IRELAND is one of the world’s most popular jurisdictions for the establishment and servicing of internationally-distributed investment funds. Also, with over 3,000 funds and sub-funds listed on the Irish Stock Exchange, we’re recognised worldwide as a leading centre for listing investment funds.
The Irish funds industry offers a complete range of services, including fund set-up, structuring and listing, fund administration, depositary and transfer agency services, compliance, tax, audit and legal services.
There are many different types of investment funds with different investment strategies applied to each fund. One distinction between all investment funds is the type of investor that can invest in certain funds. Investors can generally be classified into two main categories: retail investors and institutional investors.
The term ‘retail investor’ refers to what might be termed less sophisticated investors. Retail funds are subject to strict rules in relation to investment strategy, portfolio diversification, leverage, risk monitoring and investor protection. Undertaking for Collective Investment in Transferable Securities (UCITS) funds are the most popular retail product but are also sold to institutional investors.
Institutional investors, on the other hand, are deemed to have sufficient expertise and knowledge to be able to invest in more sophisticated products. Irish funds targeted at the institutional investors include UCITS funds, the Qualifying Investor Fund (QIF) and Professional Investor Fund (PIF), the latter two of which form part of the alternative investment fund regulatory regime.
A UCITS is a harmonised European retail investment fund that may be sold throughout the European Union and globally. Irish UCITS are sold in over 70 countries around the world and hold assets worth over €6.8 trillion. UCITS also account for approximately 80% of the assets of Irish-domiciled funds.
There are three UCITS structures: a variable capital company, a common contractual fund (which is a pension pooling product), and a unit trust. One of the most attractive aspects of a UCITS fund is its flexibility to accommodate a wide range of products which allow various investment strategies such as:
- Equity funds
- Bond funds
- Money market funds
- Multi-manager funds
- Exchange traded funds
- Fund of funds
- 130/30 funds, and
- Sharia funds
Another key aspect of UCITS is their continuous evolution with the overriding aim of increasing investor protection, reducing costs and increasing efficiencies for fund managers and investors.
The widely-anticipated UCITS IV Directive from the EU was implemented into Irish law on 1 July 2011 and introduced a number of measures that seek to reduce time delays and costs for bringing funds to market and to make UCITS funds generally more cost efficient.
UCITS IV is another positive step for the UCITS brand and a further step towards a single market for the EU investment fund industry. It is expected that the UCITS product will continue to have a positive impact both in Europe and on a global basis, whereby managers seeking global distribution opportunities can now be confident that a UCITS product will be recognised, well received by foreign regulators and capable of being marketed successfully in regions such as Asia, the US and Latin America.
Alternative Investment Funds
Ireland is a leading alternative investment fund jurisdiction and provides a regulatory framework designed specifically for the alternative investment fund industry. Irish alternative investment funds come in four different legal structures:
- An investment company with variable capital,
- A unit trust,
- A common contractual fund, or
- An investment limited partnership.
Similar to UCITS, alternative investment funds accommodate a wide range of products which allow various investment strategies, such as hedge funds, real estate funds, capitalprotected funds and private equity funds.
The types of fund set up by promoters in Ireland can be broken into three categories: qualifying investor funds, professional investor funds and retail funds.
Qualifying Investor Funds (QIFs)
The QIF is a well-established and regulated investment fund vehicle, with approximately €153 billion in assets held within QIF structures. QIFs are also the most popular form of alternative investment funds in Ireland, comprising 65% of the total number of Irish alternative investment funds and 75% of the assets of Irish alternative investment funds.
The QIF is a specialist investment fund set up and regulated by the Central Bank of Ireland. It is targeted at sophisticated investors who are qualifying investors and meet minimum subscription requirements.
The advantage of a QIF is the removal of the Central Bank’s general conditions relating to investment policies and borrowing restrictions, so managers can use this structure for a wide range of investment strategies. Some of the many different types of funds that can be structured as a QIF include hedge funds, sovereign wealth funds, private equity funds and single asset funds. QIFs have a minimum subscription requirement of €100,000 and can only be marketed to qualifying investors.
Professional Investor Fund (PIF)
A PIF is authorised by the Central Bank and is structured to allow greater flexibility than a retail fund in the application of borrowing restrictions and investment strategies, albeit to a lesser extent than that provided by the QIF. The PIF structure also has a minimum subscription requirement of €100,000.
Alternative investment funds with a minimum subscription of less than €100,000 will be classed as a retail fund by the Central Bank. There are strict investment and borrowing restrictions placed on retail funds, although they remain a very common alternative investment fund vehicle.
Alternative Investment Fund Managers Directive (AIFMD)
The much-debated AIFMD will create a single market regulatory regime for alternative investment funds throughout the EU. The changes and additional requirements being implemented by the AIFMD are significant, although the QIF product established by the Central Bank already satisfies the majority of the AIFMD changes and requirements.
Some of the key features of the AIFMD are:
- The registration and authorisation of all EU managers of alternative investment funds.
- The regulation of systemic risks which may build up in an alternative investment fund.
- New rules and requirements for key service providers, such as depositaries and administrators.
- An EU passport which will permit EUbased alternative investment fund managers to market funds to professional investors throughout the EU.
- Restrictions on non-EU funds access to the EU market – access will be subject to regulatory requirements.
The ‘AIFMD ready’ nature of the QIF combined with the redomiciliation processes introduced by the Companies (Miscellaneous Provisions) Act 2009 means that alternative investment funds outside of Ireland can easily redomicile to Ireland in a cost-effective manner and make use of the AIFMD-ready QIF product.
The Central Bank of Ireland
An essential element of the investment funds industry in Ireland is the Central Bank of Ireland. The Central Bank is robust and efficient in its approach to the regulation of investment funds. The Central Bank has clear processes and timeframes for fund and promoter approval. Typically, a UCITS fund can be authorised within six to eight weeks. However, there are fast-track fund approval procedures in place and QIFs can be authorised within 24 hours of submission so long as certain requirements are complied with by the applicant fund.
Notably, the Central Bank operates an ‘open door’ policy and is willing to meet fund promoters and work with them to find practical solutions.