By all accounts, 2021 was a record-breaking year for private equity fundraising, with the pandemic driving a surge in deal and exit values. And, with Preqin estimating that global PE dry powder stood at $1.32 trillion as of September 2021, there is clearly more activity to come. In this context, I will examine how well Ireland’s funds industry is positioned to benefit from this growth in the private equity market.
The New Irish Investment Limited Partnership
In short, I believe the Irish market is primed to benefit from this. At present, the vast majority of the mega-funds are managed by either US or European managers, who may have traditionally used a non-Irish structure. With the launch of the new Irish Investment Limited Partnership (ILP) fund structure, however, the market is ready to make the most of the fundraising growth.
At the end of 2020, Irish legislators, assisted by representatives from the industry, updated Ireland’s existing ILP regime to make it a practical solution for structuring an investment fund, levelling the playing field with other leading EU funds jurisdictions like Luxembourg. The ILP is a regulated Irish fund structure, in the form of a common law partnership regulated by the Central Bank of Ireland. It is transparent for Irish income tax and capital gains tax purposes under pre-existing law and is particularly well suited to investments in private equity.
The Future of ILPs
The Irish market has been slow in attracting new funds using the ILP structure due to its lack of recognition among both fund managers and investors. As at the end of October 2021, only 12 ILP funds had been authorised. However, this relatively low level of activity is to be expected as asset managers, investors, intermediaries and the regulator get to grips with the new regime. Uptake will improve over time at an exponential pace once more funds begin to establish themselves in Ireland. That being said, there is still work to be done in increasing the awareness and acceptability of the ILP with the investors.
It has to be said that Ireland is coming from a low base for partnership funds in comparison to other more established jurisdictions, such as Luxembourg and the Cayman Islands. Therefore, it’s natural to see a ‘feeling out’ period like what was seen with the Irish Collective Asset-management Vehicle (ICAV), which went on to become an extraordinary success. Generally, feeling towards the ILP is positive, and as asset managers launch more ILPs and there is a proven path for the product, we can expect to see a significant increase in momentum and authorisations in 2022.
Going forward, it is crucial to the funds industry in Ireland that future trends are identified and the structures available are able to facilitate future growth areas – for example, hybrid funds, which mix liquid and illiquid assets and may require special regulator protections and/or adjustment to the existing structures. The ILP will also require some fine-tuning over the coming year as early wrinkles are identified and ironed out. For example, the requirement for investors to seek legal advice in order to excuse provisions, and the requirement for ILPs to seek the approval of the majority of investors (or the depositary) before any amendments to the limited partnership agreement (LPA), may require some adjustment in the medium term.
With dry powder at record levels, this will eventually translate into more portfolio company investments and a related rise in the use of SPVs that Ireland is positioned to greatly benefit from – not only in the private equity space but also in relation to real assets and private credit. Between the strength of the ILP structure and the high level of money in the market, we at IQ-EQ believe Ireland’s future in the alternative funds sector looks very promising.