Q4 2019 - Ireland Plans to Become Domicile of Choice for Private Equity Funds Investing in Renewable Energy Assets

December 09, 2019

By Ray Kelly, head of asset management at EisnerAmper Ireland.

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The Irish Government in its 2018 Action Plan identified several initiatives for further development of Ireland’s international financial services sector. Amongst the opportunities for growth in the financial services sector, the Action Plan identifies proposals to promote the establishment of private equity funds and venture capital fund vehicles in Ireland – these proposals included a plan to update and modernize the existing partnership legislation to ensure that Ireland has a best-in-class partnership structure.

The result was that on June 20, 2019, the Irish Government published the Investment Limited Partnership (Amendment) Bill 2019 (‘ILP’), which proposes to reform and modernize Irish legislation regulating investment limited partnerships. The hope is that the bill will have passed all stages of the legislative process and will be enacted before the end of this year.

EisnerAmper Ireland sat down with Ray O’Neill, CEO at Fincovi, which provides financial management to the renewable energy companies, to discuss why this change is timely in the context of Ireland attracting fund managers focussed on the sector.

EISNERAMPER:Why is this development of interest to fund managers investing in renewable energy assets?

O’NEILL:The revision of the ILP laws, as outlined in the draft bill published in June 2019, has already caught the attention of fund managers who are serious about growing their funds, attracting new investors and increasing yield.

The renewable energy market opportunity in both Ireland and Europe is evident from the numbers below:

Ireland

  • Today 5 gigawatts (GWs) of renewable energy installed.
  • 350+ wind farms.
  • Further 2.2GW of consented solar farms ready to build.
  • National renewable energy sources (RES-E) target is 70% by 2030, up from 40% in 2020.
  • €11.2 billion of investment required to hit Irish 2030 target.

Europe

  • Today 189 GWs of wind energy and 120 GWs of solar energy installed.
  • Further 310 GWs of solar energy is expected to be installed by 2030.
  • Average E.U. renewable energy target (RES-E) is 49% by 2030.
  • €500 billion+ of investment required to hit E.U. 2030 target.

Through taking advantage of these investment opportunities, we expect Ireland to be an attractive option for fund managers to domicile their funds.

EISNERAMPER:What changes does the bill introduce that will be attractive to fund managers who have not had previous experience of utilizing Ireland to domicile their funds or perhaps fund managers who may have previously considered Ireland but decided to domicile in Luxembourg?

O’NEILL:The bill will introduce several changes to the current legislation of particular significance to wind investors:

  1. Segregated liability
    The bill allows ILPs to establish an umbrella fund, with segregated liability between the sub-funds. This gives lots of flexibility for investors to get access to different asset classes at different stages of their development while putting a comforting ring-fence on the liability of each sub-fund.
  2. A safer harbour for limited partnerships (“LPs”)
    The same bill gives more certainty and clarity around the activities a limited partner can -- and cannot -- undertake, without increasing liabilities.
  3. Simpler to change
    LPs can participate in advisory committees and vote on changes to the partnership agreement, now with only a simple majority, and without losing their limited liability status.
  4. Dual naming
    ILPs operating in a non-English speaking jurisdiction can register a “dual foreign name” to facilitate translation requirements.
  5. Limited partner obligations
    It is likely that partners will not be required to contribute to the capital of the partnership going forward, save for the prescribed terms of the partnership agreement.

EISNERAMPER:Apart from the changes to the ILP, what other attractions does Ireland hold for PE managers investing in renewable energy assets?

O’NEILL:Ireland is already an attractive place to establish an investment platform. Its legal, regulatory and tax environment could be beneficial to any renewable energy fund. Irish corporation tax allows for neutral treatment, provided certain conditions are met. It also has a wide and expanding tax treaty network, second to none, with an established world-beating aviation section already taking full advantage of the tax regime and local expertise.

With over 60% of global leased aircraft being leased out of Ireland, the government and financial services industry are now ramping up their green finance offer to mirror their longstanding success in aviation.

EISNERAMPER:What are some other key considerations for success that renewable energy fund managers should be aware of?

O’NEILL:Renewable energy fund managers are subject to increasing regulatory requirements, rising costs and pressures to reduce fees. Jurisdictional tax efficiencies i.e. moving your fund to Ireland, is certainly one way to compete. But success will also hinge on the effectiveness of the manager’s infrastructure, in-house operations and outsourcing strategies. The trend in the industry – and Ireland is no different – is to outsource financial management, reporting and portfolio reviews. As well as securing good savings, fund managers that embrace administrative and governance outsourcing reduce the risks associated with old “organically” developed in-house processes. No more Excel files everywhere!

Fund managers need to show investors how they can systematically cut costs, enhance governance and speed up the data cycle, so that they can achieve sustainable returns. Anything that can help add depth to this element of the investor pitch is worth more than consideration. It’s an imperative and Ireland is well placed to assist in this regard.

EISNERAMPER: Finally, do you expect Ireland to achieve similar success in the private equity arena as they have in the hedge fund and aviation sectors?

O’NEILL:The Irish Government has an ambition to attract 5% of the $3.3 trillion global private equity market, with a focus on green finance. Indeed, it has been suggested that jurisdictions such as Luxembourg anticipate nervously a steady flow of up to 25% of their private equity funds to relocate to the Emerald Isle in the next 24 months. Building on our existing expertise in serving the hedge fund and aviation sectors, I expect these targets to be achievable.


Engaging Alternatives – Q4 2019

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