The Irish Financial Services Regulatory Authority (the “Financial Regulator”) has 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.

Until now, 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 was permitted only where the majority ownership of the investment manager resided in the promoter or its parent.

Advantages: UCITS and Third Party Platforms

This is a beneficial development for umbrella funds generally and for fund platforms. From the promoter’s perspective, the primary purpose of a platform is to enable the offering of a wider range of investment management expertise to the promoters’ clients; to provide a platform for the distribution of a wider range of funds; to work with, and to provide products and expertise to investment managers on the platform. The benefit from the managers’ perspective is that the platform gives them exposure to UCITS where they may not previously have had experience in establishing and operating a UCITS; it gives them access to the distribution and other resources of the promoter; and it enables them to build up a track record in managing UCITS assets which would be of benefit to them should they decide to establish their own UCITS fund in the future.

A number of the world’s largest investment banks and international institutions are increasingly choosing Ireland for the establishment of UCITS fund ranges and 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.

The recent policy update by the Financial Regulator in relation to the naming of sub-funds within an umbrella structure is a welcome development which will enable clear branding of an investment manager’s UCITS strategies on a platform.

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 appropriate constitutional enabling powers; appropriate disclosure in the prospectus including the rationale behind the policy and the effects of charging fees and expenses to capital; and a similar disclosure in the subscription application form referring to the effect of the charging policy.

The Financial Regulator has 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 are permitted to charge fees and expenses to capital, with the following disclosure requirements applying in the case of retail fixed income funds in addition to those outlined above:

  • 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.

A copy of the Financial Regulator’s policy note 3/10 in relation to these matters can be accessed here.

This briefing provides a broad summary of the matters referred to herein.