The Central Bank of Ireland yesterday (7 February) announced its intention to relax one of its key product restrictions for loan originating Qualifying Investor AIFs ("LQIAIFs").
Until now, LQIAIFs have been prohibited from engaging in any activities other than issuing / participating in loans, participations in lending and related operations. Despite a degree of ambiguity regarding what constitute "related" operations, it has always been clear that the focus of an LQIAIF must be on lending, and that it could not extend to investing in other debt instruments besides loans.
This inability to offer a mixed credit asset portfolio has significantly impeded the development of the LQIAIF as a product. Of course, it is possible to indirectly achieve that outcome by pooling LQIAIF sub-funds and non-LQIAIF credit sub-funds of the same umbrella vehicle into 'fund of funds' or master-feeder structures.
However, this artificial solution necessitates the use of multiple sub-funds (and the associated extra costs andoperational burden), without there being any clear policy rationale for the Central Bank's distinction between lending and credit.
Thankfully, following extensive discussions with market participants, the Central Bank has now become comfortable that LQIAIFs should indeed be permitted to offer broader credit-focused strategies beyond pure direct lending.
As a result, the AIF Rulebook will be amended to expressly add "investment in debt / credit instruments" as a permitted activity for LQIAIFs. Given the limited nature of the change, the Central Bank will not carry out a formal consultation, rather the new policy will automatically take effect on 7 March 2018, when the Central Bank intends to publish a revised AIF Rulebook.
The full text of the Central Bank's announcement is set out here.
This is a hugely welcome and constructive result for credit managers and the Irish funds industry. We believe that it will significantly boost the viability and appeal of LQIAIFs, by enabling a range of exposures across the credit spectrum to be packaged into an investor-friendly, AIFMD-passportable regulated product.
The Central Bank of Ireland has announced its intention to relax one of its key product restrictions for loan originating Qualifying Investor AIFs