Fund Domiciles and Regulation - hot spots Destination - Alter Domus
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Fund Domiciles and Regulation
July/August 2021 • perenews.com
Destination
hot spots
What factors
are influencing
managers’
choices?Analysis
K E Y N O T E I N T E R V I E W
Ireland opens the door for
funds growth
A new funds regime will enable the domicile to compete for business in post-Brexit
Europe, suggest Alter Domus’s Anita Lyse and Ronan O’Donoghue
Managers of international capital in the Irish Limited Partnership (ILP)
SPONSOR
Europe with fund vehicles in the UK regime and some associated regula-
ALTER DOMUS
were forced by Brexit to search for an tory changes for private funds have
EU domicile for their funds in order to now made Ireland a real contender in
maintain their ability to market to the
continent’s investors. Ireland was per-
haps an obvious choice but did not see
Q How has Ireland fared so
far in winning post-Brexit
business from private real
Europe as a fund domicile when com-
pared with the Luxembourg SCSp, and
with the partnership structures availa-
the momentum expected with many estate funds? ble in the UK and Cayman.
going to Luxembourg. Anita Lyse: Ireland, as an Eng-
Alter Domus’s Anita Lyse, head of lish-speaking country with many cul- Ronan O’Donoghue: Those changes
real estate, and Ronan O’Donoghue, tural and legal similarities to the UK, is came into force in February this year,
head of AIFM Ireland and real estate well positioned at a high level. But in so the tools they provide were not
leader for Ireland, explain how regu- the wake of Brexit, we didn’t see sig- available to managers while they were
latory changes are forcing a reassess- nificant volume in private real estate planning their post-Brexit arrange-
ment of the domicile’s appeal, and why funds outside of those investing in Irish ments over the past four years.
alternative investment industry service real estate. This was principally owing Before Brexit, many managers had
provision businesses such as theirs are to the local funds regime lacking align- established fund structures in Luxem-
now expanding their operations in ment with typical strategies and me- bourg, so it was natural to move their
Ireland. chanics seen in private funds. However, Alternative Investment Fund Managers
28 PERE • July/August 2021Analysis
Growth of Irish-registered Qualifying Investor Alternative Investment Funds
Net assets (€bn) No of funds (inc sub-funds)
Directive (AIFMD)-regulated manage- 800 3,000
ment companies from the UK to Lux-
embourg, too. Meanwhile, Ireland’s 700 2,750
Partnership Act was quite restrictive.
600 2,500
Managers were unable to set up part-
nerships of the kind commonly used
500 2,250
in private real estate investment, and
regulatory rules didn’t allow for funds 400 2,000
with features like multiple closings, al-
lowing investors to come in at values 300 1,750
different to NAV, and the normal in-
200 1,500
centive structures. That made Ireland
uncompetitive as a domicile in a Euro-
100 1,250
pean context.
0 1,000
AL: When the UK left the EU, it 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mar
2021
became a third-party country, so
managers could no longer use their Source: Irish Funds
UK-domiciled AIFM to manage an
EU fund. And those AIFMs are no created a tax-transparent Irish part- necessarily the biggest factor. And
longer able to use the AIFMD passport nership, which can exist as an um- some may point to cultural fit. But
to market their fund to EU investors. brella with segregated sub-funds. It’s one of the biggest attributes Ireland
That’s problematic because there a regulated product which can receive has is its good availability of well-ed-
are a lot of very large insurance compa- 24-hour regulatory approval from ucated labor. We set up a central op-
nies and pension funds based in the EU the Central Bank of Ireland, subject erations center in Cork, Ireland’s
that many UK-based managers rely on to some exceptions depending on the second-biggest city, partly because it
as sources of capital. During the period strategy. has two large universities and a good
following the 2016 referendum on EU The ILP is very comparable with community of financial services firms.
membership, managers increasingly set the limited partnerships available in the Availability of talent will also in-
up their own AIFM in the EU to en- UK, Cayman and Delaware, or Luxem- fluence managers’ decisions on where
sure their EU operations could contin- bourg. In addition, the Central Bank they will set up their own offices. Those
ue uninterrupted post-Brexit. of Ireland issued updated guidance on that already have well-established op-
At the same time, there’s been a sig- closed-ended AIFs in late 2020. The erations in Luxembourg will probably
nificant initiative under ESMA to en- new regulations are a game-changer remain there because to change that is
sure AIFMs have sufficient substance, because they provide a toolkit for pri- like turning a supertanker. However,
so we see it’s become quite costly and vate equity partnerships domiciled in for those starting with a blank sheet
time-consuming for managers to set up Ireland in real estate, debt, infrastruc- of paper, it will be possible to compare
their own AIFM. Consequently, lots of ture and other alternative asset classes. Ireland and Luxembourg in the future
them chose to use third-party AIFMs The changes to Irish partnership to see which works best for them. Then
managed by specialist administrators law will be more relevant to real es- factors start to come into play like hav-
like Alter Domus, and we’ve likewise tate investors and managers making ing existing connections with Ireland,
just established our second third-party domiciliation decisions in the future, closer cultural fit or being part of a
AIFM outside of Luxembourg in Ire- because now they have more options. larger company that already has em-
land to support this. Over the coming months and years, ployees working here in other sectors.
it will be proven to what extent Ireland
Q What difference will
those changes to Irish
partnership law make to its
will work for them in terms of tax ef-
ficiency, access to professional support
and relationships with the regulator.
Q What impact will the
imminent changes to
funds marketing in the EU have
attractiveness as a domicile? But Ireland has many ingredients to on domiciliation choices?
RoD: There’s a lot of excitement about make it attractive. People talk about RoD: Until now, many non-AIFMD
the impact going forward. They’ve the language advantage, but it’s not authorized managers have relied on
July/August 2021 • Fund Domiciles and Regulation 29Analysis
“The new Irish
reverse solicitation to market their managers and investors is essential. But
funds. It’s a subtle arrangement where Limited Partnership a domicile also needs skilled people to
manager and investor have conversa- run these structures day to day.
tions about ideas for potential funds, regime has now There are clear differences in the
and then the manager relies on the way a real estate fund operates com-
investor making a proactive request made Ireland a real pared to a debt fund, a private equity
for information about their new fund, fund, a hedge fund or a mutual fund,
so the manager is not marketing. It’s contender in Europe as and one should not neglect the impor-
the reverse. It’s an approach that has tance of asset-specific knowledge and
been well used by US and UK-based
a fund domicile” expertise. Ireland has a vibrant domes-
managers. tic real estate investment market, so
But the new cross-European mar- ANITA LYSE combining this with its more than 30
keting rules, being introduced this years of funds experience means we
summer, will restrict it. If a manager should seriously consider its growth
accepts a subscription from an investor prospects.
within 18 months of having a conver-
sation with them, marketing will be RoD: Alter Domus has just launched
deemed to have taken place. Going depositary and third-party AIFM ser-
forward, that will mean more managers vices in Ireland to provide our clients
setting up European AIFs and appoint- with fully integrated services, so we’re
ing EU-authorized AIFMs, which can bullish about the potential for Ireland
avail themselves of the AIFMD mar- to grow as a domicile. We’re very much
keting passport to raise capital. It will focused on alternatives, including real
now be possible to set up Irish part- estate, and Ireland has the tools to par-
nerships and Irish AIFMs. In addition, ticipate in that space going forward.
providers like Alter Domus will offer a Europe, there are still some that don’t. Real estate is one of the most popu-
third-party service, so a manager from For them, it might be worth consid- lar asset classes in Ireland, so there are
the US, for instance, would be able to ering setting up in Ireland instead of plenty of experienced professionals in
set up an Irish or Luxembourg partner- Luxembourg. On paper, there’s no the market who can expand their offer-
ship, appointing us as their AIFM. reason why Ireland should not work ing to work with pan-European asset
That would allow them to submit well for these types of managers, if they managers.
their fund to the local regulator in Ire- can get their fund structures right and The number of Irish domestic alter-
land to be issued with a passport to mar- make good connections with service native AIFs has already doubled in the
ket that fund around Europe, instead of professionals. last five years, so the industry is grow-
having to go through the awkward and In Luxembourg, there’s a certain ing rapidly. It will certainly get the at-
time-consuming process of using the level of resource scarcity in several are- tention of US-based managers, and
national placement regime in each in- as of the financial services sector, which potentially UK-based managers too.
dividual country. They would not nec- can sometimes lead to constraints on That the future is bright is borne out
essarily have to base the whole fund in capacity. This is among the reasons if you look at the corporate activity in
Europe, just set up a parallel sleeve or why we’ve set up alternative centers our industry. Many of our competitors
fund for raising capital in the EU. Alter of operation outside Luxembourg, in- are making sure they have an operation
Domus already has a significant man- cluding in Cork. in Ireland as well as in Luxembourg,
agement company business in Luxem- because they see the growth in both
bourg, and now we have an AIFM in
Ireland authorized by the Central Bank
of Ireland, as well as authorization to
Q How would you gauge
Ireland’s future potential
as a fund domicile?
markets.
Ireland has a history of competing
successfully for foreign direct invest-
set up a real asset depositary here. AL: The recent enhancements of the ment in other sectors, such as IT and
Irish funds regime were needed to al- pharmaceuticals. There’s no reason
AL: We can see from our own client low Ireland to compete in private funds why it can’t win a share of the growth
base that while many large US inves- generally. Having a fund product, and we’re seeing in the fund services
tors and managers already operate in a legal and tax regime that works for industry. n
30 PERE • July/August 2021You can also read
