Ireland

Author: | Published: 3 Oct 1999
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TYPES OF FUND VEHICLES


Undertakings for Collective Investment in Transferable Securities (UCITS)

UCITS are investment funds, the sole object of which is the collective investment of capital raised from the public in transferable securities listed or traded on a recognized stock exchange or market and which operate on the principle of risk spreading. UCITS funds must also operate in accordance with the investment and borrowing restrictions and conditions on the use of efficient portfolio management techniques imposed by the Central Bank of Ireland. UCITS are open-ended vehicles which must redeem their shares or units on request save in exceptional circumstances.

UCITS funds may be established as either investment companies with fixed capital, investment companies with variable capital or as unit trusts.

Non-UCITS funds

In addition to establishing a UCITS there are a range of non-UCITS fund vehicles which can be used for a variety of retail, professional investor or qualifying investor funds.

Variable Capital Collective Investment Companies (CICs)

CICs can be established under the Companies Act 1990 for investment in property or securities of any kind with the aim of spreading investment risk.

Authorized Unit Trusts

Investment funds can be structured as unit trusts authorized by the Central Bank under the Unit Trusts Act 1990. A unit trust scheme within the meaning of the Unit Trusts Act is any arrangement made for the purpose, or having the effect, of providing facilities for the participation by the public, as beneficiaries under a trust, in profits or income arising from the acquisition, holding, management or disposal of securities or any other property whatsoever. There is no statutory requirement under the Unit Trusts Act that an authorized unit trust operate on the principal of risk spreading.

Investment Limited Partnerships (ILPs)

ILPs can be established under the Investment Limited Partnership Act 1994 for investment in property or securities of any kind with the authorisation of the Central Bank. There is no requirement under the ILP Act for an ILP to operate on the principle of risk-spreading. ILPs can be offered on a private placement or public basis.

TAXATION OF FUND VEHICLES
UCITS, CICs and authorized unit trusts

UCITS, CICs and authorized unit trusts which are sold to non-Irish resident investors (with certain exceptions) and which are administered in the International Financial Services Centre in Dublin (IFSC), are classified for Irish tax purposes as Specified Collective Investment Undertakings (SCIUs). Generally, SCIUs are exempt from Irish taxation on income and gains derived from their investment portfolios. There is no Irish tax on the assets of a SCIU or charged on the net asset value of a SCIU. There is no Irish withholding tax on distributions from SCIUs to investors.

There is no Irish capital duty tax payable on the issue of shares or units in an SCIU and no Irish stamp duty tax payable on the purchase, re-purchase, redemption, transfer or exchange of shares or units in an SCIU or on the exchange of shares or units between sub-funds of an SCIU. The switching or exchange of shares or units between sub-funds in an SCIU would not be subject to Irish capital gains tax.

ILPs

ILPs are tax exempt fund vehicles where the limited partners are non-Irish residents so that there is no charge to Irish tax on the net asset value of the ILP or on its income or gains. There is no Irish withholding tax on distributions through an ILP and the limited partners should be able to avail of any underlying tax treaties between the jurisdiction where the assets are situate and their own jurisdiction, depending on their local laws. ILPs may qualify as partnerships for US tax purposes. There is no Irish stamp duty or other Irish transfer taxes on assignment or transfer of partnership interests and no Irish capital duty on capital contributions to the ILP.

CENTRAL BANK REGULATION OF FUNDS

The Central Bank is the regulatory authority responsible for the authorization and supervision of Irish domiciled investment funds and has four categories of regulations which govern:

  • UCITS;
  • non-UCITS retail funds;
  • non-UCITS Professional Investor Funds; and
  • non-UCITS Qualifying Professional Investor Funds.
UCITS

UCITS funds must invest 90% of their assets in transferable securities listed or traded on a recognized exchange or market. There are additional investment and borrowing limitations imposed under the UCITS regulations including concentration limits on investment in a single issuer and on deposits with a single institution. A UCITS may employ a broad range of techniques and instruments (including futures and options, repurchase/reverse repurchase agreements and stocklending agreements) for efficient portfolio management purposes.

Non-UCITS

The central bank imposes investment diversification and borrowing restrictions on all non-UCITS funds. These general restrictions are modified or disapplied by specific central bank regulations for particular types of funds such as money market funds, venture capital funds, property funds, futures funds etc.

Retail funds

The general investment and borrowing restrictions which apply to retail non-UCITS funds are similar to those applied to UCITS funds although retail funds may be established with broader investment policies and may employ leverage to a greater extent than UCITS funds.

Professional Investor Funds (PIFs)

The central bank may disapply the general non-UCITS restrictions in the case of non-UCITS funds which qualify as PIFs. To qualify as a PIF a fund must have a minimum initial subscription requirement of euro125,000 (or its foreign currency equivalent). In the case of an umbrella fund, this minimum initial subscription requirement will be satisfied where the aggregate of the investments of an investor in any of the sub-funds of the umbrella fund is equal to, or in excess of, this amount.

Qualifying Professional Investor Funds (QIFs)

The Central Bank disapplies all of the general non-UCITS restrictions in the case of non-UCITS funds which qualify as QIFs. Accordingly, there are no investment or leverage restrictions imposed on QIFs. However, there is a statutory obligation to operate in accordance with the principle of risk-spreading. To qualify as a QIF, a fund must have a minimum initial subscription requirement of euro250,000 (or its foreign currency equivalent) and must sell its shares or units to qualifying investors only. For these purposes, a qualifying investor is:

  • any natural person with a minimum net worth (which excludes main residence and household goods) in excess of euro1,250,000 (or its foreign currency equivalent); or
  • any institution (an entity other than natural person): (i) which owns or invests on a discretionary basis at least euro25,000,000 (or its foreign currency equivalent); or (ii) the beneficial owners of which are qualifying investors in their own right.
FUND STRUCTURES
Umbrella funds

It is possible to constitute UCITS and non-UCITS funds as umbrella funds comprising a number of sub-funds with different investment policies.

The Central Bank requires that a unit trust scheme constituted as an umbrella fund must provide for the segregation of liabilities between sub-funds in its trust deed. An investment company constituted as an umbrella fund (which, being a single legal entity and not a vehicle created by contract like a unit trust) is generally liable to third parties for all obligations incurred with respect to any of its sub-funds. Accordingly, the prospectus must clearly disclose the potential risks to investors arising from the absence of segregation of liabilities between sub-funds and investment companies whose investment policy employs leverage may not be established in the form of an umbrella fund unless the company has taken measures to ensure that the liabilities of the sub-funds are limited to the net assets of those sub-funds.

Multi-class funds

It is possible to establish UCITS and non-UCITS investment funds in which there are multiple share or unit classes within the fund. Such share or unit classes may have different up-front and/or trail commissions and/or sales charges and/or management or performance fees. It is also possible, in limited circumstances, to hedge the currency exposure of a share class denominated in a currency other than the base currency of the fund at class level.

Master-feeder funds

A non-UCITS fund can be established as a feeder fund if the sole object of the fund is investment in another investment fund (the master fund). The master fund must be authorized by the central bank or authorized in another jurisdiction by a supervisory authority responsible for investor protection in that jurisdiction and providing equivalent investor protection to that provided in Ireland for similar funds.

Fund of funds

A non-UCITS fund may be established as a fund of funds where its sole object is investment in other investment funds (the underlying funds). The underlying funds must be authorized by the central bank or must be authorized in another jurisdiction by a supervisory authority responsible for investor protection in that jurisdiction and providing equivalent investor protection to that provided in Ireland for similar funds.

CONCLUSION

The recent expiry of the deadline for approval of new licences for operating companies in the IFSC should not affect the continuing growth and development of the investment funds industry in the IFSC. The Central Bank and the Irish Stock Exchange continue to work with fund managers and promoters to accommodate new fund products and to improve the procedures relating to authorization and listing of investment funds. The potential introduction in Ireland of a single regulatory authority which may have a role in regulating the investment funds industry is unlikely to result in the introduction of material changes in relation to the manner in which investment funds are regulated in Dublin. Accordingly, it is likely that Dublin will continue to grow as one of the leading offshore fund centres.


Contact Details:

Matheson Ormsby Prentice

30 Herbert Street

Dublin 2

Ireland

Tel: +353 1 6199000

Fax: +353 1 6199010

Email: mop@mop.ie