An innovative product for investors

Author: | Published: 18 Mar 2015
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Ciara O’Leary of Maples and Calder looks at the new Irish collective asset-management vehicle, which promises to give Ireland an edge in attracting US investors

The Irish Collective Asset-Management Vehicle (ICAV) Bill, which has now been formally approved by the Irish parliament and is due (at the time of writing) to be signed into Irish law in the coming days, will create a distinct corporate fund vehicle with numerous advantages over the existing fund vehicles available in Ireland. The ICAV will allow for greater flexibility with regard to the creation and ongoing operation of investment funds in Ireland and, most importantly, will allow Irish corporate investment funds with US investors to operate in a more tax-efficient manner. The introduction of the ICAV seeks to further enhance Ireland's reputation as the innovative investment funds domicile of the European market.

Establishing an ICAV

The ICAV will be available in addition to existing legal structures available to Irish investment funds; namely, public limited companies (PLC), unit trusts, limited partnerships and common contractual funds. The ICAV may be used in conjunction with existing vehicles to create master-feeders or parallel fund structures.


"ICAVs will further encourage the growth in use of Irish fund vehicles by the US market"


The ICAV will be available to both new and certain existing Irish investment fund vehicles. The Bill expressly provides for the conversion of an existing PLC to an ICAV, further information on which is set out below. However, non-corporate entities such as unit trusts, limited partnerships and common contractual funds will not be able to convert to an ICAV.

As with other Irish fund vehicles, the ICAV will be established by way of filing with the Central Bank of Ireland and can seek authorisation as either a Ucits (Undertakings for Collective Investment in Transferable Securities) or an alternative investment fund (AIF). An ICAV can be established as a self-managed or externally managed investment fund noting that, in either case, it must have its own board of directors. It may be a stand-alone or umbrella vehicle with multiple sub-funds, and it is important to note that the Bill specifically provides for the robust segregation of liability between sub-funds in an umbrella vehicle.

Conversion of PLC to ICAV

PLCs will be entitled to convert to ICAV status by way of continuation. The conversion process will consist of a filing with the Central Bank including the PLC's existing and intended constitutional documents together with a statutory declaration of a director (i) confirming, amongst other matters, the solvency of the PLC, which must be verified by an independent party, and (ii) consenting to the proposed conversion. The conversion will require amendments to a PLC's existing constitutional documents and shareholder consent. Once the Central Bank has received all the necessary documentation required to convert, it will issue a certificate of registration and publish a notice stating that the PLC has changed its status from that of a PLC to an ICAV with the Companies Registration Office (CRO), the registrar of companies in Ireland.

Benefits of the ICAV

It is a significant benefit that ICAVs will be established under their own specific piece of legislation, thereby avoiding the impact of the introduction of other pieces of European and domestic company legislation. However from a marketing and structuring perspective, perhaps the most significant advantage of the ICAV relates to its tax treatment for US purposes.

An ICAV will be able to make an election under US so-called check–the-box tax rules, which will allow it to be treated as a partnership or a disregarded entity for US tax purposes. This means that an Irish corporate fund vehicle structured as an ICAV can now enjoy the same tax treatment under US tax rules as has been available for fund vehicles established as Luxemburg Sicavs (Sociétés d'Investissement à Capital Variable). The effect of the check-the-box election is to allow taxable US investors to be in the same tax position from a US tax perspective as if they had invested directly in the underlying assets of the ICAV. The ability of ICAVs to facilitate this form of tax treatment for US investors is a welcome development. It will further encourage the growth in use of Irish fund vehicles by the US market by offering in Ireland a legal form that US investors and managers are more familiar with, overcoming some of the obstacles faced by unit trust structures and limited partnerships which were previously the only forms of Irish fund vehicles that could offer this form of US tax treatment to US investors.

A further advantage of the ICAV is that while it may choose for US purposes to be a tax-transparent vehicle, it will still generally be treated as a corporate vehicle in most other jurisdictions, thereby allowing it to avail itself of the existing network of Irish double taxation treaties. This will further increase the attractiveness of Irish fund vehicles to those within the US market looking to establish an EU domiciled fund vehicle. The ICAV will also retain the full tax benefits of the Irish tax regime that are applicable to Irish investment funds.

As one of the aims of the legislation is to reflect the realities of how investment funds operate in practice, the Bill also introduces a number of beneficial changes in relation to the management and operation of an ICAV compared to a PLC. For example, should the ICAV wish to change its instrument of incorporation (IOI) there will be no requirement to obtain prior shareholder approval where the ICAV's appointed depositary certifies that changes to the IOI do not prejudice the interests of shareholders (which is similar to the requirements relating to changes to the trust deed of an Irish unit trust). Open-ended ICAVs (ICAVs established as Ucits will always be open-ended) are permitted to elect to dispense with the holding of an annual general meeting (AGM) by giving written notice to all of the ICAV's shareholders. The Bill does provide for investor protection as shareholders holding 10% or more of an ICAV's shares can demand that an AGM is held. ICAVs will also be exempt from making the various filings required under Irish company law to the CRO, again lessening the administrative burden on Irish investment fund vehicles.

An ICAV will be permitted to prepare separate sub-fund accounts for individual sub-funds within an umbrella fund. This will be of significance for large multi-manager structures as Irish PLCs have to produce one set of accounts for the entire umbrella which mandates a single year-end date and the ability of investors in one sub-fund to receive financial details for investors in others. The production of per sub-fund accounts will permit greater flexibility when selecting which accounting standards will be used in the preparation of financial statements. This allows for tailoring financial statements to reflect an investment sub-fund's particular investor base.

Author

Ciara O'Leary
Partner, Investment Funds

Maples and Calder
75 St. Stephen's Green
Dublin 2
Ireland
T: +353 1 619 2034
E: ciara.o'leary@maplesandcalder.com
W: www.maplesandcalder.com

A final notable advantage is that ICAVs will not be subject to the principle of risk spreading (unlike corporate vehicles offered in Ireland, which must spread investment risk) which will permit single asset deals.

The vehicle of choice

The introduction of the ICAV is a further example of Ireland's commitment to being a competitive domicile for investment funds. The key features ensure that the new ICAV vehicle will streamline the process of establishment and administration of Irish funds, giving the ICAV the potential to become the vehicle of choice for those looking to establish an investment fund vehicle domiciled in Europe.