The Investment Limited Partnership Regime in Ireland

The use of Investment Limited Partnerships ("ILPs") by private asset managers has increased steadily in recent years following an overhaul of the partnership regime in Ireland in 2021. Today, it offers the key features and functionality managers and investors have come to expect from similar vehicles in jurisdictions such as the Cayman Islands and Luxembourg, but in the Irish regulatory, tax and service provider environment. Tony Ross (Matheson) examines why this combination has proven attractive.

What has been the feedback from managers and investors?

With over 50 ILPs established in Ireland to date, a useful body of feedback from both managers and investors of their experiences with the new structure is now available. Feedback from managers has been overwhelmingly positive, with managers expressing satisfaction both with the structure itself and the level of fundraising that was achieved following the introduction of the new ILP-based products. Investor feedback is also crucial in testing the viability of a new fund structure. Private asset managers, whether they have an existing client base in Europe invested in vehicles in other jurisdictions such as Luxembourg or indeed global managers launching products in Europe for the first time, have reported very little by way of investors feedback where investors are moving from partnership vehicle options in other jurisdictions to the ILP for the first time, given the significant level of similarities between the ILP and other similar partnership options and what little feedback managers have received has been positive, with no investors (to our knowledge) having issues with the ILP.

Feedback from both managers and investors regarding key fund documents such as the private placement memorandum ("PPM") and limited partnership agreement (“LPA”) have also been positive. While there will be some differences in these documents compared to those that investors may otherwise be familiar with for partnership vehicles in other jurisdictions, the documents can be substantially similar. Given the similarities between the key fund documents, managers can use fund documents from similar structures in other jurisdictions such as the US, Luxembourg or Cayman as a base to prepare the key fund documents for an ILP, ensuring to include the relatively light list of Irish specific requirements.

In terms of practical establishment issues, managers have also spoken favourably of the pragmatic approach experienced in establishing an ILP in Ireland as compared to other jurisdictions in the context of activities such as AML or the opening of bank accounts, which can delay the launch of a partnership in certain jurisdictions.

How does the ILP compare to similar vehicles in other jurisdictions?

The ILP was designed to be a best-in-class vehicle as compared to similar partnership vehicles such as the Luxembourg SCSp, the UK private fund limited partnership, the Delaware limited partnership or the Cayman exempt limited partnership and both managers and investors are reporting very little in the context of distinguishing features which make a partnership vehicle in these jurisdictions more or less attractive than the ILP.

In contrasting the ILP specifically to its two most relevant comparators, the Luxembourg SCSp and the Cayman exempt limited partnership, we see a lot of similarities in terms of key features – each of these vehicles is tax transparent; retains confidentiality of the identity of limited partners ("LPs"); can have an unregulated General Partner ("GP"); has no legal personality; and is not subject to the legal and other requirements that apply to incorporated vehicles. Investors in an ILP also benefit from a statutory "white list" of activities that an investor can undertake without risking their limited liability status, in line with the Luxembourg and Cayman limited partnership regimes. This is built into the relevant Irish legislation and therefore is disclosed in key fund documents such as the PPM unlike certain other jurisdictions where investors in a similar partnership may rely on a standalone legal opinion for comfort regarding these activities.

The ILP has however a number of advantages over other similar partnership options. For instance, the GP does not need to be located in Ireland and does not need to be a corporate vehicle. The ILP is also regulated, but in the existing flexible and fast QIAIF regime. The QIAIF regime has been in use for over 15 years and offers a robust but smooth approval process, in particular the 24-hour approval filing process. The regulated status of the ILP has also proven useful in terms of local tax treatment in certain investee jurisdictions.

Similar to other types of regulated fund in Ireland, the ILP is not subject to any direct taxation in the jurisdiction. The ILP is a tax-transparent vehicle meaning that the income, gains or losses of an ILP are treated as arising or accruing to each individual LP in proportion to the value of the interests in the ILP beneficially owned by the LP. Reverse hybrid rules are designed to counteract differences in tax treatment as between various jurisdictions but due to the user-friendly implementation of reverse hybrid rules in Ireland, no reverse hybrid issues in relation to the tax treatment of ILPs have been encountered to date.

In summary, after two years and 50 ILPs, the new regime is up and running and delivering on its promise!