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| Financial Law Update | Back to article summary. |
| Further enhancements for qualifying investor funds |
| Elizabeth Grace |
| The introduction last year of a 24-hour turnaround time for regulatory approval of qualifying investor funds ('QIFs') represented a sophisticated and innovative development on the Irish investment funds landscape, reflecting an acknowledgment by the Financial Regulator of the importance of speed to market for fund promoters targeting high net worth and institutional investors. |
| The introduction last year of a 24-hour turnaround time for regulatory approval of qualifying investor funds ("QIFs") represented a sophisticated and innovative development on the Irish investment funds landscape, reflecting an acknowledgement by the Financial Regulator of the importance of speed to market for fund promoters targeting high net worth and institutional investors. The overhaul of the authorisation process by the Financial Regulator followed extensive consultations with industry representatives and has been an unbridled success. Since it came into effect in February 2007, applications for the authorisation of a QIF can be fast-tracked, with authorisation possible in a single day on a filing only basis, provided the Financial Regulator receives a completed application by 3.00 pm on the previous working day. To avail of this fast track procedure, all relevant parties to the QIF (e.g. the promoter, directors and service providers) must have been approved in advance of the application and the fund must certify compliance with the requirements of the Financial Regulator's QIF application form. Consistent with their reputation for not resting on their laurels, the Irish Funds Industry Association ('IFIA') and the Financial Regulator have joined forces again for the purposes of further improving and upgrading the Irish QIF product from the perspective of fund managers and investors. Following a comprehensive written submission formulated by the IFIA last December, the Financial Regulator and the IFIA have been engaged in detailed discussion, examining new ways in which to enhance the QIF offering and to ensure its competitiveness and attractiveness. On foot of this dialogue and commitment to ongoing innovation in this area, a number of changes have already been agreed by the Financial Regulator which will be of interest to promoters of proposed and existing QIF structures. A summary of the changes agreed to date are as follows: - QIFs which have established as investment companies and partnerships are no longer required by the Financial Regulator to publish semi-annual accounts. The Irish Stock Exchange is also expected to dispense with its requirement for listed QIFs to produce semi-annual accounts. - An investment by a QIF in another collective investment scheme will now not be regarded as a feeder-type investment unless the investment is in excess of 50 per cent of net assets (formerly the limit had been 40 per cent). A QIF which does not have as principal objective the investment in a single collective investment scheme is not required to comply with disclosure requirements applicable to feeder investments. - The Financial Regulator has clarified that responsibility for compliance with the requirement in Part XIII of the Companies Act 1990 that investment companies must spread investment risk rests with the directors. This opens up the possibility of a more flexible and purposive interpretation of the risk spreading requirements than the prior focus on percentage limitations afforded. - QIFs will now be permitted to issue a separate prospectus in relation to a share class within a QIF, or within a sub-fund of an umbrella QIF, provided that the existence of the other share classes is disclosed to investors. - QIFs are no longer required to refer to limited liquidity status on the prospectus cover, instead the fund promoter has discretion to refer to ‘open ended with limited liquidity’ on the cover if desired. - It is now possible to convert a professional investor fund to QIF status on the basis of a 75 per cent shareholder vote in favour of conversion, as opposed to the 100 per cent level of shareholder approval which had previously been set as the threshold. The vote in favour of such conversion must represent at least half of the total number of shares, and a QIF status certificate in respect of each shareholder participating in the conversion must be furnished prior to the conversion taking place. Shareholders who do not provide a QIF shareholder status certificate will be redeemed prior to the amalgamation (this will include shareholders who vote against the conversion and non-responding shareholders). Additional changes to the Financial Regulator’s guidance notes on QIFs which have been circulated for further consideration include the ability of a QIF to provide for the private issue of debt to a lending institution and a fast-track derogation procedure for a QIF feeder scheme investing in an unregulated scheme (where the parties involved have previously been granted a derogation on the same basis as the current request). It is expected that the boards of existing funds will move forward to consider the implementation of the additional flexibility which has been introduced, although it might be noted that a final stage of consultation with the IFIA and the Financial Regulator is currently being undertaken (June 2008) and it is likely that further QIF enhancements may arise from this. There is no doubt that developments in this area reflect the market appetite for a sophisticated regulated product facilitating hedge fund and other alternative investment strategies. Even more significantly, the considerable importance for the industry of ensuring that there is continued growth in this area, and that Ireland’s attractiveness as a domicile for alternative investment funds remains intact, cannot be underestimated. |
Tara Doyle is a Partner and Elizabeth Grace a Consultant in the Asset Management and Investment Funds Group at Matheson Ormsby Prentice and can be contacted on +353 1 232 2000 or by email: tara.doyle@mop.ie or elizabeth.grace@mop.ie Further information on Matheson Ormsby Prentice and the Asset Management and Investments Funds Group is available at www.mop.ie |