UCITS AND THIRD PARTY PLATFORMS: SUB-FUND NAMING CONVENTIONS

Following a submission made by Matheson Ormsby Prentice, the Financial Regulator has today confirmed in an updated policy note that it has amended its naming convention for Irish authorised investment funds, so that sole reference to an investment manager’s name will now be permitted in the title of a sub-fund within an umbrella fund structure.

With effect from 1 September 2010, the Financial Regulator will permit the sole name of an investment manager in the title of a sub-fund where:

  • the name of the umbrella fund contains the name of the promoter; or
  • the name of the umbrella fund contains the brand name of the promoter.

In both cases, where a supplement to the prospectus is published in respect of the sub-fund, the name of the promoter must be stated clearly on the supplement cover.

This development represents an enhancement to the existing rules and framework relevant to umbrella funds generally and for fund platforms. To date, the Financial Regulator's requirements did not permit sole reference to the name of an investment manager in the title of an investment fund or in the name of a sub-fund within an umbrella fund, save in circumstances where the majority ownership of the investment manager resided in the promoter or its parent.

A number of the world’s largest investment banks and international institutions have chosen Ireland over Luxembourg for the establishment of UCITS fund ranges and promoters are choosing Ireland to establish third party fund platforms, recognising the benefits of the efficiency of the Irish process together with the greater level of understanding of derivatives products within the Financial Regulator and the Irish service provider community.

CHARGING OF FEES AND EXPENSES TO CAPITAL IN FIXED INCOME FUNDS

To date, with the exception of open-ended retail distributing investment funds which invest predominantly in debt markets, Irish investment funds have been permitted to charge fees and expenses to capital subject to the requisite provisions regarding the constitutional document, prospectus and subscription application form.

Following a number of industry submissions, the Financial Regulator has now confirmed that it has revised its approach in relation to open-ended distributing fixed income funds and, with effect from 1 September 2010, all investment funds will be permitted to charge fees and expenses to capital, with the following additional disclosure requirements applying in the case of retail fixed income funds:

  • The greater risk of capital erosion given the lack of potential for capital growth must be highlighted, together with the likelihood that due to capital erosion the value of future returns would also be diminished;
  • Where the priority of the fund is the generation of income rather than capital growth this should be highlighted. In addition, the prospectus should include a statement that distributions made during the life of the fund must be understood as a type of capital reimbursement; and
  • Any income statement issued to investors where expenses have been charged to capital should include a statement to explain the effect of this accounting policy including wording to the effect that the investor’s capital amount has been reduced.