On June 24th 2020, the Central Bank of Ireland (“CBI”) hosted a webinar on the authorisation of funds under the Qualifying Investor Alternative Investment Fund (“QIAIF”) regime and director time commitments. KB Associates (“KBA”) was represented at the webinar by Frank Connolly (Director).
This webinar follows the CBI UCITS funds gatekeeper seminar on March 3rd 2020. A summary of the gatekeeper seminar can be found here.
During the webinar, it was noted that half of all CBI authorised funds are QIAIFs. According to Irish Funds April 2020 data, the assets of Irish domiciled AIFs stands at €738 Bln.
The key discussion points at the webinar were as follows:
- Pre-submission of QIAIF applications.
- Director time commitments.
- Quality and clarity of investment policy disclosure.
- Guidance on QIAIF applications.
A summary of the topics is included below.
Pre-submission of QIAIF Applications
The CBI stated that certain QIAIFs, those that contain “unusual features”, will now require a pre-submission including a model portfolio. In the pre-submission, the CBI may request the due diligence completed on the investment strategy, liquidity and service providers by the relevant QIAIF board.
The following types of funds were highlighted as requiring a pre-submission:
- Funds that could amplify systemic/structural risk, an example given was property funds.
- Funds with a high level of leverage. There are no CBI general limits on leverage for QIAIFs (some exceptions apply such as for LQIAIFs). However, leverage should be clearly relevant to the investment strategy of each fund. One example given was an application seeking leverage of 1,000,000%. The CBI may request the QIAIF board’s own consideration of the leverage employed. No specific limit was given by the CBI above which a pre-submission would be required. This is for each QIAIF board to determine.
- Property Funds:
- Property funds should not be open ended unless there is very limited liquidity built in. The CBI will look at settlement cycle in addition to dealing frequency in this context.
- Information on proposed shareholder loans should be presented.
- An indication of the expected number of investors with details of any firm commitments should be presented.
- An indication of the expected type of investors should be presented.
- A specific explanation of the appropriateness of launching a QIAIF now (i.e. during the Covid-19 pandemic) should be provided.
- A model portfolio should be presented.
- Funds that have no intention of investing in property should not adopt a “kitchen sink” approach by including the ability to do so in the fund documentation.
- LQIAIFs. It was noted that 50 loan origination QIAIFs have been authorised since 2015. Ireland was one of the first EU member states to introduce a specific regulatory framework for loan origination funds.
- Life Settlement Funds.
As a general point, the CBI reiterated its view made during the March UCITS funds gatekeeper seminar that it expected significant involvement from fund boards during the application process regardless of whether or not a pre-submission was required.
Director Time Commitments
The CBI stated that there is currently a “renewed focus” on director time commitments. It was mentioned that the 24 hour approval timeframe for a QIAIF application could be withdrawn if there is a “high risk” director involved.
The CBI reiterated that it is considering director applications on a case-by-case basis and still deems directors with in excess of 20 directorships and 2,000 hours a year time commitment to be at high risk of not being able to fulfil their board role to an appropriate standard. The CBI stated that there were other criteria used to determine high-risk directors but they did not elaborate further on this.
The CBI has no current plans to revisit existing guidance on director time commitments.
Quality and Clarity of Investment Policy Disclosure
The CBI only wishes to see relevant disclosures in the prospectus. The inclusion of disclosures which are too broad or adopting a “kitchen sink” approach in respect of investment strategy will not be well received.
Guidance on QIAIF Applications
The CBI advised that it intends to revise its QIAIF applications guidance. As part of this broader review, the CBI will provide guidance on pre-submissions. The importance of QIAIF board involvement in review/due diligence before an application is submitted was reiterated. The CBI does not wish to revisit the 24 hour QIAIF application process and asked the industry to work with it to ensure this does not become a consideration.
Download your copy of the Central Bank of Ireland UCITS Funds Gatekeeper Seminar here
KBA will be pleased to provide a summary of all future CBI seminars/webinars that take place. If you would like to discuss any issues raised in this article, please feel free to contact:
Frank Connolly (+353 1 667 1987; email@example.com).
Mike Kirby (+353 1 667 1980; firstname.lastname@example.org ).
Andrew Kehoe (+353 1 613 6396; email@example.com).