Potential for investment partnerships to grow on change in law

Plans to modernise and enhance the Investment Limited Partnerships Act will target growth in the private-equity and fund industries, according to Aongus McCarthy, senior associate with Pinsent Masons. "Traditionally private-equity deals are structured via partnership structures," he says. "With this in mind, there has been an increased focus on making Ireland the domicile of choice for these types of deals, which has necessitated improvements and enhancements to our partnership legislation."

He points out that Ireland has long been regarded as a major international hub for the funds industry. “Indecon, the independent economic research organisation, recently published an industry report on the Irish funds industry which highlighted the significant contribution that this sector provides to the Irish economy, contributing €837 million annually in direct taxes to the exchequer and directly employing 16,000 people across Ireland, almost 4,500 of which are outside Dublin,” he notes.

“Drawing upon its existing position as a leading funds domicile, Ireland now has an opportunity to further develop into a key jurisdiction for the establishment and structuring of investment limited partnerships – an area where we have fallen short to date but which might provide an opportunity for growth in the future,” McCarthy adds.

Limited partnership

While Ireland holds a prominent position for regulated funds investing in traditional publicly-listed assets, the limited partnership structures, like those in the UK, Luxembourg, France, Germany and the US, have long been the preferred fund type for many asset managers looking to house their clients' infrastructure, renewable energy, private equity and other 'real economy' investment funds.

These partnerships are preferred by investors looking to invest in conventional partnership structures which meet their needs, and which conform with international standards. For example, large global investors like pension funds and sovereign wealth funds favour limited partnerships for making long-term investments in unlisted and illiquid assets.

"An investment limited partnership [ILP] is a form of common-law partnership structure available in Ireland, which is regulated by the Central Bank," McCarthy says. "An ILP is constituted pursuant to a limited partnership agreement entered into by a general partner with responsibility for conducting the affairs of the ILP and any number of limited partner investors. An ILP must be managed by an alternative investment fund manager who is subject to the EU's Alternative Investment Fund Managers Directive [AIFMD]."

However, Irish ILP legislation, first enacted in 1994, has not been substantially updated since then. “As such, it is widely regarded by asset managers and industry stakeholders as being outdated in comparison to international standards and market developments, including the implementation of the AIFMD in 2013,” McCarthy points out.

“The Government’s Ireland for Finance strategy for the development of Ireland’s international financial services sector to 2025, published in late April, highlights how reform of ILP legislation is a key action item on the Government’s agenda in order to support the development of the growth finance and funds industry and to promote the use of these structures in Ireland by domestic and global asset managers,” he says.

“The proposed modernisation of the existing ILP legislation, expected during the course of 2019 following lengthy engagement with industry stakeholders, will be a welcome development for the Irish economy. The proposed legislative enhancements will seek to align this partnership structure in many respects with international standards for similar structures in other EU jurisdictions.”

Brexit

Brexit presents a particular opportunity for Ireland in this regard, McCarthy contends, pointing to recent investment trends which have been attributed to the uncertainty caused by the UK's decision to depart the EU. These trends saw the value of private-equity investments last year in Europe (ex-UK) rise by 13 per cent to €63.9 billion, while the UK itself saw a 12 per cent fall to €16.7 billion.

“To date, the UK has been one of the main domiciles for the establishment of partnership structures,” he notes. “With Brexit comes an opportunity to further grow Ireland’s reputation as a world leading cross-border fund domicile and in turn, the Irish economy, as impacted asset managers look to establish their products in EU domiciled vehicles to benefit from the regulatory framework and the harmonised passporting process across EU member states to permit them to raise capital.

“Ireland must look to make the most of these opportunities in order to maintain our position as a leading funds domicile and world-class business environment – this is all the more pressing given the direct and sizeable contribution the industry makes to the Irish economy.”