Ireland’s ILP structure could mean serious competition for other EU jurisdictions

More private equity managers may turn to the new Ireland Limited Partnership (ILP) structure to distribute to European investors through the European Union’s Alternative Investment Fund Managers Directive passport, according to a recent webinar held by Apex Group.

According to panelists on the webinar, titled “The enhanced Irish ILP regime,” fund launch activity will increase this year as more private equity managers become familiar with the ILP Amendment, which was adopted in December 2020.

Mark White, a partner at McCann FitzGerald, said that most fund managers do not want to be the first adopters of the new structure and are waiting for a few big names to launch an ILP to get more at ease. Managers are getting familiar with Ireland as a jurisdiction, the ILP structure and how it compares to similar structures in other jurisdictions, meaning some may already be getting ready to launch their own ILPs.

And, after looking at the similar fund structures in Luxembourg and other common jurisdictions, more private equity managers see the Irish ILP as a better-suited option for them when looking to market to European investors. Fund managers based outside the EU must get so-called AIFMD ‘passports’ to market and sell to European investors.

“The Irish ILP regime presents a viable alternative to similar structuring options that are available elsewhere,” Barry O’Brien, senior director of business development at Apex Group, said. “This new ILP structure is termed as a ‘best of breed’ solution that addresses the shortcomings of previous legislation. With the new ILP structure, Ireland now has a very up-to-date limited partnership structure that private equity and real estate managers will find attractive.”

Kate O’Meara, a director at Asante Capital Group, said the Irish ILP is not necessarily a “better” option for managers, but would offer more of a cultural alignment, particularly as a number of firms already have ties to Ireland.

“For some firms, having a fund in Ireland probably makes more sense; it’s an English-speaking country, the common law partnership is attractive, it’s a regulated vehicle and it may be more of a cultural fit,” O’Meara explained. “And managers would be setting up in a country where the structure has been custom made to suit private equity and real estate funds. So, I think it’s a great opportunity for Ireland to capture this market.”

The common law structure is typical for limited partnership vehicles in other jurisdictions – including the Cayman Islands, Delaware, Jersey and Guernsey – so international sponsors, GPs and investors would be comfortable using a known structure rather than something completely different. Luxembourg operates on civil law, based primarily on statutes.

Before the current ILP structure amendment, few private funds were set up in Ireland under this structure before the law was amended. Private equity and real estate managers in Ireland often used the qualifying investor alternative investment fund (QIAIF) or Irish Collective Asset-Management Vehicle (ICAV) structures, which do not offer the preferred general partnership–limited partnership structure.

The current ILP is authorized as either a QIAIF or a Retail Investor Alternative Investment Fund (RIAIF) and can be set up as an open- or closed-ended fund.

Petrina Smyth, a partner in the financial service tax practice at EY, said the ILP was created to appeal to private equity, private credit, real estate and private debt, among similar alternative asset funds. Irish ILPs could also be a good structure for sustainable finance, infrastructure and real assets funds, she said.

There is increased interest from PE firms looking to establish parallel European structures for their existing offshore funds, allowing them to distribute to European investors via the AIFMD passport.

And the ILP is attractive to institutional investors like sovereign wealth funds because it is regulated by the Central Bank of Ireland. Most Luxembourg alternative asset funds are unregulated, and many institutional investors prefer the protections granted by regulated funds.

The process for getting the ILP structure up and running is quick – managers can get authorization from the Central Bank of Ireland in about 24 hours.

“Ireland is open for business, wants to attract capital and the ILP really increases the attractiveness of Ireland to private equity firms,” O’Meara said.

She added that large multi-strategy asset managers, US firms who need a parallel European vehicle to benefit from the AIFMD marketing passport will be among the first adopters of the new structure. “I think the ILP will become the structure of choice in the next couple of years, once the market and the LPs become more familiar. It was tailored for alternative investment vehicles, like private equity funds. And so, I think the ILP will see broader adoption once more managers understand that they are easy to use and quick to market.”