Investment funds in Ireland: regulatory overview

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1 GLOBAL GUIDE 2015/16 INVESTMENT FUNDS Investment funds in Ireland: regulatory overview Gayle Bowen and Emily Davy Walkers global.practicallaw.com/ RETAIL FUNDS 1. What is the structure of the retail funds market? What have been the main trends over the last year? The majority of open-ended retail funds established in Ireland are authorised under Regulation 352/2011/EU on undertakings for collective investment in transferable securities (UCITS Regulations) by the Central Bank of Ireland (Central Bank). As at January 2015, Irish UCITS had over EUR1,250 billion in assets, which represents a 100% increase since may also be established as non-ucits retail investor alternative investment funds (RIAIFs). The RIAIF regime was introduced by the Central Bank as a new regime for non-ucits retail funds in conjunction with the Central Bank's adoption of Directive 2011/61/EU on alternative investment fund managers (AIFM Directive). are not suitable for authorisation under the UCITS Regulations. Instead, they are authorised as RIAIFs. REGULATORY FRAMEWORK AND BODIES 2. What are the key statutes, regulations and rules that govern retail funds? Which regulatory bodies regulate retail funds? Regulatory framework. Retail funds are authorised under the UCITS Regulations, or as a RIAIF under one of the following: Irish Collective Asset-management Vehicles Act Part XIII of the Companies Act 1990 (UCITS and RIAIFs). Unit Trust Act 1990 (UCITS and RIAIFs). Investment Funds Companies and Miscellaneous Provisions Act 2005 (UCITS and RIAIFs). Investment Limited Partnership Act 1990 (RIAIFs only). The Irish Collective Asset Management Vehicles Act 2015, which came into effect on 4 March 2015 provides a framework for a corporate vehicle (ICAV) specifically used to established Irish funds regardless of whether they are retail or hedge funds. Since its creation, the ICAV is proving very popular, with the majority of new fund set ups in Ireland being structured using this new vehicle and a number of existing funds deciding to convert from PLCs to ICAVs. Regulatory bodies. The Central Bank is responsible for both the initial authorisation and the ongoing supervision of all Irish regulated funds. Regulatory framework. are authorised under the same legislation as that set out above (see above, Openended retail funds). Where a closed-ended fund is listed on the Irish Stock Exchange, it may also be subject to the requirements of Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive), which provides for criminal and civil liability for misstatements in the fund's prospectus. Regulatory bodies. See above,. 3. Do retail funds themselves have to be authorised or licensed? The first step in the authorisation process for a UCITS fund is obtaining approval for the promoting entity and the investment manager (usually the same entity) to act as promoter and investment manager to Irish funds generally. The Central Bank will seek to confirm that the promoter and investment manager are regulated, and have sufficient experience and financial resources to undertake their respective roles. The Central Bank will also review their ownership structures. Non-Irish firms with a licence under Directive 2004/39/EC on the Markets in Financial Instruments Directive (MiFID) (or equivalent licence) can obtain this approval relatively quickly, usually within two to three weeks. The Central Bank has indicated that it intends to abolish the promoter approval regime for UCITS later this year. It has already been abolished for RIAIFs. Following on from this approval, the following documents must be submitted to the Central Bank for review in respect of the fund approval process: Initial draft of the prospectus and any applicable fund supplements. Initial draft of the custody agreement or trust deed. Draft business plan (UCITS) or programme of activity (RIAIFs). Individual questionnaires in respect of each director proposed to be appointed to the fund or fund management company (two of these directors must be Irish resident). In the case of a UCITS that intends using financial derivative instruments, a risk management process demonstrating how the global exposure of the UCITS, through its use of derivatives, will be monitored and managed. Thomson Reuters 2015 This article was first published in the Investment Funds Global Guide 2015/16 and is reproduced with the permission of the publisher, Thomson Reuters. The law is stated as at 1 August 2015.

2 Once the Central Bank has indicated that it has no further comments on the draft documents, copies of the final dated versions of the documents listed above, together with the constitutive documents of the fund, original signed copies of all material agreements and Key Investor Information Documents (in the case of a UCITS only) are filed with the Central Bank by noon on the proposed day of authorisation. The Central Bank will then authorise the fund by close of business on the same day. As a condition of authorisation by the Central Bank, UCITS must appoint a money laundering reporting officer who is typically responsible for ensuring that the fund meets it reporting requirements. The Central Bank also conducts regular thematic inspections on UCITS to ensure that there are satisfactory levels of compliance. In total, this process usually takes between six to eight weeks from the initial filing date. A foreign domiciled fund seeking to be marketed to the public in Ireland does not need to follow the above procedure. However, it must be registered for sale in Ireland before it can be generally marketed in Ireland. Where the fund is a UCITS, registration with the Central Bank takes place through a notification from the regulator in the home member state of the UCITS. Any other type of fund will need to apply to the Central Bank directly. The Central Bank must be satisfied that the fund provides a similar level of investor protection as is required of an Irish fund before granting permission for the fund to be marketed in Ireland. Closed-ended RIAIFs are authorised in the same manner as set out above (see above, ). Closed-ended RIAIFs subject to the Prospectus Directive regime will also have their documents reviewed by that section of the Central Bank. Marketing 4. Who can market retail funds? Managers and operators 6. What are the key requirements that apply to managers or operators of retail funds? A retail fund can either be self-managed or can engage a separate management company. In either case, the management company or the fund itself must comply with the requirements for management companies in the UCITS Regulations or the Central Bank's rules for managers of alternative investment funds (which include RIAIFs). However, a self-managed company is not subject to the same restrictive capitalisation requirements as external management companies. One of the benefits of the UCITS regime, which has now also been adopted by the AIFM Directive, is that it allows a management company authorised under the UCITS Regulations or the AIFM Directive to rely on its authorisation in any member state of the EU to provide services in any other EU member state. This means that a management company authorised in any member state under the UCITS Regulations or AIFM Directive can act as manager to an Irish fund and similarly an Irish UCITS manager/aifm can act as a manager to non-irish EU retail funds. The investment manager must be approved by the Central Bank before it can act as investment manager to an Irish fund, the procedure for which is set out in the first paragraph of Question 3. See above,. Assets portfolio 7. Who holds the portfolio of assets? What regulations are in place for its protection? The following services or activities to a retail fund in Ireland must be authorised under MiFID: Provision of investment advice. Receiving, transmitting or executing orders. Non-Irish domiciled funds must be registered for sale with the Central Bank before they can be generally marketed in Ireland. See above,. 5. To whom can retail funds be marketed? Regardless of whether a fund is domiciled in Ireland or abroad, a retail fund can be generally marketed to retail or professional investors in Ireland (provided that it has been registered for sale with the Central Bank in accordance with the procedure set out in Question 3). Generally, there is no minimum subscription or suitability criteria for retail investors, other than as may be specifically set out in the fund's prospectus. See above,. All Irish funds must appoint an Irish custodian (or a trustee in the case of a fund established as a unit trust/depositary in the case of RIAIFs) (collectively, custodian) to safekeep their assets. The custodian must be authorised by the Central Bank for these purposes and act at all times in accordance with Central Bank rules and guidance. The fund's assets must be segregated from the assets of the custodian or its agents, and cannot be used to discharge any liability against any other entity. In addition, the custodian has certain oversight responsibilities, which include ensuring that the sale, issue, repurchase, redemption and cancellation of units of the fund are carried out in accordance with relevant legislation and with the constitutive documents of the fund. It must also: Enquire into the conduct of the management of the fund in each accounting period. Provide a report to investors to be included in the annual reports of the fund. The custodian will also notify the Central Bank of any breach by the fund of relevant legislation, its offering documents or conditions imposed by the Central Bank. For UCITS, the custodian will be liable to the fund (or management company in the case of a fund established as a unit trust) and its unitholders for any loss as a result of its unjustifiable failure to perform its obligations, or its improper performance of them. The liability of the custodian will not be affected by the fact that it has entrusted any fund assets to a third party for safekeeping.

3 The custodian must exercise care and diligence in choosing and appointing a third party as a safe-keeping agent so as to ensure that the third party has and maintains the expertise, competence and standing appropriate to discharge the responsibilities concerned, and must maintain an appropriate level of supervision over that agent at all times. In respect of the additional duties and liability standards applicable to RIAIFs, see Question 22. See above,. Legal fund vehicles 8. What are the main legal vehicles used to set up a retail fund and what are the key advantages and disadvantages of using these structures? Legal vehicles. Investment funds in Ireland are most commonly established as either an ICAV, an investment company with variable capital or as a unit trust, established by way of trust deed between the fund manager and the trustee. Less commonly, funds can be established as an investment limited partnership (ILP) or a common contractual fund (CCF). UCITS cannot be established as an ILP; this is limited to RIAIFs. Advantages. There are many advantages to the range of structures available to establish an Irish fund: Each of these fund structures does not incur Irish tax on their income and gains. Funds can be established as stand-alone funds or umbrella funds with segregated liability between sub-funds. Due to the range of structures available, there is flexibility for promoters to establish the fund structure most familiar to the proposed investor base. The investment company and ICAV can be self-managed and do not require a separate Irish management company or AIFM. The CCF and ILP structures are tax transparent. The ICAV is a tax effective structure for US investors as it can elect to "check the box" for US tax rules to be treated as a partnership. Disadvantages. The main disadvantage of a unit trust, CCF or ILP compared to an investment company is that it is necessary to establish a separate management company to manage the activities of the fund, which has additional administrative and financial burdens. However, the ICAV provides a solution to using these tax transparent structures. The ICAV, like an investment company, can be self-managed, but can also elect its classification for US taxation purposes, avoiding the possibility of US taxes being incurred at the level of the fund and the individual shareholder. The majority of new fund set ups in Ireland are being structured using the ICAV and a number of existing funds deciding to convert from PLCs to ICAVs. The same structures as for open-ended funds can be used by closed-ended funds (see above, ). Investment and borrowing restrictions 9. What are the investment and borrowing restrictions on retail funds? Generally, UCITS are permitted to invest in: Transferable securities (for example, shares and debt securities). Money market instruments. Other UCITS and highly regulated funds. Cash. Currencies. Exchange traded and OTC derivatives where underlying exposure is to any of the bullets above or to financial indices interest rates. UCITS must adhere to the following issuer/diversification limits: 5/10/40 Rule, which requires no more than 10% of net assets be invested in transferable securities issued by the same body with a further aggregate limitation of 40% of net assets on exposures of greater than 5%. This means that a UCITS is required to have not less than 16 separate issuers. Maximum exposure to any one fund is 20% of net assets. Maximum aggregate exposure to funds that are not UCITS is 30% of net assets. No legal or management control. Aggregate limits on exposures to single issuer/group. 5% and 10% OTC counterparty exposure limits. Maximum 30% of net assets exposure to a single credit institution for deposits. UCITS cannot engage in physical short selling and may not acquire shares or units carrying voting rights that enable it to exercise a significant influence over the management of an issuer. A UCITS can borrow a maximum of 10% of its net assets on a temporary basis only. Borrowings cannot be used for investment purposes and are mainly used to meet liquidity requirements. While RIAIFs are subject to investment restrictions and the applicable restrictions follow a similar theme to those imposed on UCITS, they are less restrictive as to the level of net assets permitted to be invested in each asset class. In addition, and unlike a UCITS, RIAIFs can take exposure to any commodity through the use of derivatives and can invest directly in gold and/or property. RIAIFs can borrow a maximum of 25% of its net assets on a temporary basis only and cannot offset credit balances (for example, cash) against borrowings when determining the percentage of borrowings outstanding. See above,. 10. Can the manager or operator place any restrictions on the issue and redemption of interests in retail funds? A fund will always have discretion to refuse any application for units. In addition, minimum subscription, minimum holding and

4 other subscription requirements can be specified in the fund's prospectus. Redemption gates can be imposed where redemption requests exceed 10% of the fund's net assets. A UCITS must provide investors the opportunity to redeem their holdings at least twice a month and RIAIFs must provide this opportunity at least once a month. Both UCITS and RIAIFs can impose a redemption charge of up to 3%. There is not generally any opportunity for investors to redeem their holdings in a closed-ended fund over the term of the fund, although units can be traded on a stock exchange. 11. Are there any restrictions on the rights of participants in retail funds to transfer or assign their interests to third parties? RIAIFs are also subject to Annex IV reporting under the AIFM Directive and must continually notify their investors in respect of any changes to the following: A percentage of its assets subject to special arrangements arising from their illiquid nature. Any new liquidity management arrangements. Risk management systems employed to manage these rules. The maximum level of leverage permitted, as well as any rehypothecation rights or any guarantee granted under the leveraging arrangement. The same reporting requirements apply as for an open-ended fund (see above, ). Closed-ended RIAIFs must value their portfolio and publish their net asset value on at least a monthly basis. Tax treatment Unless the fund is listed on the Irish Stock Exchange (ISE), there is no requirement that funds provide investors with the opportunity to transfer their units or assign their rights to third parties. Any such ability to transfer units will be set out in the prospectus for the fund. Where the fund is listed on the ISE, units must be freely transferable; however, a fund can refuse to register the transferee as a unitholder where: The transfer would be unlawful or result in any regulatory, legal, pecuniary or tax consequences. The transfer would cause material administrative disadvantage for the fund or unitholders as a whole. See above,. Reporting requirements 12. What are the general periodic reporting requirements for retail funds? Investors. A retail fund must publish its net asset value either on its website or in newspapers. In addition, retail funds must publish: Annual audited accounts within four months of the end of the period to which they relate for UCITS, and within six months of the end of the period to which they relate for RIAIFs. Unaudited semi-annual accounts within two months of the end of the applicable period for both UCITS and RIAIFs. Regulators. The annual audited accounts and the semi-annual accounts must be sent to the Central Bank within the time periods required for the publication set out above (see above, Open-ended retail funds: Investors). The administrator will also provide pricing and trading information to the Central Bank on a monthly basis, and the fund will provide: Confirmations as to the strategy of its sub-funds. Confirmations as to the competence and suitability of its management. In the case of a UCITS, its use of FDI on an annual basis to the Central Bank. 13. What is the tax treatment for retail funds? Funds. Irish funds are exempt from tax on their income and gains. There is no subscription tax payable upon investment in an Irish fund and transfers of units of Irish funds are exempt from stamp duty. Resident investors. Where an investor is resident (or ordinarily resident) in Ireland for Irish tax purposes and is not exempt for tax purposes, an Irish fund will deduct Irish tax on distributions, redemptions and transfers and, additionally, on a "deemed disposal". A deemed disposal takes place eight years from the date of each acquisition of units in an Irish fund and every eight years thereafter. Irish tax at the rate of 41% must be deducted from all distributions, redemptions and proceeds of transfers paid to individuals who are Irish resident. If the distributions, redemption or proceeds of transfers are paid to a company, Irish tax at the rate of 25% will be deducted by the fund from any distributions. Non-resident investors. Provided that a non-resident investor has provided the fund with a declaration in this regard, there is no other Irish tax payable on distributions or redemption payments to non-resident investors in Irish funds. See above,. Quasi-retail funds 14. Is there a market for quasi-retail funds in your jurisdiction? There is no regulated quasi-retail fund market in Ireland. Reform 15. What proposals (if any) are there for the reform of retail fund regulation? The UCITS V Directive, intended to align elements of the UCITS regime with the more restrictive aspects of the AIFM Directive, entered into force on 17 September Key amendments relate to the duties and liabilities of the depositary, remuneration policies and the imposition of administrative sanctions. All EU member states have until 16 March 2016 to adopt and publish regulations and administrative provisions to comply with UCITS V.

5 Although further off, the European Commission has also begun the process to consider a UCITS VI Directive. The European Commission is examining nearly all aspects of the current UCITS regime, with a view to formulating the future of the UCITS product. It examines UCITS rules around: Eligible assets and the use of financial derivate instruments. Efficient portfolio management techniques. Liquidity management rules. The need to strengthen safeguards in the money market funds regime. The potential for the introduction of a regime to promote longterm investments. Whether rules introduced by UCITS IV now require improvement. It also considers the concept of a pan-european passport for depositaries. HEDGE FUNDS 16. What is the structure of the hedge funds market? What have been the main trends over the last year? The biggest change in the regulatory environment for all hedge funds globally in Ireland in recent years is the implementation of the AIFM Directive, which was implemented in Ireland in July The AIFM Directive aims to harmonise the regulation of alternative investment fund managers (AIFMs) who manage or distribute alternative investment funds (AIFs) in the EU. The AIFM Directive permits authorised AIFMs to market their EU AIFs to professional investors across the EU via a new pan-european passport. The Central Bank was the first European regulator to clarify new rules under the AIFM Directive, which has ensured that Ireland has remained the leading EU domicile for hedge funds. In terms of strategy, recent trends have included a focus on property and infrastructure funds. Private equity is a growing asset class, now that it is firmly captured within the scope of the AIFM Directive. To facilitate these structures, the Central Bank has amended its rules and now permits: Capital commitments and drawdown mechanics. Use of the European/Irish Venture Capital rules for valuation purposes. Use of carried interest/waterfall mechanisms. Closed-ended/limited liquidity schemes. Use of foreign and Irish subsidiary/intermediary vehicles for investment purpose. Joint venture arrangements and co-investment arrangements. Investor committees. Multiple closings of the initial offer period. In September last year, the Central Bank also changed its rules to permit Irish hedge funds, known as qualifying investor alternative investment funds (QIAIFs), to directly originate loans, which they could not do previously. We expect there to be a number of these funds established in The Central Bank also changed its rules to permit QIAIFs to invest up to 100% of their assets in unregulated funds subject to certain disclosure requirements. Regulatory framework and bodies 17. What are the key statutes and regulations that govern hedge funds in your jurisdiction? Which regulatory bodies regulate hedge funds? Regulatory framework The AIFM Directive, as adopted in Ireland by the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. 257 of 2013), is the key piece of legislation. The AIFM Directive primarily regulates the AIFM, as opposed to AIFs directly, and is supplemented in Ireland by the Central Bank's AIF Rulebook. Regulatory bodies The Central Bank is the regulatory body responsible for the initial authorisation and ongoing supervision of all Irish QIAIFs and AIFMs. 18. How are hedge funds regulated (if at all) to ensure compliance with general international standards of good practice? All QIAIFs in Ireland are regulated and supervised by the Central Bank, and must operate in accordance with the AIF Rulebook. They are authorised under a fast-track 24 hour process. In addition, all Irish hedge funds must designate an AIFM, which must itself be authorised under the AIFM Directive. Alternatively, the hedge funds can elect to be self-managed, in which case the fund is subject to the obligations under the AIFM Directive. To secure authorisation as an AIFM by the Central Bank, the AIFM must submit for review by the Central Bank its programme of activities, demonstrating how it will comply with the requirements of the AIFM Directive. The board of the AIFM must put in place, and detail in the programme of activity, procedures designed to ensure that all applicable risks pertaining to the AIFM and its AIFs can be identified, monitored and managed at all times. The Central Bank has identified 16 managerial functions applicable to AIFMs (or self-managed AIFs), which broadly cover risk management, portfolio management, financial management and organisational effectiveness. The AIFM's programme of activity sets out the systems and controls in place for each key management function, demonstrating the reporting received by the board of the AIFM and examples of how any issues arising will be dealt with in respect of all AIFs under management. Moreover, AIFMs must document in their programme of activities and as part of the authorisation process how the composition of its board as a whole provides it with sufficient expertise to conduct the tasks expected of the directors and, where relevant, as the designated person for a managerial function. In addition, if portfolio management or risk management has been delegated to a third party, the AIFM must retain ultimate supervision and control of those delegated tasks. The existing 16 managerial functions will be streamlined into six managerial functions by June Separate to the AIFM, the depositary carries out certain oversight functions as set in more detail at Question 22. Valuation and pricing The AIFM Directive requires AIFMs to establish and maintain consistent written procedures for each of the AIFs that they manage so that proper independent valuation can be performed. The valuation of assets can be carried out by the AIFM or an external valuer can be appointed. Where the AIFM is also the investment manager to the AIF, the valuation process must be independent from the portfolio management of the AIF, and the remuneration policy and other

6 measures are put in place to ensure that any conflicts of interest are mitigated. Despite any delegation to an external valuer, the AIFM remains ultimately responsible for the proper valuation of AIF assets, the calculation of the net asset value and the publication of those matters. However, the external valuer will be held liable to the AIFM for losses caused by its negligence or intentional failure to perform its task. Insider dealing and market abuse Where the units in the fund are listed on an exchange within the EU, the fund is subject to Directive 2003/6/EC on insider dealing and market manipulation (market abuse) (Market Abuse Directive). The Central Bank also imposes rules on connected party transactions, where transactions with all connected parties must be effected at arm's length and in shareholders' interests. Transparency QIAIFs must publish and send to the Central Bank annual audited financial statements within six months of the end of the relevant financial year. In addition, the AIFM Directive introduced new transparency and reporting obligations, requiring the disclosure of certain information to investors in an AIF both prior to and after their initial investment, together with any material changes to this information relating to the strategy, management, fees and obligations of the AIF. Information in respect to liquidity, risk management and leverage must also be disclosed to investors on an ongoing basis. In addition, details as to portfolio information, liquidity management and risk management must be provided to the Central Bank on a regular basis. Financial crime QIAIFs are subject to anti-money laundering, counter-financing of terrorism and international financial sanctions legislation which reflect both relevant European legislation (for example, Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (Third Anti-money Laundering Directive)) and the recommendations of the Financial Action Task Force. In performing its supervisory functions, the Central Bank has regard to published guidelines for this sector. As a condition of authorisation by the Central Bank, QIAIFs must appoint a money laundering reporting officer who is typically responsible for ensuring that the fund meets it reporting requirements. The Central Bank also conducts regular thematic inspections on QIAIFs to ensure that there are satisfactory levels of compliance. Short selling Short sales of shares and sovereign debt in the EU are banned, as are uncovered sovereign debt credit default swaps. Short sales may be permitted where the fund has borrowed the share or made similar arrangements, or entered into an agreement to do so or entered into an arrangement with a third party under which that third party has confirmed that the share has been located, and has taken measures necessary for the person to have a reasonable expectation that settlement can be effected when due. Marketing 19. Who can market hedge funds? An AIFM can utilise a pan-european passport to market its AIFs, by applying via the regulator in its home member state. 20. To whom can hedge funds be marketed? QIAIFs are generally subject to a minimum subscription of EUR100,000 and can only be marketed to qualifying investors. Qualifying investors are: Investors who are professional clients within the meaning of MiFID, including entities that are regulated to operate in the financial markets, certain other large undertakings, and institutional investors whose main activity is to invest in financial instruments. Investors who receive an appraisal from an EU credit institution, a MiFID firm or a UCITS management company stating that the investor has the appropriate expertise, experience and knowledge to adequately understand the investment in the QIAIF. Investors who self-certify that they have the appropriate expertise, experience and knowledge to adequately understand the investment in the QIAIF. In addition, the AIF Rulebook provides that within the EU, QIAIF may be marketed to other categories of investors where a particular member state permits it, under the laws of that EU member state. Investment restrictions 21. Are there any restrictions on local investors investing in a hedge fund? QIAIFs can only be marketed to qualifying investors (see Question 20). Any further restrictions on subscriptions will be set out in the fund's prospectus. Assets portfolio 22. Who holds the portfolio of assets? What regulations are in place for its protection? As with retail funds, an AIF must appoint an independent depositary to safe-keep its assets. The AIFM Directive introduced a strict liability standard for depositaries and they will be liable to the AIF or its shareholders for loss by the depositary or a third party delegate of financial instruments in its custody. The depositary will be obliged to return a financial instrument of identical type or the corresponding value to the AIF without undue delay. The depositary will not be liable if it can demonstrate that the loss was as a result of undue delay caused by an external event beyond its reasonable control, the consequences of which were unavoidable despite all reasonable efforts to the contrary. The depositary is also liable to the AIF, or to shareholders of the AIF, for all other losses suffered by them as a result of the depositary's negligent or intentional failure to properly fulfil its obligations under the AIFM Directive. As with retail funds, the AIFM Directive prescribes certain functions that must be carried out by the depositary, including: Monitoring the cash flow of the AIF. Safekeeping the assets of the AIF in accordance with the procedures set out in the AIFM Directive. Ensuring that the valuation and the sale, issue, re-purchase, redemption and cancellation of units of the AIF are carried out

7 in accordance with the AIFM Directive and the AIF's constitutional documents. Carrying out the instructions of the AIFM unless the instructions conflict with applicable law or an AIF's constitutional document. Ensuring that an AIF's income is applied in accordance with the AIFM Directive. Requirements AIFM cannot delegate functions to the extent that it becomes a "letterbox entity". Legal fund vehicles and structures 25. What are the main legal vehicles used to set up a hedge fund and what are the key advantages and disadvantages of using these structures? 23. What are the key disclosure or filing requirements (if any) that must be completed by the hedge fund? The prospectus, constitutive documents and all material contracts in respect of a QIAIF must be filed with the Central Bank. Subject to approval of the AIFM and the directors of the AIF, a QIAIF can utilise the Central Bank's fast track procedure. This procedure permits the Central Bank to rely on a confirmation given by the legal advisors as to the documents' compliance with all applicable Central Bank rules. This fast track procedure enables the fund to be authorised within 24 hours (that is, by close of business on the day after these documents are initially filed with the Central Bank). All Irish funds are required to treat investors fairly and to treat investors equally within the same unit class. As a result, side letters are less frequent in Ireland than in other jurisdictions and may not provide materially beneficial terms to investors. The information provided under Question 18 must also be provided to investors (see Question 18, Transparency). 24. What are the key requirements that apply to managers or operators of hedge funds? Every Irish fund within the scope of the full AIFM Directive requirements must designate an AIFM authorised under the AIFM Directive. An AIFM established and regulated in any EU member state can manage an Irish AIF, either directly or by establishing an Irish branch. If an EU AIFM wishes to avail of these rights, notification is made to the Central Bank through their home state regulator. In order to be authorised as an AIFM, an applicant will need to demonstrate adherence to the AIFM Directive capital and organisational requirements in a programme of activity, which is reviewed by the Central Bank in advance of authorisation. An AIFM can delegate day to day performance of the portfolio management of the assets of the AIF to an external investment manager. Where this is the case, the investment manager will need to be approved by the Central Bank (see the first paragraph of Question 3). The Central Bank's interpretation of the substance requirements of the AIFM Directive means that AIFMs can delegate risk management and portfolio management to third parties, provided that adequate supervision is retained by the AIFM. The These are the same as those used for retail funds (see Question 8). Tax treatment 26. What is the tax treatment for hedge funds? The same tax treatment applies as to retail funds (see Question 13). Restrictions 27. Can participants redeem their interest? Are there any restrictions on the right of participants to transfer their interests to third parties? Redemption of interest Irish QIAIFs can be established as open-ended, open-ended with limited liquidity or closed-ended, provided that sufficient disclosures are contained in the prospectus. Open-ended funds must provide quarterly redemptions; closed-ended funds do not provide investors any opportunity to redeem their holding over the term of the fund; and open-ended funds with limited liquidity provide some opportunities to redeem on a less than quarterly basis. Transfer to third parties As with retail funds, there is no requirement to provide a right of transfer to third parties. Reform 28. What (if any) proposals are there for the reform of hedge fund regulation? In 2015, subject to the European Securities and Markets Authority (ESMA) issuing a favourable opinion, the pan-european passport available to EU AIFMs under the AIFM Directive may be available to AIFMs from outside the EU on a voluntary opt-in basis. Alternatively, non-eu AIFMs can choose to continue to market their AIFs under the national private placement regimes (PPRs) in each EU member state. By 2018, ESMA may decide to abolish the PPRs entirely and all AIFMs will have to comply in full with the AIFM Directive obligations.

8 Central Bank of Ireland W ONLINE RESOURCES Description. Official website of the Central Bank of Ireland, containing rules for funds and fund service providers. Links to all applicable legislation are also provided. Irish Funds Industry Association W Description. Website of the Irish funds industry association, with information and statistics as to the Irish funds industry. Walkers AIFM Directive Centre W Description. Walkers AIFM Directive Centre, including fact sheets on AIFM Directive key topics and links to legislation.

9 Practical Law Contributor profiles Gayle Bowen Walkers T F E Gayle.Bowen@walkersglobal.com W Emily Davy Walkers T F E Emily.Davy@walkersglobal.com W Professional qualifications. Solicitor, Law Society of Ireland Areas of practice. Asset management; investment funds. Non-professional qualifications. MPhil in European Politics & Law, University of Oxford; BA (Int.), University College Dublin Recent transactions Advising on the cross board merger of two money market platforms between Ireland and Luxembourg under the new UCITS IV procedures. Advising on the first re-domiciliation of a Jersey fund into Ireland as a UCITS fund. Advising a UK-based manager on establishing the first Irish life settlement fund to avail of the UK/US double taxation treaties through QIF/UK SPV structure. Advising on the AIFM Directive and UCITS compliant structures. Languages. English, French Professional associations/memberships Irish Funds Industry Association - Legal and Regulatory Committee. Irish Money Markets Task Force. Incorporated Law Society of Ireland. Internal Examiner and lecturer - Law Society of Ireland Investment Funds diploma course. Publications The ICAV - Ireland's new tax transparent fund vehicle, HFMWeek. Hedge Funds feel the Regulatory Pressure, IFC Review Ireland: AIFM Directive Ready, Hedge Week. Path Cleared for Cayman Funds in Europe, FHM. Ireland Roundtable Discussion, HFMWeek. AIFM Directive, Private Equity Funds and the QIF Structure. Professional qualifications. Solicitor, Law Society of Ireland Areas of practice. Asset management; investment funds. Non-professional qualifications. BCLF, University College Cork and Universite Robert Schumann; Diploma in Finance Law, Law Society of Ireland Recent transactions Advising on the establishment, structuring and operation of AIFM Directive and UCITS-compliant funds and management companies. Advising property management companies on the establishment of Irish funds to acquire property. Advising on AIFM Directive compliant private equity funds. Languages. English, French (working knowledge) Professional associations/memberships. Law Society of Ireland.