Considerations for Alternative Investment Fund Managers During COVID-19: Ireland Perspective

Ireland has always been an attractive jurisdiction for alternative investment funds. As a gateway to Europe, Ireland offers an excellent entry point to the world’s largest trading bloc, with access to over 500 million consumers. Ireland is the largest hedge fund administration center in the world, with over 40% of global hedge funds being serviced there. It boasts a stable political environment and has a common law jurisdiction, similar to that of the U.S. It is also a committed member of the European Union (EU), something that is very relevant with the impending Brexit deadline on December 31, 2020, after which Ireland will be the only English-speaking country in the EU.

Despite the COVID-19 pandemic that is impacting much of the E.U., where Ireland has seen relatively small numbers of virus cases in comparison to some of its European neighbors, many of the world’s largest alternative investment fund managers have established fund structures in Ireland during the last few months.

The Irish Collective Asset-management Vehicle (ICAV) was established in 2015 as a corporate vehicle designed for Irish investment funds (for both Undertakings for the Collective Investment in Transferable Securities (UCITS) or Alternative Investment Funds (AIFs)), and remains hugely popular.

David Naughton, Partner at LK Shields Solicitors LLP in Dublin, confirmed that the tax and regulatory environment in Ireland, in addition to the ability to raise assets under management (AUM) by using the Alternative Investment Fund Managers Directive (AIFMD) management and marketing passports throughout the E.U., are some of the main reasons why many prominent managers -- including CQS, Blackstone, Amundi, KKR and more -- have set up AIFs in Ireland since the start of 2020. He noted that over 900 global promoters have established investment funds in Ireland to date.

“If you establish an AIF in Ireland, which appoints an authorized AIFM, then that AIFM has access to the AIFMD passport, which allows you to target investors in the E.U. or manage investment funds, located elsewhere in the E.U., from Ireland,” he said. “Additionally, many large managers, even before the pandemic started, had opened offices in Ireland to house their front-office AIFM operations. We anticipate that this trend will continue for various reasons, including as a result of Brexit.”

Since September 2010, corporate investment funds established and operating in certain jurisdictions other than Ireland (e.g., Cayman, BVI, Bermuda) can look to re-register in Ireland. This fund re-domiciliation process ensures minimal disruption to day-to-day management and distribution of the fund. This process ensures no adverse Irish tax consequences and provides a mechanism to potentially reduce foreign tax consequences that could ordinarily arise on a re-domiciling process.

According to Irish Funds, the representative body for the international investment fund community in Ireland, the number of Irish funds has almost doubled in the last 14 years. Irish Funds has more than 140 members, which service or manage in excess of 13,500 funds with a net asset value of €4.7 trillion. As of March 2020, Irish domiciled funds totaled 7,685 compared to 4,087 at the end of 2006. During this time, net assets grew from €728 million to €2.7 billion. 

Naughton said Ireland’s robust growth is comprised of AIFs of all investment strategies. However, since the start of the COVID-19 pandemic, the focus has been on distressed debt strategies to manage the downturn, along with a focus on environmental, social and governance (ESG)-compliant AIFs. In addition, the ecosystem of service providers in Ireland has really stepped up to the challenge of effectively and efficiently supporting promoters and fund structures during the COVID-19 pandemic, he added.

The attention on ESG comes as the E.U. is in the process of putting together a new regulatory framework for sustainable finance following the publication of the European Commission’s Action Plan on Sustainable Finance in March 2018, which seeks to re-orient capital flows towards sustainable investments, mainstream sustainability risk into risk management, and foster transparency in markets.

Gavin Lee, head of international trade, EisnerAmper Ireland, added that Ireland’s tax and regulatory efficiencies have also drawn managers to set up AIFs there.

“Ireland has a very open, transparent, and fully compliant tax regime. Corporation tax rates are 12.5% and we have one of the most developed and favorable tax treaty networks in the world, with double taxation treaties with over 70 countries,” he said. “Ireland also has a highly regarded regulatory regime, where the Central Bank of Ireland is responsible for authorization and ongoing supervision of regulated fund structures.”

Finally, Ireland is an internationally competitive location for doing business. It boasts a robust technology hub, which is at the heart of information and communications technology (ICT) in Europe, with nine of the top 10 U.S. technology companies located there. It is the fastest growing economy in the Eurozone and has the youngest population in Europe, with one of the most educated workforces in the world. The International Institute for Management Development (IMD) World Competitiveness Yearbook 2016 rated Ireland first in the world for finance skills and for flexibility and adaptability of people, which is something to consider when contemplating access to the European market.