Our latest Ireland roundtable saw fund management head Robin Creswell join a panel of Irish funds experts to discuss AIFs, Ireland’s CP86 governance project, and the potential for the Emerald Isle to be a ‘green’ hub.
Robin Creswell (Managing principal, Payden & Rygel)
Kieran Fox (Business development director, Irish Funds)
Bill Prew (Group director, institutional client services, JTC Group)
James McEvoy (Country executive Ireland, Alter Domus)
Moderated by Angela Madden.
Funds Europe – How are Irish fund structures and the regulatory requirements that sit behind them evolving to allow asset managers to provide investors with the diversification of asset classes and strategies they need?
Robin Creswell, Payden & Rygel – We’re seeing two separate trends: one is a trend towards AIFs [alternative investment funds] and AIFMs [alternative investment fund managers], which of course is well established, and one is a potential for more flexibility inside the Ucits structure.
Payden & Rygel submitted a fund to the Central Bank some time ago to create a multi-asset/multi-credit fund inside our Ucits. But the more we got into the application process, the more pushback we had for that fund because we wanted to have greater exposure to CLOs [collateralised loan obligations], securitised loans and similar instruments beyond what we had in our existing funds.
We drew a blank with the Ucits structure and we had been reluctant to go to the AIF route for two reasons. Number one, Payden didn’t want to set itself up as an AIFM and, going back some way, the third-party AIFM option was not as well established as it is now.
Secondly, we work exclusively for institutions, and what we’d found until quite recently is that institutions, if they were coming into a fund – at least the institutions that we deal with – didn’t really want to look at AIFs and, more specifically, often in their deeds of establishment specified they could only invest in funds that were Ucits. So, even though they were institutions and professional investors, and they didn’t need the protection of a Ucits, their boards would look at the Ucits structure and say, ‘That’s a gold seal of approval, we’re only going to invest in Ucits.’
That’s now changed, so the thing we’re seeing on the AIF side is AIFMs are well established. It’s now very straightforward to delegate to an AIFM and we found institutions prepared to put up $150 million of seed money to start our multi-asset credit AIF which we launched in February of this year, so that’s the one trend.
Interestingly, just in the last few weeks what we were hearing from others interacting with the Central Bank is, first of all an appetite to really engage with managers to do two things: to really understand from practitioners how they intend to use these instruments; and secondly, the Central Bank appears prepared to allow more flexibility around the use of instruments such as CLOs, still consistent with the Ucits directive, where the manager has provided satisfactory evidence of underlying systems, processes, expertise and risk management tools.
It’s interesting how, on the one hand, we have found ourselves drawn out of necessity towards the AIF and now, on the other hand, we’re seeing some room to explore greater flexibility potentially available in a Ucits, and I think both of those are very healthy developments for the funds industry.
Kieran Fox, Irish Funds – In addition, there have been several notable developments. There has obviously been the new Investment Limited Partnership (ILP) legal structure, which became effective at the beginning of last year. We have seen traction with this over the last 12 months in terms of several new funds being authorised, and my understanding is there are a number in the authorisation pipeline with the Central Bank.
In addition, at the end of March the Central Bank approved in principle the first Irish Qualifying Investor AIF (QIAIF) with an indirect exposure – albeit small – to cryptoassets. This is significant as it is the first time an Irish investment fund has been authorised to hold crypto exposure. Again, it is my understanding that there are an additional number of applications currently with the Central Bank pending authorisation for approval to hold indirect crypto exposure.
Now that the first one has been approved, I would expect there will be more that the Central Bank will authorise. It is something that we are discussing with the Central Bank and we are in the process of publishing a whitepaper exploring what might be possible and the future developments that could be explored in this area.
Bill Prew, JTC – Our particular focus has been on the Investment Limited Partnerships Act amendment, which came into effect in December 2020 and modernised existing partnership legislation which is expected to make Ireland a more attractive domicile for closed-ended private equity, real estate and other real asset funds.
Alongside this, the Central Bank of Ireland now allows non-banks to act as a depositary to these types of funds, and Indos [a subsidiary of JTC] was one of the first firms to obtain what’s known as a specialised depositary licence.
There were around 13 live ILPs with around eight being authorised since the amendments to the ILP were introduced. It’s been a relatively slow pick-up, but the legislation was introduced during the middle of Covid and it will take time to develop.
Ireland has clearly got a way to catch up versus Luxembourg but there’s no reason why Ireland shouldn’t play a more prominent role in the closed-ended funds market going forward.
James McEvoy, Alter Domus – We focus very much on private markets – private equity, real estate, private debt, etc – and it’s in that area where we saw the need for some evolution. Over the past year and a bit, there has been significant movement and the introduction of the ILP has been key.
Around that time, we also got some further guidance from the Central Bank on certain rules around closed-ended funds, and they were really important to better facilitate private funds and how they operate. That new guidance also applies to Icavs [Irish collective asset-management vehicles] or any other Irish fund structure.
So, that guidance, together with the new ILP, have set us off for the market to evolve in a much more meaningful way, and we very much see it as a growth market.