitted to establish new sub-funds or new share classes from 22 July 2013 onwards.

General Update

  • The Central Bank is moving forward with an alternative approach which offers start-ups room for small AIFM to grow before falling under the full AIFM chapter of the AIF Handbook. The Central Bank will also give recognition to the fact that existing QIAIFs have promoters who were approved by the Central Bank by allowing existing small QIAIFs to continue under the current rules.
  • The Central Bank is working towards having authorisation processes and procedures in place well in advance of 22 July 2013 so that applications for authorisation under the AIFM can be received and processed prior to that date (the Central Bank notes that authorisation under the AIFMD cannot come into effect until 22 July 2013 at the earliest). It is planned that these processes and procedures will be in place by the end of quarter 1 of 2013.
  • The Central Bank is currently preparing new application forms for RIAIFs, QIAIFs and AIFMs for use under the AIFMD regime.
  • RIAIFs and QIAIFs can include a condensed portfolio statement in their periodic reports which lists positions/exposures greater than 5% of net asset value. RIAIFs and QIAIFs must make the full portfolio statement available to unitholders on demand. This can be made available to potential investors at the RIAIF’s or QIAIF’s discretion.
  • The AIF handbook identifies specific standards of behaviour for directors and sets out to clarify what is expected of directors of AIFs and AIFMs when AIFs are in difficulties.
  • The Central Bank has clarified that the final check and release of each investment fund net asset value (NAV) is a core administration activity which must be performed by the fund administrator (certain limited exceptions are available under exceptional circumstances).
  • The areas where the AIFMD distinguishes between internally and externally managed AIFMs are in relation to permitted activities and minimum capital. Information in relation to qualifying shareholders is also not relevant in relation to internally managed AIFMs.
  • The Central Bank is removing its requirement for both RIAIFs and QIAIFs that non-voting unitholders in an amalgamation situation be compulsorily redeemed.

The draft AIF Handbook will be subject to a technical review to refine the drafting but that is separate to the policy review which the CBI has stated has now concluded. Copy of the AIF Handbook, Feedback Statement and contributions to the consultation (including A&L Goodbody's response) can be found on the CBI website.