Regulation of Hedge Funds in Ireland & Luxembourg

The Regulation Of Hedge Funds In Ireland, Luxembourg And The Implementation Of The AIFM Directive In These Counties Date: May 22, 2022 Presented by: Dr. Ana Maria Fagetan (University La Sapienza of Rome) Hedge Funds Regulation In Ireland - Ireland is an alternative asset management jurisdiction, with major global alternative investment administrators who have significant operations in Ireland. The legislation concerning the establishment of non-UCTIS collective investment schemes was introduced in this jurisdiction one year after the transposition of the UCITS I Directive into the Irish law. The legal alternatives were extended in the middle of 1990s with the enactment of a law regulating Irish non-UCITS investment limited partnerships and, more recently, through the adoption of a law regulating Common Contractual Funds. - Currently, Ireland's hedge funds market is a very mature one, in spite of product or regulatory changes. Last year it has seen a remarkable growth not only from the point of view of new market entrants but also from the point of view of continued growth. - In this respect, the growing interest in Ireland regarding private debt and private equity fund managers can be mentioned, particularly due to the highly anticipated amended Irish Investment Limited Partnership (ILP) Bill 2019. The Billos intention is the update of the existing framework for regulated limited partnerships, set out in the ILP Act 1994, for a better reflection of changes in the global private equity market, both in terms of the modernization of the Irish ILP structure and in terms of applicable EU legislation. - The Bill intends also to contribute to achieving the Irish Government's aim to convert Ireland into a global location for private equity funds. A major change that the Bill brings to the 1994 Act implies the proposal to allow an Investment Limited Partnership to be structured as an umbrella fund with segregated liability between subfunds. At the same time the Bill clarifies limited partners' obligations with regard to capital contributions and facilitates the replacement of a General Partner. The Impact Of The AIFM Directive On Ireland The Regulatory Framework  The implementation of AIFMD has had a significant impact on the Irish regulatory landscape for alternative investment funds. A key scope of the AIFMD is "to facilitate the harmonization of financial services across EU Member States by giving an AIF managed by an authorized AIFM an "EU passport", enabling its units or shares to be marketed and sold in all other EU Member States". This AIMFD passport is restricted to marketing to professional investors only.  Taken into account Brexit and that the United Kingdom will become a third country, this passport will be an important aspect, together with general Irish hedge funds regulations, which will impact the relocation of UK hedge funds in Ireland. Hedge funds regulation in Luxembourg - Over the past few years, the Luxembourg government efforts have been mainl directed at increasing transparency, protecting market stability, and preventing the build-up of systemic risk in the financial system. Those large-scale reforms have been, to a large extent, driven by European initiatives. - The "Commission de Surveillance du Secteur Financier" (CSSF) is the Luxembourg regulatory authority which supervises all Luxembourg registered funds. It is a public law body established with legal status by the Luxembourg state. Generally speaking, the CSSF promotes trans- parency and fairness in the financial products and services, protects the final consumers, and fights against money laundering and the financing terrorism. - In the view of the alleged Madoff fraud, the Standford International Bank fraud and the financial crisis, the increasingly regulated funds will be considered by investors the best choice for hedge fund investment. Accordingly, several institutional investors decided to move to onshore. - Several institutional hedge funds decided to move to onshore vehicles and address the larger, more regulated industries, such as Luxembourg. In this particular situation, it seems that regulation is an advantage, mainly due to this ongoing trend in hedge funds to settle down to better, investor friendly regulated jurisdictions like Luxembourg. Still, even if the measurement of the force of trans-jurisdictional regulations is pursued, most of the time there are concerns regarding the failure to find out overall significant inputs of regulation. - The mixture of Luxembourg's pragmatic regulatory expansions, strengthening of efforts between classical and alternative asset classes and new marketing favourable circumstances in areas such as the United Kingdom are all to the country's advantage. The Impact Of The AIFM Directive On Luxemburg's Regulatory Framework  Luxembourg has transposed the AIFM Directive into its national law on 12 July 2013 with the aim of strengthening its position as a global investment funds centre.  The AIFM Law applies to Lux/EU AIFMs managing one or more EU AIFs/non-EU AIFs; Non-EU AIFMs managing one or more EU AIFs; Non-EU AIFMs marketing AIFs in the EU (ALFI 2014c). The only scenario which does not fall within the scope of the AIFM regime is the situation of a non-EU AIFM managing and/or marketing a non-EU AIF outside the EU  Authorized AIFMs will be allowed to perform core functions such as portfolio management, risk management, administration, marketing, and other activities related to the management of the AIF.  The most important advantage of having an authorized AIFM is the passport benefits from, a passport which allows it to marketing its EU- based AIFs to professional investors in the EÚ on a cross-border basis.  An authorized Luxembourg AIFM "may also hold a UCITS MANCO (Management Company) license, and therefore market and manage on a cross-border basis both EU AIFs and UCITS funds.