Alternative Investment Funds (AIFs) Legal Updates July 25, 2023
Provisional agreement reached on AIFMD and UCITS reforms
Dillon Eustace is a leading adviser on all aspects of alternative investment funds (AIFs). We work with international and domestic asset managers, fund sponsors, platform providers, investors and fund service providers (administrators, depositaries, prime brokers and others).
Our expertise, developed over more than 25 years, has kept pace with Ireland’s emergence as a market-leading jurisdiction of choice for investment funds – both UCITS and alternative investment funds (AIFs). As allocations to alternative asset classes continue to rise, further growth in the number and value of AIFs looks certain.
Assisting with the structuring, formation and cross-border distribution of RIAIFs and QIAIFs is a core part of the Dillon Eustace business. Our highly experienced investment funds team of 40 lawyers, including 15 partners, offers a truly international outlook with Irish, US, UK and Cayman law specialists. We have significant experience of advising on all types of AIF legal structures, including Irish Collective Asset-management Vehicles (ICAVs), investment companies, unit trusts, common contractual funds and investment limited partnerships. We work collaboratively with our Banking and Finance and Taxation teams to structure tax efficient investment vehicles for use by our AIF clients where required. We continue to invest in the expertise required to make us the number one choice for advice on fund product design, formation, authorisation and launch, prospectus and contractual documentation negotiation, and interaction with regulators and exchanges.
RIAIFs and QIAIFs
The Central Bank of Ireland’s AIF Rulebook allows for two regulatory categories of AIF: Retail Investor AIFs (RIAIFs) and Qualifying Investor AIFs (QIAIFs). Both are required to comply with the provisions of the European Union (Alternative Investment Fund Managers) Regulation, 2013 (the “Irish AIFM Regulations”) which implements into domestic law the requirements of EU Directive 2011/61/EU (the "AIFMD"). RIAIFs and QIAIFs can be established within any of the range of legal structures in Ireland – ICAVs, investment companies, unit trusts, common contractual funds or investment limited partnerships.
In contrast to the highly regulated UCITS products, RIAIFs provide more flexible investment capabilities and QIAIFs offer the most significant level of investment capabilities. The RIAIF regulatory regime is more flexible than UCITS in terms of the concentration limits and range of assets in which a RIAIF can invest. However, RIAIFs are subject to certain concentration limits and investment restrictions which make them more restrictive than the Central Bank’s QIAIF regime. Even so, the RIAIF offers a useful and attractive regulatory architecture for asset managers who require a highly-regulated fund, but cannot utilise a UCITS fund based on the proposed investment strategy or class of asset concerned.
RIAIFs provide a full range of liquidity options for investors and asset managers and may be structured as open-ended, open-ended with limited liquidity, or closed-ended. Despite this increased investment flexibility, RIAFs do not have the automatic right to market across Europe under the AIFMD marketing passport, which is only for professional investors. However, it is possible for RIAIFs to access individual markets on a case-by-case basis.
The QIAIF regulatory regime is the most flexible available in Ireland and is designed for sophisticated and professional investors. QIAIFs are subject to minimal investment restrictions, provide the full range of liquidity options and are therefore of significant interest to all manner of asset managers. In addition, QIAIFs benefit from a fast-track authorisation process within the Central Bank which facilitates a quicker route to market for these products. Examples of the investment strategies used for QIAIFs include hedge funds, real estate funds, fund of hedge funds, private equity funds, emerging markets funds, loan funds, credit and debt funds. QIAIFs may also be marketed to professional investors (as defined under MiFID) across Europe under the AIFMD marketing passport. In this sense they have similar opportunities to those of UCITS for raising capital from investors in a range of EU countries.
