Private Equity’s Irish evolution
Societe Generale Securities Services Ian Duffy and Michael Clifford explain how Irish investment limited partnerships herald new opportunities for private equity managers.
With its robust regulatory regime and highly skilled workforce, Ireland has become an increasingly attractive destination for alternative asset managers in recent years. As a member of the EU, the Emerald Isle is also an attractive domicile for cross-border asset and fund management.
And as the Irish alternative investment industry has grown, demand for more efficient fund structures has increased.
A new structure for the modern era
One of the most recent innovations in the Irish alternative fund space has been the overhaul of the Investment Limited Partnership (ILP). The revamped structure was designed specifically with the private equity sector in mind, which has attracted considerable inflows in recent years.
“Ireland has attracted a lot of US and UK1 private equity managers, but they found that we didn’t have a specialised vehicle for this type of asset class,” says Michael Clifford, Head of Business development for Ireland.
“Our existing limited partnership structures hadn’t been reviewed for some time, so, lots of different stakeholders – including government, regulators, fund managers and service providers – came together to create a new structure, the ILP.”
Following an overhaul of the Investment Limited Partnerships Act 1994 and amendments to the Central Bank of Ireland’s AIF Rulebook, the ILP was relaunched in 2020 to offer managers and investors the best possible experience. The ILP structure also offers private equity managers an alternative to Luxembourg, as well as some other features and benefits unique to the Irish market.
“The ILP is a significant development for the Irish market,” adds Ian Duffy, Country Head of SGSS Ireland. “There was no dedicated structure like this before and it has helped fill in many of the gaps in the landscape. The main pushes towards ILP have been the fact that Ireland now offers a similar structure to that in Luxembourg allowing us to compete in terms of service levels, and industry competitiveness.
There are also some advantages in the application of the reverse hybrid rules from a tax perspective, which is more accommodating than in other jurisdictions. Initially there was a reluctance by promoters to be the first mover and there had been questions raised around holding companies under ICAVs2, but solutions have been found.
There is some ongoing work to make it clear that an ILP can also use US GAAP3. More recently, there has been some traction in the number of funds that are coming through and the momentum has definitely shifted. There is a lot more interest in this product now. There are close to 30 Central Bank authorisations already and many of these have been in just the last few months.
Principally, the ILP is a partnership of two or more people whose principal business is investing and consists of at least one general partner and at least one limited partnership. All assets and liabilities are owned by the individual partners, rather than an independent company, and its profits are also owned by partners.
One of the benefits is that an ILP can be established as a Qualifying Investor Alternative Investment Fund (QIAIF), and is authorised and regulated by the Central Bank of Ireland. This means ILPs can also take advantage of the Central Bank’s 24-hour approval process for QIAIFs and can be marketed across the EU.
The ILP structure also allows multiple sub-funds thanks to its umbrella structure, which can offer segregated liability and benefits of scale for investors.
We have seen a lot more institutional investors coming into the private equity market for the first time, and they are often looking for regulated funds that are covered by AIFMD to give them more confidence in the vehicle, says Duffy.
Another benefit of the ILP structure is that it is ‘tax transparent’ and is not subject to Irish tax on income or gains.
Global partner, local expertise
As a longstanding service provider in the Irish funds market, SGSS has the expertise to help private equity managers to set up and make full use of an ILP structure.
“SGSS has extensive experience and history in the Irish funds market,” says Clifford. “We realise the importance of private equity as an asset class, and it is a top priority for us. We have a separate business line within SGSS for private equity because we realise it is an area that requires specialist skills.”
SGSS supports private equity clients with a range of cross-border solutions and services that allow managers to focus on investment management, offering everything from custody services, fund administration, regulatory and client reporting, and its new Advanced Middle Office outsourcing offering.
“Some of the more specialist service providers in the Irish funds market do not have the experience or range of products that we can offer as part of the broader Société Générale banking group,” adds Clifford. “As well as bank accounts, we can offer our clients other services such as FX4 or bridge financing.”
Furthermore, the bank is growing its expertise in new areas of finance such as digital assets – a part of the market where asset managers are increasingly devoting attention.
“Societe Generale has been very involved with the French regulator – the AMF – in developing an understanding about how this area of finance works from a regulatory perspective,” says Clifford. “It is definitely playing a leading role in the development of products.”
It is also working closely with the Societe Generale subsidiary SG-FORGE, which provides issuers and investors with services to issue and manage digital native financial products registered on blockchain, including digital asset structuring and servicing.
SG-FORGE is also heavily involved in the tokenisation of assets, with more than 15 transactions to date, including the European Investment Bank’s first-ever digital bond on a public blockchain – a €100 million two-year bond issued on the Ethereum blockchain5.
“SG-FORGE does a lot of work in this area and is recognised as a leader in digital assets, especially in tokenisation,” says Duffy. “And we are working with them to come up with solutions in the medium term. And that is going to be a differentiator for us in the Irish marketplace in the future.”
Michael Clifford, Head of Business development, SGSS Ireland and Ian Duffy, Country Head of SGSS Ireland
1US and UK: United States and United Kingdom.
2 ICAV: Irish Collective Asset-management Vehicle
3 US GAAP: US Generally accepted accounting principles
4 FX: foreign exchange.
5EIB innovates further with Project Venus, the first euro-denominated digital bond on a private blockchain