Reforms to Irish funds industry

The role of the funds industry in Ireland’s financial services sector would be hard to overstate. The Financial Times noted in 2020 that Ireland is ‘Europe’s second-largest fund centre with more than 560 international managers using the country as a domicile’; it is also the largest administrator of alternative assets globally.

According to representative body Irish Funds, the sector here grew by over 40% between November 2018 and November 2020, with 119 firms expanding or entering the marketplace. Yet despite such credentials, there has been at least one area where Ireland has fallen behind its rivals in recent years: investment limited partnerships (ILPs).

ILPs, which are partnerships between one or more general partners and one or more limited partners, are the business structure most typically used by alternative asset funds. Until very recently, Ireland’s offering in this area had not been updated since the 1990s.

As a result, private equity, real estate and similar alternative asset funds were being drawn to other, more attractive, European jurisdictions. According to the CEO of Irish Funds, Pat Lardner, 3,300 private equity funds were launched in Europe between 2015 and 2020. The vast majority of them were ILPs, and hardly any were located in Ireland.

Raft of reforms

Lardner is, then, among those describing as ‘game changing’ the Investment Limited Partnerships (Amendment) Act 2020. Signed into law in December 2020, it reasserts Ireland’s competitiveness in ILPs through numerous reforms and updates (see box).

Key among the changes it introduces is the possibility of umbrella structures, allowing sub-funds of differing strategies and investor types. It also clarifies the roles that limited partners can play in ILPs without losing their limited liability, such as participation in the fund’s advisory committee.

Green future

The timing of the reform may be particularly opportune as Ireland’s funds industry prepares to play its role in the post-Covid economic recovery. ILPs are more labour-intensive than other fund types and, according to Irish Funds, could create 3,000 new jobs in Ireland by 2025, adding to the 16,000 already employed in the sector while attracting some €20bn annually in new capital to the country.

More broadly, ILPs look set to give Ireland’s financial services sector more leverage in green and sustainable finance. In 2020, the European Commission set out its action plan for capital markets union, designed to get investments and savings flowing across the EU, with support for ‘a green, digital, inclusive and resilient economic recovery’ one of its key goals. Commentators believe the restructured ILPs will allow Ireland to play a greater part in this by increasing the number of green funds operating in the country.

Lardner says: ‘The ILP will be a strong mechanism to enable sophisticated investors such as pension funds to deploy their capital into areas such as infrastructure, social housing, healthcare, broadband and alternative energy as well as the wider transition to a greener economy and greater carbon neutrality.’

Broader industry reaction is no less positive. Paul Kilcullen FCCA, Ireland country head for BNY Mellon, says: ‘With the ILP framework, Ireland is now ideally placed to be the centre of choice for launching new alternative funds. Its unique position as the leading global administration jurisdiction, combined with its emergence as a global hub for innovation in fintech, makes it the ideal location to develop new products that will be required to meet the evolving investor requirements.’

While ILP reform was mooted before Brexit became a reality, the departure of the UK from the EU provides an additional context for growth, as Ireland is now the only native English speaking, common law jurisdiction in the EU.

Speaking to The Irish Times as the new act was signed into law, Mark White, head of the investment management group at law firm McCann FitzGerald, said: ‘Ireland is the natural domicile of choice for a London manager’s EU funds. The ILP will only serve to enhance Ireland’s offering to the UK private equity sector post-Brexit.’

The oldest adage in the funds industry is that previous performance is no guarantee of future results. While further seismic growth in the Irish funds industry may not be assured, it will certainly not come as a complete surprise.