Will Ireland’s new legislation spur a boom in the private markets?

By

4 June 2021

Connect with Ben on LinkedIn

Ireland’s new Investment Limited Partnership Act is a game-changer for the private assets industry, and will reinforce the country’s position as a leading global center for alternative assets.

The updated Act greatly enhances the attractiveness of the country’s ILP structure for private fund managers and investors, bolstering Ireland as a premier jurisdiction for domiciling and servicing private equity, private credit/debt and real asset funds. This will help private market assets under management in the country to double from 2020 to 2025, with compound annual growth forecast to hit 14.2% over the period, compared to a global average of around 8%.

Headline changes

The revised framework incorporates a number of key amendments.

To start, it allows Investment Limited Partnerships to set up as umbrella funds, with segregated liability between the sub-funds. This structure enables asset managers to accommodate different investment strategies and investor types within a single architecture, while providing operational efficiency, economies of scale and speed to market benefits. ILPs won’t be subject to legal risk spreading obligations either, so they can operate as single asset funds and/or funds with highly concentrated positions.

Other changes include simplifying the process for amending the limited partnership agreement (LPA), along with introduction of various safe harbor activities for limited partners—such as participating in advisory committees—that they can undertake without losing their limited liability status.

Limited partnerships established in other jurisdictions will be able to migrate to Ireland too, potentially helping attract more funds and assets.

Strong fund foundations

Creating a solid, flexible legal framework provides the vital foundations for the private assets industry’s future success. It is now up to market participants to build on them.

We’re seeing huge and sustained investor interest in private equity and private debt funds as investors seek to tap into the substantial, stable and long-term returns on offer. But if Irish-domiciled alternative investment funds, and the managers and administrators that service them, are to make the most of these opportunities, they need an agile multi-asset class platform.

Fund vehicle support is a huge consideration. Having a system with comprehensive instrument coverage and the ability to handle open-, closed-end and hybrid funds enables managers moving into the private markets space to support all their investment strategies on a single integrated solution.

Managing umbrella funds is key; the ability to account for complex, multi-tiered fund structures—such as master-feeders and mini-masters—is crucial.

Accurately tracking, accounting for, and reporting on the investment commitments, capital calls and drawdowns associated with private asset funds is challenging but also essential. Determining how capital gains are allocated between investment participants requires a sophisticated waterfall calculator to calculate and allocate the different distribution waterfall schedule tiers. Tracking and calculating funds’ management fees demands detailed look-through from an investor to the investments—a time-consuming and error-prone chore without the proper system functionality.

As investor and regulatory scrutiny intensifies, enhanced transparency and reporting capabilities are a further priority.

By tightly integrating portfolio management and investor accounting, funds can track their investors across multiple investments, and provide detailed look-throughs to the underlying assets to reveal the portfolio constituents and how they are performing. Generating comprehensive reports depends on automatically tracking the different P&L components, management fees, partnership expenses, capital calls and drawdowns, and waterfall calculations.

Such capabilities are no longer a nice-to-have. If the Irish private market’s growth forecasts prove anywhere near accurate though, they will definitely be worth it.