Nearly nine years after the introduction of a Luxembourg fund vehicle known as the SCSp, allowing the alternative investment fund industry to register special limited partnerships, competing financial centre Ireland has finally introduced its own version, enabling it to finally provide direct competition with the Grand Duchy in this area.
Initially introduced in December 2020, the new Irish ILP law faced “teething troubles” of a regulatory nature during 2021, putting it in question for many until the end of the year. It means the Irish vehicle will only reach full speed this year, according to Mark White, a lawyer at Irish firm McCann Fitzgerald.
While Ireland services some 40 percent of the world’s alternative assets and is seen, like Luxembourg, as a prime hub for Ucits, ETFs and hedge funds, “up until very recently, and crucially, Ireland has not had a fund structure suitable for private funds supporting limited partnerships,” explained Barry O’Brien of the Apex Group.
Previous efforts fell short
While there had been earlier attempts, such as Ireland’s 1994 investment limited partnership legislation, “they didn’t go far enough by a longshot,” said O’Brien, speaking in a recent Real Deals webinar entitled “The enhanced Irish ILP regime”.
The 1994 law “just didn’t work at all, and therefore it was kind of parked and ignored,” said White.
The Luxembourg special limited partnership, known formally as Société en Commandite Spéciale, or SCSp, was introduced in 2013 – at the time of implementation of the AIFMD – as part of a package designed to encourage the alternative investment fund industry in Luxembourg.
In legislating at that time, the Luxembourg government deliberately went beyond merely transposing the AIFMD into domestic law, taking a step forward and modernising and expanding the legal solutions available in Luxembourg for structuring funds and real estate transactions.
Anglo-Saxon competition
It did so in order to compete with other Anglo-Saxon financial centres. “Historically, limited partnerships set up under Anglo-Saxon legal systems had been the predominant choice whenever a solution involving a non- regulated ‘transparent’ entity type was sought,” said a PwC historical document.
By mid-2020, Luxembourg was home to nearly 4,700 Luxembourg SCSp structures, according to published PwC analysis.
The new legislation was submitted following significant work by the Irish funds industry, in conjunction with the regulator. “We saw amendments come into force producing what has been termed as a best of breed, or indeed, best in class solution globally, that addresses all of the shortcomings of previous legislation, and represents a 100 percent viable alternative to the structuring options that are available elsewhere,” said O’Brien.
Luxembourg’s success
“Luxembourg has been phenomenally successful in this area,” said White. “And, you know, traditionally, Ireland and Luxembourg are the two big EU jurisdictions that compete for business. And without the ILP, we weren’t competing for this business … there was no competition in that space for Luxembourg for a long time.”
Why would a firm choose to structure in Ireland over Luxembourg, when Luxembourg offers a tried and tested solution? Kate O’Meara, a London-based director with Asante Capital, emphasised that the two regimes “look and feel very similar.” However, language and culture may play a role, she suggested.
Language matters
“We will start to see larger groups transition over as, quite frankly, for them, having set up in Ireland probably makes more sense, a native English speaking country, the common law partnership is attractive to them,” said O’Meara.
“They like the service culture in Ireland, particularly larger asset managers who have multiple products domiciled in Ireland already, now they can have their PE funds there as well. And then it’s really often as simple as you know, a number of US and UK firms will have Irish ties, or you’re more likely to have a link to Ireland than Luxembourg. And the language is important.”
On the other hand, Ireland still has work to do to popularise its limited partnership.
“Luxembourg is still more commonplace, of course, and you can persuade investors that the ILP can work, but you don’t have to do that for Luxembourg. I’m sure there’s a bit of an education that still needs to be done there,” said O’Meara.
“But I think, as it becomes more commonly adopted, they look and feel the same. So it really shouldn’t be an issue. I think we just need to see a few more blue chip firms take the lead in that regard.”
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