Ireland gets ELTIF-ready

KEY POINTS

• The Central Bank does not propose imposing any additional product-specific rules on Irish-domiciled ELTIFs

• The Irish-domiciled ELTIF can be established using a range of legal structures, including an ICAV, a PLC, an ILP, a unit trust or a CCF

• The Irish-domiciled ELTIF will benefit from the same favourable tax treatment currently afforded to Irish-domiciled regulated funds

• It will be possible to structure the Irish-domiciled ELTIF as an umbrella fund with segregated liability between sub-funds which can house different investment strategies or investor types

Introduction

On 1 November 2023, the Central Bank of Ireland (Central Bank) published a consultation paper outlining the proposed domestic supervisory and reporting framework which will apply to Irish-domiciled ELTIF funds (Consultation Paper).

The publication of the Consultation Paper confirms that Ireland is in a position to offer a fully regulated ELTIF product complying with the revised ELTIF Regulation using a range of legal structures which will benefit from the same favourable tax treatment currently available to Irish-domiciled regulated funds and which will also benefit from a similar supervisory framework to that afforded to Irish-domiciled Qualifying Investor Alternative Investment Funds (QIAIFs).

In this briefing, we provide a brief overview of some of the key takeaways from the Consultation Paper.

Does the Central Bank intend to impose any additional product-specific rules on Irish-domiciled ELTIF over and above those imposed under the ELTIF Regulation?

No. Based on the approach outlined in its Consultation Paper, the Central Bank will not gold-plate the ELTIF Regulation, meaning that the only product-specific rules on eligible assets, portfolio composition, diversification and liquidity amongst others will be those set down in the ELTIF Regulation and its related delegated acts.

Has the Central Bank confirmed the legal structures which can be used by an Irish-domiciled ELTIF?

Yes. The Consultation Paper references that the Irish-domiciled ELTIF will be subject to existing “investment fund legislation” meaning that it can be structured as an ICAV, a public limited company (PLC), an Irish limited partnership (ILP), a unit trust or a common contractual fund (CCF).

Do we have any further clarity as to what type of domestic tax-regime an Irish-domiciled ELTIF will be subject to?

Because the Irish-domiciled ELTIF will be authorised under the existing Irish investment fund legislation, the tax regime will be determined by the legal structure used to house the ELTIF. Accordingly, it will be subject to the same favourable tax regime that currently applies to a regulated fund established as an Irish ICAV, Irish PLC, Irish ILP, Irish unit trust or Irish CCF, as applicable.

Will it be possible to structure an Irish-domiciled ELTIF as an umbrella fund?

Yes. The Consultation Paper indicates that an Irish-domiciled ELTIF can be structured as an umbrella fund with segregated liability between sub-funds. This structure allows individual sub-funds to house different investment strategies or investor types as well as providing significant economies of scale and increased speed to market when compared with the costing and timing implications of establishing separate ELTIF structures for each strategy/category of investor.

Will an Irish-domiciled ELTIF which is marketed to retail investors be subject to any additional requirements imposed by the Central Bank?

No. Subject to compliance with ELTIF rules applicable to retail investor ELTIFs, as currently proposed, the Central Bank will not impose any additional requirements where an Irish-domiciled ELTIF is marketed to retail investors outside Ireland.

What happens next?

Responses to the Consultation Paper must be submitted to the Central Bank by 13 December 2023. The Central Bank has previously indicated that the finalised regime applicable to Irish-domiciled ELTIFs will be operable from the effective date of the revised ELTIF Regulation, being 10 January 2024. We await further details on the authorisation process which will apply to this category of funds.

Separately, following a consultation earlier this year, ESMA is currently finalising delegated acts which will provide further detail on certain aspects of the pan-EU ELTIF regime, particularly the rules applicable to ELTIFs offering limited redemption facilities. For an overview of the rules proposed by ESMA in its consultation paper, please refer to our briefing on the topic.

The publication of the Consultation Paper is an important milestone in the creation of an Irish ELTIF regulated product which will facilitate the raising and channelling of capital towards long term investments in the real economy, including investments that promote the European Green Deal and other priority areas in line with the EU objective of smart, sustainable and inclusive growth.