Key Features
Key features of an Investment Limited Partnership
FLEXIBLE STRUCTURE
The ILP incorporates standard private fund features including but not limited to: the ability to have a closed-ended structure; excuse and exclude provisions; capital accounts; commitments, capital contributions and drawdowns; defaulting investor provisions; distribution waterfalls and carried interest mechanisms and advisory committees. There are no investment or borrowing restrictions applicable to an ILP structured as a QIAIF (except for loan origination funds and funds that invest in crypto and Irish real estate).
EU MARKETING PASSPORT
Where an ILP has appointed an authorised EEA alternative investment fund manager (AIFM), it can avail of the AIFMD marketing passport to market to professional investors throughout the EEA.
An ILP may also appoint a non-EEA AIFM or an Irish registered AIFM, in which case it may be sold in relevant EEA member states under applicable national private placement regimes, if applicable.
LP LIMITED LIABILITY
In general, a limited partner’s liability will not exceed the amount of its capital contribution or commitment to the ILP unless the limited partner participates in the conduct of the business or management of an ILP. The ILP Act specifies certain activities (safe harbours) which are deemed not to constitute participation by a limited partner in the management of the ILP. This allows limited partners to sit on advisory committees, approve changes to the limited partnership agreement and consult with and advise the GP with respect to the business of the ILP, for example.
SPEED TO MARKET
ILPs structured as QIAIFs[1] can avail of the Central Bank’s 24-hour approval process. The fund documents are submitted to the Central Bank but are not reviewed. Instead of undertaking a detailed review, the Central Bank relies on confirmations provided by the directors/manager and legal advisers of the ILP to ensure compliance with applicable Irish regulations. In general, the establishment of an ILP takes 8 to 12 weeks (including drafting the fund documents, negotiation of service provider contracts and completion of KYC).
[1] ILPs investing in Irish property are subject to a pre-submission process.
UMBRELLA FUND
An ILP may be established as a single fund or as an umbrella fund with segregated liability between sub-funds. Each sub-fund may be structured as an open-ended, closed-ended or open-ended with limited liquidity fund and have different investment strategies and terms.
EXCUSE AND EXCLUDE PROVISIONS
It is possible to provide for excuse (where an investor can be excused from an investment) and exclude (where the ILP can exclude an investor from an investment) provisions in a closed-ended ILP. Excuse and exclude provisions are permitted subject to the following conditions:
- the excuse and/or exclude provisions are predetermined and documented by the fund (in respect of excuse provisions by way of a written document between the ILP and the investor prior to an investment being made in the ILP and, in respect of exclude provisions, by providing for the circumstances in which this may occur in the prospectus and/or limited partnership agreement (LPA));
- a formal legal opinion (opinions of internal counsel are accepted) must be provided by the investor or the ILP (depending on the party invoking the provision) outlining the basis on which the excuse or exclude provision is being invoked; and
- the board of the GP and AIFM must document (i) whether or not it accepts the formal legal opinion so provided, and (ii) the consequences of accepting or disagreeing with such opinion.
STAGED CLOSING
Limited partners may invest in an ILP at staged closings. The terms of the ILP can provide that limited partnerss admitted at later closings may participate in existing and future investments of the ILP or in future investments only. In order to facilitate equalisation, the limited partners admitted at a later closing are typically placed in a new class of interests and an equalisation factor is applied.
MANAGEMENT PARTICIPATION AND CARRIED INTEREST
Members of the investment management team may participate in an ILP on the basis of terms that differ from other LPs. This is typically facilitated by placing investment management members in a separate class from other classes. The terms and conditions applicable to the management class must be described in the LPA.
Carried interest mechanisms can generally be facilitated within an ILP in the same manner as in other partnership and corporate structures.
ISSUE OF INTERESTS AT A PRICE OTHER THAN NET ASSET VALUE
An ILP is permitted to issue interests at a price other than net asset value without prior Central Bank approval.
SIDE LETTERS
Side letters may be agreed with limited partners in the same way as other alternative investment funds in Europe. It is not necessary to disclose specific details of preferential treatment agreed with LPs, provided the types of preferential treatment that may be agreed with LPs are generally disclosed.
AMENDMENTS TO THE LIMITED PARTNERSHIP AGREEMENT
The limited partnership agreement of an ILP may be amended by a majority of LPs and GPs. The LPA can define what constitutes a major of LPs (e.g. by commitment, number, contributions). The LPA may be amended without LP consent if the depositary certifies that the alteration does not prejudice the interests of the LPs.
FUND DOCUMENTS AND DISCLOSURE
AIFMD and the Central Bank rules require that certain disclosures are made to investors in relation to the ILP and its terms. An ILP will require a limited partnership agreement and a prospectus or offering document. The prospectus is required to include information on the ILP’s investment objective and policy and investment restrictions, the use of leverage (including the types permitted and maximum leverage permitted), valuation provisions, information on the services providers, conflicts of interest and fees and expenses associated with the ILP.
TAXATION OF ILP
The ILP structure is tax transparent for Irish tax purposes and therefore the tax analysis will depend on the domicile of the investor and tax advice will be required on a case-by-case basis. No Irish stamp duty applies to the transfer, exchange or redemption of interests in ILPs.
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