As envisaged during its consultation on the implementation of the Alternative Investment Fund Managers Directive ("AIFMD"), the Central Bank of Ireland ("Central Bank") has issued a detailed discussion paper seeking industry comment on the possibility of allowing Irish domiciled non-UCITS funds engage in direct loan origination (the "Discussion Paper").
Many client asset managers, particularly US and UK managers, have regularly expressed interest in setting up funds which can engage in direct lending to commercial enterprises, having recognized that many such enterprises have found it difficult to access lending facilities since the onset of the global financial crisis.
Although Irish funds have for many years been able to invest in loan assignments and loan participations, the Central Bank has not to date permitted Irish funds to originate loans (i.e. for lending to form part of its investment strategy and for the fund to be the lender of record). In its Discussion Paper, the Central Bank has indicated that it is reviewing this position and is considering allowing Irish Qualifying Investor AIFs ("QIAIFs") to be authorised to engage in loan origination as part of their investment strategy.
This is a keenly awaited development and it is important for industry participants interested in this area to contribute to the debate.
The Discussion Paper notes that it has been issued following international debate surrounding "shadow banking" and the role that non-bank entities might play in providing funding to the international and European economies. This topic has come into focus as, in the aftermath of the financial crisis, banks are being required to deleverage and to increase capital, thereby reducing their appetite and capacity to supply credit to the real economy at a competitive cost. This issue was raised at the G20 Summit in Seoul in November 2010 (following which the Financial Stability Board has been considering the matter) and in a recent European Commission Paper on Long-Term Financing of the European Economy. In fact, the issue is particularly important in Europe as, according to ECB president Mario Draghi quoted in the Discussion Paper "...in the United States 80% of credit intermediation goes via the capital markets. In the European situation it is the other way around. 80% of financial intermediation goes through the banking system.". The EU Commissioner for internal markets, Michel Barnier, has also indicated that alternative...