Funds Insider JULY 2021 Contents Foreword
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Funds Insider JULY 2021 Contents Foreword We are delighted to introduce the second edition of Funds Insider, our quarterly publication focusing on hot topics in a range of practice areas which are likely to be of interest to our private capital clients. This edition will cover: • The modernisation of the Irish ILP • What we need to know about Crypto M&A now • ESG litigation risks • Key issues for investors in technology • A look back one year on from CIGA • The increasing popularity of Warranty & Indemnity insurance in the Spanish M&A market Over the last quarter our offices around the world have been increasingly busy supporting our private capital clients in a number of areas. M&A activity has remained strong across Europe, with an increasing focus on technology and interest in cryptocurrency. In addition we have seen an increasing interest in ESG within all aspects of funds, as well as opportunity arising from the new Irish IPL regulations. We are grateful to continue supporting our clients in all of these areas across a number of jurisdictions. We hope you enjoy reading this edition of Funds Insider and please do get in touch if you have any feedback or if there are any topics that you would like us to cover in future editions. Funds Insider [email protected] 2 FUNDS INSIDER FUNDS INSIDER 3 Feature English LP Luxembourg SCSp Irish ILP Partnership type Limited Partnership (ELP). No Special Limited Partnership (SCSp). Investment Limited Partnership legal personality and so acts and No legal personality and so acts and (ILP). No legal personality and so The Irish ILP contracts by its general partner. contracts by its general partner. acts and contracts by its general partner. Regulator Financial Conduct Authority (FCA) Commission de Surveillance Du Central Bank of Ireland (Central New kid on the block Secteur Financier (CSSF) Bank) Regulatory Unregulated fund vehicle and Unregulated fund vehicle and Regulated and supervised by Burdens therefore subject to light touch therefore subject to light touch the Central Bank as a Qualifying By Peter Mallon regulation through the AIFM. regulation through the AIFM. Investor AIF (QIAIF). Authorisation Options to upscale to a regulated typically granted within 24 hours. vehicle (RAIF) and a regulated and Pre-authorisation can be sought supervised vehicle (SIF/SICAR). in advance of closing. Additional reporting requirements to the Central Bank. Umbrella/ Umbrella/Sub-Funds structure is Umbrella/Sub-Funds structure is Umbrella/Sub-Funds structure Sub-Funds not possible in an ELP. not possible in an unregulated SCSp is possible. Segregated liability - unless is regulated as a RAIF/SIF/ between the sub-funds (protected SICAR by the CSSF. by statute). General Partner May be any entity (English or non- Strongly recommended to have May be any entity (Irish or non- English) with legal personality. The a Lux GP for corporate law and Irish). The GP has unlimited liability GP has unlimited liability for the substance purposes. The GP has for the debts and obligations of the debts and obligations of the ELP. unlimited liability for the debts and ILP. GP Board of Directors subject to obligations of the SCSp. advance Central Bank approval. AIFM FCA approval required. Third party CSSF approval required. Third party Central Bank approval required. AIFMs are permitted. AIFMs are permitted. Third party AIFMs are permitted. Portfolio Manager Portfolio managers not subject to Appointment of portfolio managers Portfolio managers subject to approval by FCA. by unregulated SCSp in a sub- approval by the Central Bank. threshold AIFM context not subject to approval by the CSSF, but appointment of portfolio manager The long-awaited overhaul of the Irish Investment Limited Partnership (ILP) finally came by full scope Lux AIFM subject to approval by the CSSF. into force earlier this year. This legislation set about modernising the existing Investment Depositary Required if the ELP is an AIF (rather Yes, required if the SCSp is managed Required. Limited Partnership legislation to bring it in line with private funds structures in key funds than a non-AIF CIS) and is managed by a full scope AIFM. by a full scope AIFM. jurisdictions, principally Luxembourg, and England and Wales. Administrator Not required. Not required. Irish administrator required. Carried Interest Can be any entity selected in light Can be any entity selected in light Can be any entity selected in light Partner of legal/tax considerations. of legal/tax considerations. of legal/tax considerations. On the face of it, the ILP is now well placed to managers will be nervous about taking the plunge achieve what it set out to do, which is to gain a and structuring their fund in a relatively untested Governing LPA LPA LPA Document foothold in the private funds market currently jurisdiction for the private funds asset class. Other PPM/Offering Not strictly required. Not strictly required (unless Required. dominated by Luxembourg. The ILP looks and fund managers will be nervous about the ILP Memorandum structured as a SIF/SICAR/RAIF). feels very much like an English LP, with the key being a regulated vehicle, with regulation typically Limited Partner Limited to the amount of its Limited to the amount of its Limited to the amount of its differences being that it is a regulated vehicle resulting in more administration work (and costs) Liability investment/commitment. investment/commitment. investment/commitment. and that it can act as an umbrella fund, with for the manager operating the fund. And others Limited Partner Such a whitelist exists under an ELP Such a whitelist exists under a Lux Such a whitelist exists under an ILP segregated liability between sub-funds. The will be concerned that getting the Central Bank up Whitelist structure (provided it is a PFLP). SCSp structure. structure. regulated badge should not slow down speed to to speed on typical private fund terms may require Investment Can be freely determined in the No restriction on unregulated QIAIF classification imposes certain market, with the Irish regulator, the Irish Central additional work that might not be required in Restrictions LPA. SCSps. investment restrictions on the ILP, Bank, typically authorising an ILP within 24 hours other jurisdictions. which will require derogation from of the application being submitted. Ireland is also the Central Bank on a case-by-case Inevitably some fund managers will lead the basis. within the EU so, like Luxembourg, the ILP can market on this. Assuming this confirms that the offer UK managers a post-Brexit work-around. Leverage None None None ILP is a workable product from a practicable Restrictions And in addition, Ireland is an English-speaking perspective, the ILP may well become a popular Public Accounts Yes, unless qualifying partnership None required for SCSp. None required. common law jurisdiction that is closely modelled product which can compete with current Filings exemption applies. on the English legal system, so in many respects structures and thereby benefit the fund sector as it is a more familiar jurisdiction to UK fund a whole. We have set out a high-level comparison managers than Luxembourg. of some of the key features of the ILP compared So what are the downsides? The short answer against the English LP and the Luxembourg Piers Warburton Peter Mallon is that it is hard to say. On paper the ILP meets SCSp. Like all things, the devil is in the detail, and Practice Group Head, Investment Funds Senior Associate and in some cases exceeds what is on offer in members of the Ashurst funds practice would T +44 20 7859 1099 T +44 20 7859 3870 other jurisdictions. In reality, however, the fact be happy to discuss the nuances between these [email protected] [email protected] that it is a new product means that some fund competing structures, if helpful. 4 FUNDS INSIDER FUNDS INSIDER 5 Crypto M&A What you need to know now by Tara Waters What started out as a craze, grew into a bubble, then weathered a chilly winter before • Documenting provenance and movement of Indeed, DLT is the future of many industries dominating the headlines again is now starting to settle into business as usual. With deal goods through supply chains – particularly finance – and a transition from current technology infrastructure to DLT-based • Creating and distributing fungible and non- values in the crypto market more than doubling to an aggregate US$1.1 billion in 2020 technology infrastructure is already in progress. fungible digital assets (including digital (and deal size increasing 175 per cent year-on-year), transactional lawyers and deal makers It is no longer enough for incumbents to watch payment/currency assets) may no longer claim ignorance of crypto trends and considerations. So what do you need the crypto market from a distance: they need to to know to be in the know? Read on to find out. • Recording and evidencing the occurrence of become participants if they are to have any chance events or facts of staying relevant. • Providing an immutable audit trail of all of the This survival impetus is in turn driving crypto The “what is crypto?” trustworthiness of the ledger, it is kept not by a above transaction volumes. Institutions are investing single person but by a network of participants (i.e. in and buying start-ups to acquire in-house speedread it is distributed), thereby exponentially increasing Why you should care more knowledge of DLT and existing DLT applications Crypto has become something of a catch-all term the difficulty of tampering with the records. about crypto and infrastructure, to enable them to more quickly covering businesses that leverage distributed The particular way in which the underlying participate in the crypto market and related ledger technology (DLT) for a range of activities.