IRELAND: Consultation Paper 132 and Final Guidance on Share Class Features of Closed-Ended QIAIFS

Tuesday February 2 2021

The Central Bank has published the Feedback Statement to Consultation Paper 132. The Feedback Statement responds to stakeholder’s views on the draft regulatory guidance which was the subject of consultation.

The Central Bank has also published Guidance on share class features of closed ended QIAIFs.

Scope

This Guidance applies only to closed-ended Qualifying Investor AIFs (“CE QIAIF”) which typically invest in illiquid assets.

Share classes in a CE QIAIF

The AIF Rulebook generally requires that capital gains/losses and income arising from the assets of a QIAIF must be distributed and/or must accrue equally to each unitholder relative to their participation in the QIAIF. Certain exceptions arise in the case of share classes which may be differentiated on the basis of subscription/redemption procedures, distribution policies or charging structure, hedging policies, asset exposure or other criteria as clearly disclosed in the prospectus and permitted by the QIAIF’s constitutional document.

Where a QIAIF allocates assets to individual share classes in accordance with AIF Rulebook criteria this is generally effected either through the use of financial derivative instruments to generate the differentiated exposure or through establishment of sidepocket share classes for the purpose of acquiring illiquid assets.

Establishment of differentiated share classes in a CE QIAIF:

Share classes in a CE QIAIF may be used to operationalise either the capital commitment made by an investor or the participation of the investment management function in the QIAIF. These share classes may, subject to requirements further set out below, provide for the (i) allocation of the returns of specific assets to the share class and / or (ii) participation by a share class in the CE QIAIF other than on a pro rata basis. Establishment of share classes which provide for such differentiated participation will be permissible to reflect:

• issue of shares at a price other than net asset value without prior approval of the Central Bank;
• excuse and exclude provisions;
• stage investing; and
• management participation.

In order for a CE QIAIF to provide for a share class with one or more of the features noted at Section 4(a)-(d) and to allocate the returns of a specific asset to that share class the following general conditions apply:

(a) the ability to establish share classes providing for the features outlined at paragraph 4(a)-(d) has been provided for in the CE QIAIF’s constitutional document and has been disclosed to unitholders in advance;

(b) the CE QIAIF’s prospectus permits establishment of share classes which provide for different levels of participation in the CE QIAIF;

(c) the unitholder’s interest in a CE QIAIF is proportionate to:

• the capital it has paid into the CE QIAIF at a particular point in time; and / or
• the pre-determined flow of capital returns to the share class; and / or
• the extent to which the share class held by the unitholder participates in the assets of the CE QIAIF.

(d) where the investor has subscribed in the CE QIAIF is on the basis of a capital commitment and periodic drawdowns from the investor the CE QIAIF maintains records on a per-investor basis to enable it to clearly identify commitments paid and commitments outstanding for each investor (“capital accounting”), and

(e) the capital accounting methodology is consistent with the requirements of Commission Delegated Regulation (EU) 231/2013 which require the AIFM to establish, implement and maintain accounting policies and procedures to ensure that the calculation of the net asset value is carried out as required by that Delegated Regulation and the AIFM Regulations . Additional conditions for establishment of differentiated share classes in a CE QIAIF.

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