The Investment Limited Partnership - 2.0
Recent industry reports show private equity (PE) assets at an all-time high1, with limited partnerships continuing to prove the structure of choice for PE investors and sponsors. Against this backdrop, the Irish funds industry has made proposals to enhance the attractiveness of the flagship PE product, the Irish investment limited partnership (ILP), through a series of legislative changes to the ILP legislation. In this article, we highlight the key features of the ILP and touch upon some of the enhancements which have been sought.
What is the ILP?
The ILP is a regulated common law partnership structure, tailored specifically for Irish investment funds. The ILP is established on receiving authorisation by the Central Bank of Ireland (Central Bank) and is constituted pursuant to a limited partnership agreement (LPA) entered into by one or more general partner(s) (GPs), who manage the business of the partnership on the one hand, and any number of limited partners (LPs) on the other hand.
Typical to common law partnerships, the GP is the operative legal entity, responsible for managing the business of the ILP and is ultimately liable for the debts and obligations of the ILP to the extent the ILP does not have sufficient assets. The GP must: (i) be authorised by the Central Bank to act as a GP; or (ii) avail of the right to manage an Irish alternative investment fund (AIF) on a cross-border basis under the Alternative Investment Fund Managers Directive (AIFMD).
There are no restrictions on the number of LPs that may be admitted to an ILP. The liability of a LP for the debts and obligations of the ILP is limited to the value of their capital contributed or undertaken to be contributed, except where it becomes involved in conducting the business of the ILP. The ILP legislation helpfully includes a non-exhaustive list of 'safe harbour' activities that can be carried out by limited partners without being deemed involved in conducting the business of the ILP. This safe harbour list provides additional legal certainty when considering Irish ILPs.
All of the assets and liabilities of an ILP belong jointly to the partners in the proportions agreed in the LPA. Similarly, the profits are directly owned by the partners also in the proportions agreed in the LPA.
The ILP can be structured to suit all major investment strategies and can avail of a full suite of liquidity options making it suitable for PE, real estate, venture capital, infrastructure, credit, lending vehicles, managed accounts, hybrid funds and hedge. ILPs are not subject to legal risk spreading obligations, making them extremely useful for single asset funds and/or funds with very concentrated positions.
As an ILP constitutes an AIF under AIFMD, an AIFM with primary responsibility for the investment management of the AIF must be appointed. Where an EEA AIFM is appointed, it can benefit from the AIFMD marketing passport.
On 18 July 2017, the Minister for Finance announced that the Government has approved the legal drafting of the amendment to the ILP legislation and it is understood that the Heads of Bill (Heads) will be published shortly. Industry will not know what changes are included in the Heads until they are published, but it is hoped that the key enhancements will include features which improve the operation of ILPs, align the structure fully with AIFMD and allow for the establishment of umbrella ILPs and the migration of ILPs.
Peter Stapleton, Partner, and Aaron Mulcahy, Senior Associate, Maples and Calder
1 Prequin Global Private Equity & Venture Capital Report 2017 – Private Equity in 2017.