The Investment Limited Partnerships (Amendment)
This followed the September 2020 publication of the Investment Limited Partnerships (Amendment) Bill 2020 (ILP Bill) by the Irish government. The Act reforms the Investment Limited Partnerships Act, 1994, which governs the establishment and implementation of regulated investment limited partnerships (ILP) in Ireland. The ILP reform will bring the legislation in line with similar partnership structures in other jurisdictions augmenting Ireland as an attractive domicile of choice for private equity and venture capital funds. Furthermore the ILP Act will facilitate private equity (PE) managers in establishing parallel Irish structures for distribution to European investors through the use of the Alternative Investment Fund Managers Directive (AIFMD) marketing passport.
In setting up a private equity fund it is common standard practice for this fund type to be structured as a limited partnership as the legal vehicle of choice. However due to the limitations of the former ILP legislation there are few ILPs set up in Ireland. The ILP Act aligns the limited partnership structure with the best of breed international standards for similar structures and brings it up to date with more recent market developments. The proposal for a fit-for-purpose Irish partnership vehicle structure was sought by the Irish Funds industry in dialogue with the Irish Department of Finance and Central Bank of Ireland (CBI) and the revision of the ILP Act has been an action item on the Irish Government’s “Ireland for Finance” strategy for the development of the funds industry in Ireland.
The New Preferred Vehicle for Private Asset Investment Strategies
Up until now the default Irish vehicle for PE managers has been to establish an Irish collective asset management vehicle (ICAV) due to the nature of the ICAVs structuring flexibility. Although the ICAV is not a partnership and it is not the preferred legal structure for PE Managers and investors alike. With the revision of the ILP Act the ILP is structured to be able to manage all major investment strategies as an Alternative Investment Fund (AIF) with no borrowing or investment restrictions if required. The ILP is expected to be the preferred vehicle for private asset investment strategies including private equity, private debt, real estate, credit, venture capital, infrastructure, and energy.
Overview of the ILP
The ILP is a regulated common law partnership structure with no legal personality. It is constituted pursuant to a limited partnership agreement (LPA) between the general partner (GP) and one of more limited partners (LPs). The ILP is established on authorisation and is regulated by the CBI. The GP acts on its behalf and has unlimited liability. The limited partners are the investors in the fund whose liability is limited to the amount of capital contributed. As an AIF an AIFM must be appointed to benefit from the AIFMD marketing passport for distribution to investors in the EEA.
The key changes the ILP Act introduces are set out below:
- Adopts best of breed features from other fund domiciles
- Allows for the ability to establish an ILP as an umbrella fund with sub-funds of segregated liability which may also be established as open or close ended. This is attractive as it allows for separate strategies per sub fund
- Improvement of the operation of the ILP and provides for clarification of the rights and obligations of investors and the GP. This includes broadening the safe harbour activities that a LP may make without affecting its limited liability status
- Permits LPA amendments approval by majority consent rather than by unanimous consent
- Confirms LP is only liable to contribute capital as detailed in the LPA
- Harmonisation with regulatory and legal developments such as alignment with AIFMD. Technical amendments to the ICAV Act 2015 will also be made to enhance the efficiency of the ICAV structure and to align it with certain provisions of the Companies Act 2014 where relevant
- Provides for the migration in and migration out of Ireland by ILPs
- Allows the ILP to register a dual foreign name to enable an ILP operating in a non-English speaking jurisdiction to have official recognition of a translated name in that other jurisdiction introduces provisions of anti-money laundering beneficial ownership requirements to ILPs
The Legislative Enhancements to the ILP Improve Ireland’s Attractiveness as a Leading Fund Domicile
The introduction of the ILP legislative changes are long awaited by the industry and we anticipate new opportunities for private equity from our discussions with private equity managers. The enhancements to the ILP Act highlights Irelands commitment to the investment funds industry improving Ireland’s attractiveness as a domicile for private equity funds and brings certainty in securing Irelands position as a leading fund domicile and competitive location for setting up private equity funds.