Two fund structures that asset managers may want their administrators to support are Ireland’s Icav and Luxembourg’s Raif, which each country has developed to support the liquid alternatives surge. Nicholas Pratt explains.
Fund administrators aren’t the only ones tweaking their technical ability to cater for liquid alternatives – so too are fund jurisdictions. There have been significant developments in legal fund structures that are available in the alternatives sector.
Ireland launched the Irish Collective Asset-management Vehicle (Icav) in March 2015. The objective was to develop a more efficient legal structure for both Ucits and alternative funds.
Prior to the Icav, fund managers had the choice of a corporate fund based on a public limited company (PLC) structure, or a unit trust, a common contractual fund or an investment limited partnership. The Icav is similar to the PLC-based corporate fund but with a streamlined structure that does not make it subject to wider company law. “The idea was to set up a corporate structure that is bespoke to investment funds,” says Kieran Fox, director of business development at Irish Funds, the country’s industry association.
For example, it is possible for the board of directors to dispense with the need for an annual general meeting, although the auditor or shareholders representing 10% of the voting rights may still require an AGM be held in any year. And changes can be made to the governing document of an Icav fund (the instrument of incorporation) without the need for shareholder approval, provided the changes are certified by the depositary as not prejudicing the interests of the shareholders.
The Icav is suitable for both regulated alternative investment funds, and Ucits umbrella funds, and for the efficient establishment of master feeder structures. Additionally, the Icav also offers an advantageous tax treatment for US investors through the ability to make a ‘check the box’ election that allows income or gains to be allocated to the Icav shareholders, avoiding possible adverse tax consequences for US taxable investors.
Notably, the Icav is of most appeal to alternative investors. As of the end of February, figures from the Central Bank of Ireland (CBI) show that 146 Icavs had been set up with the majority being alternative funds (€5.7 billion of assets under management, compared to €1.3 billion of assets for Ucits funds).
The Icav is also intended to cater for liquid alternatives by incorporating not just alternative and Ucits funds, but also the master feeder structures, says Fox. This is of particular interest to US and other offshore managers and investors. “Prior to the Icav there were master feeder structures typically set up using a unit trust as the master, but now you can have an Irish Icav as the master, which can be either internally or externally managed, an Irish feeder Icav fund and parallel offshore [Cayman or Delaware] feeder funds.
Meanwhile, Luxembourg has focused on increasing the number of alternative funds in its jurisdiction with the Reserved Alternative Investment Fund (Raif), which could be adopted by the Luxembourg Parliament before June 2016.
The Alternative Investment Fund Managers Directive imposed authorisation and compliance obligations on the manager and not the fund itself, something the Raif addresses. In addition, a Raif does not require regulatory approval, which Susanne Weismüller, senior legal adviser for Luxembourg investment funds association, Alfi, says significantly reduces time to market.
“It will still be possible for managers to operate with structures solely subject to Luxembourg company law and not choose vehicles governed by UCI part II, SIF or Sicar law. But these structures do not offer certain features specific to investment funds such as the possibility to set up an umbrella fund with multiple compartments,” says Weismuller. “The Raif will do exactly that.”
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