Overview of the Irish funds industry

Ireland is regarded as a key strategic location by the world's investment funds industry. Investment funds established in Ireland are sold in 90 countries across Europe, the Americas, Asia, Africa and the Middle East. Over 1,000 fund promoters have funds domiciled and/or serviced from Ireland.

As of July 2022, there were 8,497 Irish-domiciled funds (including sub-funds) with net assets of almost €4 trillion. While the majority of these fund assets are held in Undertakings for Collective Investment in Transferable Securities ("UCITS"), Irish-domiciled alternative investment funds ("AIFs") had in excess of €890 billion in net assets as of July 2022. Ireland is also the largest hedge fund administration centre in the world.

Given the scale of the funds industry in Ireland and the global reach of its distribution network, it is not surprising that the vast majority of the investment in these regulated investment funds comes from non-Irish, predominantly institutional, investors.

Regulatory framework

The Central Bank of Ireland (the "Central Bank") is responsible for the authorisation and supervision of regulated financial service providers in Ireland, including regulated investment funds and investment managers. The powers delegated to the Central Bank are set out in the laws and regulations applicable to the relevant financial services sector. In addition, the Central Bank issues guidance in relation to various aspects of the authorisation and ongoing requirements applicable to financial service providers and investment fund products in Ireland.

Common fund structures

Ireland as a domicile provides a variety of potential fund structures, which can be broadly categorised as regulated by the Central Bank or unregulated.

Regulated structures

There are five main types of regulated fund structure in Ireland (as described below): (i) variable capital investment companies ("Investment Companies"); (ii) Irish collective asset-management vehicles ("ICAVs"); (iii) Unit Trusts; (iv) common contractual funds ("CCFs"); and (v) investment limited partnerships ("ILPs"). Investment Companies, ICAVs, Unit Trusts and CCFs may be established as UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended) or as AIFs pursuant to the EU (Alternative Investment Fund Managers) Regulations 2013 (as amended) (the "AIFMD Regulations"). An AIF may also be established as a regulated ILP. The Irish legislation governing ILPs was overhauled by the enactment of the Investment Limited Partnerships (Amendment) Act 2020 (the "ILP 2020 Act") in late December 2020. The ILP 2020 Act modernised the law governing ILPs in Ireland. As well as modernising the ILP in line with other types of Irish investment fund structures, the amendments to the existing legislation brought the ILP in line with comparable partnership structures in other leading jurisdictions by incorporating "best in class" features for this type of vehicle.

These structures may be organised in the form of umbrella schemes with segregated liability between compartments ("sub-funds")

Investment Companies

An Investment Company is established as a public limited company under the Irish Companies Act 2014. They have a separate legal identity and there is no recourse to the shareholders. There is a requirement to spread risk if the fund is established as an Investment Company. It is typically the board of directors of the Investment Company that will approve any decision to borrow, grant security or enter into derivatives, although it will be important in each case to review the Investment Company's constitutional documents, including its memorandum and articles of association, prospectus and/or supplement thereto, and any management agreements to determine who has the authority to execute the necessary agreements.

ICAVs

The ICAV is an Irish corporate investment fund that was introduced to meet the needs of the global funds industry, pursuant to the Irish Collective Asset-management Vehicles Act 2015 (the "ICAV Act"). The ICAV is now the most commonly used structure for newly established funds in Ireland. The ICAV is a bespoke corporate structure that is specifically designed to give more administrative flexibility than an Investment Company. For example, the ICAV may:

  • amend its constitutional documents without shareholder approval in respect of changes that do not prejudice the interest of shareholders and do not come within certain categories of changes specified by the Central Bank;
  • where established as an umbrella fund, prepare separate financial statements for each sub-fund;
  • issue debenture stock, bonds and any other securities; and
  • allow directors to dispense with the holding of an AGM by giving written notice to all shareholders.

In addition and unlike Investment Companies, the ICAV may also be eligible to elect to be treated as a transparent entity for US federal income tax purposes.

UCITS and AIFs established in Ireland as Investment Companies may convert into an ICAV subject to compliance with the conversion process specified by the Central Bank. Importantly, this conversion process does not affect the legal existence of the fund or any pre-conversion rights or obligations. The ICAV Act also contains a mechanism for existing corporate collective investment schemes established in jurisdictions such as the Cayman Islands, the British Virgin Islands, Bermuda, Jersey, Guernsey and the Isle of Man, to migrate or redomicile to Ireland as an ICAV by operation of law. As the ICAV is a separate legal entity, the analysis in relation to who has authority to contract, e.g. borrow, grant security or enter into derivatives, for an ICAV is the same as for an Investment Company.

Unit Trusts

Unlike an Investment Company or an ICAV, a Unit Trust is not a separate legal entity but rather a contractual fund structure constituted by a Trust Deed between a Trustee and a management company. In a Unit Trust, the Trustee or its appointed nominee acts as legal owner of the fund's assets. As the Unit Trust does not have a separate legal personality, it cannot contract for itself. Managerial authority is exercised by the directors of the management company, which, in the context of an AIF, may also perform the role of alternative investment fund manager ("AIFM"). While, in many cases, it is the directors of the management company who execute contracts, the Trust Deed and other relevant documents such as the management agreement should be carefully reviewed to confirm who has signing authority. For example, if assets are registered in the name of the Trustee, the Trustee would need to execute any security agreements required to grant security over the assets of the Unit Trust and, in some Unit Trusts, the Trust Deed may, for example, require joint execution by the Trustee and the management company.

Originally Published by GLI

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This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.