In a recent release, the Central Bank of Ireland (CBI) announced its intention to amend, with effect from 7 March 2018, the AIF Rulebook in relation to Loan Originating Qualifying Investor Alternative Investment Funds (L-QIAIFs) to permit loan origination to be part of investment fund strategies investing in a mix of debt instruments. This is a significant development to the L-QIAIF regime and will hopefully help to bolster the growing contingent of L-QIAIFs in the market.
Currently, L-QIAIFs are required to restrict their business activities to issuing loans, participating in loans, participating in lending and to operations relating thereto, including investing in debt and equity securities of entities or groups to which the L-QIAIF lends or which are held for treasury, cash management or hedging purposes. This meant that L-QIAIFs could not invest in unrelated debt securities as part of their investment strategy. Many managers looked to other jurisdictions to establish their funds or were required to hold their originated loan investments in separate parallel funds.
This very welcome development will instead allow L-QIAIFs to have “broader credit focussed strategies”1 and will make the structuring of L-QIAIFs more straightforward. In many cases, this change will remove the need for a two sub-fund structure to allow multi-credit strategies to use originated debt as a portion of their strategy.
The intended amendment does not affect the rules in relation to the holding of equities, alongside debt instruments, which will continue to only be permissible in respect of assets that are otherwise related to the lending activities of the L-QIAIF (e.g. a warrant received on a work-out).
The other requirements in relation to L-QIAIFs are expected to remain unchanged. For more information in relation to establishing an L-QIAIF in Ireland, please see our brochure.
The CBI has noted that it will not hold a formal consultation process but has welcomed comments for consideration while the arrangements are being finalised (to be submitted to fundspolicy@centralbank.ie).
