Retail AIFs
Funds
AIFs and qualifying investor AIFs may be established as unit trusts, designated investment companies under the Companies Act 1990, Investment limited partnerships under the Investment Limited Partnership Act 1994 or common contractual funds under the Investment Funds Act 2005. The conditions for approval of AIFs are set out in the AIF rulebook, which supersedes the requirements of the non-UCITS notices for new funds.
Retail AIFs
A retail AIF shall not, nor shall it permit a management company or general partner which holds shares carrying voting rights which would enable it to have significant influence over the management of an issuing body. This does not apply to investments in other funds. It does not apply to venture capital, development capital private equity, or retail AIFs, provided the prospectus indicates its intention regarding the control over the underlying investments.
The retail AIF must not grant or act as a guarantor on behalf of a third party. It shall not raise capital from the public through the issue of debt security.
A retail AIF may only track against exposure to an index, where the index complies with certain requirements in terms of its structure and comprehensibility to unit holders.
The constitutional document must specify the minimum annual fee charged by the AIFM, a management company or a general partner of the retail AIF. It may not be increased without a majority of the votes of the members. A retail AIF may derogate from investment restrictions for six months following the date of launch provided they observe principles of risk spreading.
Investment Restrictions
A retail AIF may not invest more than 20% of its net assets in securities which are not traded or dealt with in a regulated market which operates regularly and is recognised and open to the public. Generally, it may not invest more than 20% of its net assets in the same institution. There are exceptions.
Generally, a retail investor shall not hold more than 20% of any class of security issued by a single issuer. This does not apply to investments in other open-ended investment funds. It may invest up to 100% in securities guaranteed by a State or local authority or other equivalent institution.
A retail AIF may not keep more than 10% of its net assets on deposit with any one institution. This is increased to 30% for deposits issued by authorised credit institutions in certain States. There are certain other exceptions.
A retail AIF shall only invest in an open-ended investment fund, provided the underlying investment funds are regulated investment funds. It shall not invest more than 30% of its net assets in any one fund generally. A retail AIF may not invest more than 20% of its net assets in unregulated open-ended funds.
There are limits on the extent to which an AIF shall have a risk exposure with respect to over-the-counter derivatives and other financial derivative instruments.
A retail investor AIF may only borrow where it is permitted to do by its constitutional documents. It shall not borrow more than 25% of its net assets. There are special controls in respect of investments in financial derivative instruments. This applies regardless of whether the transactions are for investment or hedging purposes, subject to the respective conditions.
There are detailed restrictions in relation to dealings with derivatives. Generally, the retail AIF may only engage in financial-driven transactions in FTIs, where the instruments are dealt with in a regulated market. There are restrictions on the type of over-the-counter markets in which it may deal.
There are conditions with respect to the collateral received. There are requirements to notify the senior management, if certain thresholds are exceeded and periodic requirements to notify the Central Bank/regulator in respect of failures of compliance in respect of certain tests. There are requirements in respect of repo contracts and securities lending.
Constitutional Documents
The retail AIF must comply with its constitutional document. It must entrust its assets to a depository for safekeeping.
The constitutional documents describe the remuneration and expenditure which the management company general partner and depository are empowered to charge. It shall specify the maximum charge relating to redemption and repurchase of assets.
The constitutional documents are to set out the manner of application of income. There must be provisions in the constitutional documents regarding the replacement of the AIF manager. Generally the consent of the Central Bank is required.
The retail AIF shall specify in its constitutional documents the stock exchange and markets in which securities and derivatives of the retail investor AIF are traded. It may not make the distributions from or charge fees and expenses to capital in the absence of provisions to this effect in its constitutional document.
Shares & Valuations
The retail AIF shall specify the rules for the valuation of its assets in its constitutional document. It shall only purchase and sell assets at prices which are in conformity with these rules. A retail AIF shall only issue or sell its units at a price arrived at by dividing its net asset value by the number of units outstanding, subject to an increase in duties and charges. There are provisions for the valuation of underlying assets in accordance with the asset class concerned.
There are requirements in respect of shares and classes of shares within the fund. Each retail AIF and its sub-funds must consist of a single common pool of assets. Assets may not be allocated to individual share classes.  The capital gains and losses and income arising from the pool of assets must be distributed or credited equally to each unit holder in proportion to their participation in the fund or sub-fund.
A retail AIF shall only create one or more share classes or within a sub-fund of an umbrella retail fund where certain conditions are satisfied.
The constitutional documents must be provided. Each retail investor AIF or sub-fund must consist of a single common pool of assets. Assets may not be allocated to individual share classes.
Capital gains and losses arising from the pool of assets must be distributed and/or must accrue equally to each unit holder relative to their participation in the fund or sub-fund. Unitholders in a share class must be treated equally.
Share Classes & Sub-Funds
Where there is more than one share class, unitholders in different shared classes must be treated fairly. All share classes within the retail AIF or sub-fund must have the same dealing procedures and frequencies. Derivatives may only be used at the share class level to provide different levels of participation in the performance of the underlying portfolio subject to conditions. There are provisions for umbrella retail investor funds. Central Bank authorisation is required for each fund.
The constitutional documents must provide that the assets of each sub-fund shall belong exclusively to the relevant sub-fund and shall not be used to discharge directly or indirectly, any claims and liabilities against other sub-funds.
There are conditions for the establishment of subsidiaries by retail AIFs. The prior approval of the Central Bank is required. It must be wholly owned and controlled by the retail investor AIF. There are other specific conditions and provisions regarding subsidiaries.
Managers
Transactions with the management company’s partners, depositories, investment managers and their delegates or group companies may only be entered at arm’s length and where it is in the best interests of the unit holder. Transactions permitted are subject to conditions by which they must be certified as being on the best terms and correctly valued objectively. There are detailed methods in the calculation of global exposure using value-at-risk methodology.
A retail AIF shall have an authorised AIF manager. Any amendments to the prospectus must be notified to the Central Bank and may be objected to by it. Changes in constitutional documents or names require prior approval of the Central Bank. The Central Bank must be notified of any amendments to material agreements with a third party. It must be notified of any material breach of the investment funds legislation or any other requirements imposed by the Central Bank or prospectus.
It must not offer units prior to authorisation. There are exceptions for private equity or real estate AIFs subject to conditions.
Changes in the line-up of directors must be notified to the Central Bank. The Board is obliged to consider whether the resignation would be a matter of concern to the Central Bank, in which it must state this opinion to the Central Bank.
There must not be common directors between the investment company, retail AIF and the depository. Where the AIF is an investment company, a minimum of two directors must be Irish residents. Where a retail AIF suspends the calculation of its net asset value or repurchase, it must immediately inform the Central Bank.
The Central Bank must approve procedures in relation to the replacement of a depository. It must be approved by the board of the investment company, management company, general partner etc. Where the depository is replaced, the Central Bank must receive confirmation from the incoming and outgoing depositories that they are satisfied with the transfer of assets.
The retail investor AIF may only terminate the appointment of a depositary on the appointment of a successor or a revocation of the authorisation of the retail AIF.
The retail AIF may only replace its management company, general partner or equivalent with the consent of the Central Bank. The procedures for the replacement of each of the same, including the AIF management company, investment manager or fund administrator, must be approved and documented by the AIF.
Returns
Retail AIF must make a monthly return to the statistics section of the Central Bank on the Central Bank’s online reporting system. The information to be provided is set out, including details of gross and net assets at month end, numbers of units, net asset value, payments from repurchase, profit and loss, etc.
It must make a quarterly survey relating to the collective investment undertaking to the statistics division within 10 days of the end of each month.
Requirement for Particular Funds
There are specific requirements for certain fund types. A retail AIF which invests in venture or development capital or private equity investments is subject to the following additional rules. The title to the fund must make it clear that it so invests.
The venture capital or development capital. Development capital or private equity investments must be diversified so that not more than 30% of net assets are held in one company or group of companies. There are limited exceptions and derogations permitted.
The fund must specify in its prospectus the intention regarding the exercise of management of underlying investments. The prospectus must describe the risks involved and give a prominent warning, including reference to above average risk involved, the suitability, or if a unit holder is in a position to take the risk, likelihood, because of investment in unquoted companies of delays in redemption, recommendation that not more than 5% portfolio be invested in the fund.
The prospectus must contain a description of the potential conflicts of interest which could arise between the fund and the management company and its delegates.
Money Market Investor Funds
There are specific requirements in respect of money market retail investor AIFs. There are separate requirements in respect of Short-Term Money Market Funds. The difference in risk between them and deposits must be described and the nature of the investment must be set out with reference to the risk that the principal is capable of fluctuation.
The primary investment objective of a Short-Term Money Market Fund must be maintaining the principal with a view to providing a return in line with money market rates. It must maintain investments in high-quality money market instruments as defined. Daily NAVs must be provided. There are requirements in respect of the underlying liquidity of the portfolio.
The primary investment objective of a Money Market Fund must be to maintain the principal of the fund and to aim to provide a return in line with money market rates. It must limit investments to high-quality money market instruments.
It must provide daily NAVs. There are requirements in respect of underlying liquidity.
Real Estate Funds
Real estate investor AIFs must only acquire an interest in property which has been valued in advance. The valuation must be contained in the report and must be confirmed in respect of its ability to be disposed of within a reasonable period. The acquisition price must be within 5% of the valuation price, and the acquisition must take place within six months.
A retail investor AIF may only deal or trade in real estate-related assets in a market, which is provided for in the constitutional document. Up to 20% of net assets may be invested in real estate related assets which are not traded or dealt with on such a market, provided they are acquired under the same conditions as real estate interests above.
Not more than 30% of net assets may be invested in a single real estate interest. Very limited derogations may be allowed.
The fund may not invest more than 25% in its net assets and interests which are vacant, in the process of development or requiring development. It shall not invest more than 25% of its net assets in real estate subject to a mortgage. This is without prejudice to provisions generally in respect of borrowing. The amount of outstanding mortgage in any real estate interests must not be more than 50% of the value of the property.
The prospectus must contain a description of the risks involved in investing in leasehold interests where the unexpired residue is less than 70 years. It must make a reference to circumstances in real estate markets which cause difficulties in meeting redemption.
Unregulated Investments
There are special requirements in respect of AIFs which invest in more than 20% of their assets in unregulated investment funds, including investments in hedge funds or other alternative funds. There are requirements in respect of diversification.  Not more than 20% of net assets are to be invested in any one unregulated investment fund.
The underlying investment funds must be subject to independent audit and have arrangements in place or by which their assets are held by an independent entity independent of the management company.
The management must demonstrate appropriate experience in relation to Alternative Investment Funds. They must be controls and systems to monitor constantly activities of the underlying investment funds, their managers and risk assessment procedures.
Where more than 40% of net assets are invested in investment funds, managed by the same management company or an associated or related company, the retail AIF must make a quarterly report to the Central Bank on the extent to which the underlying investment fund is diversified.
The fund shall not invest in an investment fund which itself invests more than 30% of its net assets in another fund. There are limited exceptions. It must provide at least one dealing day per month. The maximum interval between submissions of the redemption request and payment must not exceed 95 calendar days.
The prospectus must contain specific warnings relating to risk associated with investment in unregulated investment funds. Additional information on special risks is required. The alternative investment strategies must be explained in plain English. The diversification policies must be clearly explained where underlying funds have lockup periods.
Fund of Funds
That is, provisions in respect of retail investor funds, which invest more than 30% of net assets in another investment fund. The underlying funds must be approved by the Central Bank. Any bridges by the underlying fund must be reported by the fund.
Where the fund is closed-ended, it must have a finite closed-ended period which must be
- five years or less;
- 10 years or less, provided this is reasonably required by the investment objective.
- greater than 10 years, provided it has made realistic provision for liquidity in its units and provided a specific opportunity for redemption of units after 10 years by those investors who wish to do so and on a periodic basis thereafter.
There are provisions for changes in the duration of the fund. Investment objectives or investment policy changes must be approved by 75% of the fund unit holders.
Guarantees
The fund may not be advertised as a guaranteed fund unless there is a specifically enforceable guarantee between the fund and the legal independent third party of substance for the benefit of the unit holder. Material provisions must be disclosed in the prospectus.
A guarantee must be properly evidenced. Details of the guarantee must be provided to the Central Bank in advance. Certain connected parties may not act as guarantors. The guarantor must be a credit institution with a minimum paid up capital authorised in the EU or certain third countries. Details of the guarantor and the nature of the guarantee must be described in prominent positions in the prospectus.