Investment Funds 2021: The Investment Limited Partnership: Ireland’s new private equity vehicle
With the Investment Limited Partnerships Bill passed in the Irish parliament on December 16th Ireland has finally an investment limited partnership structure fit for purpose for private equity and venture capital asset managers. Dillon Eustace Partner Derbhil O’Riordan describes the essential features of the new vehicle, as set out in the Bill.
Ireland has long been a strategic hub for the funds industry with over €3 trillion1 in assets domiciled there. In addition to the evident tax advantages, the efficiency with which Irish funds can be set up is of distinct appeal to managers. In large part, this efficiency is derived from the unique legal structures under which funds can be established in Ireland.
Derbhil O'Riordan
Derbhil O'Riordan

To date however, such structures did not include an investment limited partnership structure (“ILP”) fit for purpose for private equity and venture capital asset managers. This significant gap in the Irish offering has now been remedied by the introduction of a Bill to amend The Investment Limited Partnerships Act, 1994, (the “ILP Bill”).

The ILP Bill updates existing legislation to provide for the establishment and operation of regulated ILPs in Ireland and is intended to modernise the law governing Irish private equity funds so as to make the ILP the vehicle of choice for implementing private equity, venture capital and real estate investment strategies in Europe.

Central Bank Consultation
The Irish ILP is an EU alternative investment fund which, to operate, must obtain a certificate of authorisation from the Central Bank of Ireland (the “CBI”) under the ILP Bill. Thereafter it is subject to the regulation and supervision of the CBI.

In step with the ILP Bill, the CBI has issued a consultation paper (the “Consultation”) on the features of closed-ended Qualifying Investor funds (see further details below) to adapt these to reflect the legislative changes being introduced by the ILP Bill. Separately, the CBI has confirmed that the general partner of an ILP will not require a separate regulatory authorisation. Instead, the directors of a general partner will be deemed to be performing Pre-Approval Controlled Functions within the meaning of the CBI’s fitness and probity rules and will be required to comply with the Central Bank’s guidelines in that regard.

Key Features
Like limited partnerships in most other jurisdictions, the ILP does not have separate legal personality. It is formed by means of a limited partnership agreement (“LPA”) entered into by one or more “general partners” (each a “GP”) and by one or more “limited partners” (each an “LP”).

The GP is charged with and responsible for the management control and operation of the ILP and of its investment activities, and is generally liable for the debts and obligations of the LP. The LPs have no role in the conduct of the ILP’s business and are generally not liable for the debts or obligations of the ILP beyond the amount they contribute or undertake to contribute to the ILP.

The ILP Bill provides clarity as to what LPs can do without being considered to be involved in the conduct of the ILP’s business, such as serving on the advisory committee, voting as a LP on various matters and consulting with and advising the GP with respect to the business of the ILP.

The ILP Bill and the Consultation together provide that all the normal features of a limited partnership that a PE manager would expect to see are found in the ILP product including:
• capital accounting;
• closed-ended/finite life;
• capital commitments;
• closings, capital calls and drawdowns;
• defaulting investor provisions;
• excused investor provisions;
• waterfall distribution mechanisms;
• flexibility around structuring of carried interest permitting claw-backs and give-backs;
• co-investment and parallel/alternative vehicles;
• secondaries;
• advisory committees etc.

An ILP is treated as tax transparent from an Irish tax perspective in respect of all its income, gains and losses.

Authorisation of an ILP
An ILP may be formed as a retail product (known as a RIAIF) or as a product for professional investors with a minimum commitment of €100,000 (known as a QIAIF). If an ILP is formed as a QIAIF it may benefit from the fast track authorisation process facilitated by the Central Bank.

Where the fast track authorisation process applies, the ILP QIAIF will be authorised on the business day following its application to the CBI for approval provided that all relevant service providers) have been pre-approved or pre-cleared to act by the Central Bank. The application should include details of those service providers and a statement of the general nature of the investment objectives of the ILP. The application must be accompanied by the offering document, the LPA, the material contracts with third parties and ancillary confirmations. Assuming the application is complete and that the CBI does not raise any issues in relation to the application, a letter of authorisation of the ILP should issue by close of business on the business day immediately following the date of application.

The ILP can commence to issue call capital and issue interests immediately on authorisation by the Central Bank.

The ILP Bill and Consultation represent a new opportunity for PE managers seeking the stability of an EU regulated structure, while maintaining the flexibility for PE structures previously absent in Irish limited partnership options.
The Irish ILP is a welcome expansion of the Irish funds industry’s offering providing a credible on-shore alternative for asset raising in the private equity space.

Derbhil O’Riordan is partner in the Asset Management and Invest Funds team in Dillon Eustace.
This article appeared in the December 2020 edition.