A Guide To Hedge Funds In Ireland

Profession:Dillon Eustace
 
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Introduction

Ireland is one of the leading international domiciles for regulated hedge funds and fund of hedge funds (FoHFs), offering a variety of fund structures with differing levels of investment and borrowing restrictions, investment mechanics, minimum subscription requirements, service provider requirements and authorisation timeframes depending on the proposed portfolio composition and targeted investor profile for a particular project.

There are no restrictions imposed in terms of strategy with Irish hedge funds being suitable for directional equity / long short equity products, equity arbitrage, equity statistical arbitrage, event driven, fixed income and fixed income arbitrage, global macro, managed futures, distressed securities and convertible arbitrage strategies, amongst others. In addition, investment in underlying hedge funds may be made in both regulated and unregulated funds, leveraged or unleveraged funds, open ended / limited liquidity / closed-ended funds, underlying funds subject to "lock-up" periods as well as in master feeder structures.

In addition to being a leading international domicile for hedge funds, Ireland is also one of the main service locations (fund administration, audit, legal and consulting services) for hedge funds domiciled outside of Ireland with a significant proportion of the approximately 5,000 non-Irish domiciled funds (including sub-funds) administered from Ireland being in the hedge fund space.

Regulatory Regime

The Irish Financial Services Regulatory Authority (the "Financial Regulator") is the competent authority responsible for the authorisation and ongoing supervision of all regulated Irish fund structures, including hedge funds and FoHFs as well as UCITS.

The legislative basis for Non-UCITS funds in Ireland is found in Part XIII of the Companies Act, 1990, in the Units Trusts Act, 1990, in the Investment Limited Partnership Act, 1994 and in the Investment Funds, Companies and Miscellaneous Provisions Act, 2005, expanded upon by a series of Non-UCITS related notices issued by the Irish Financial Regulator (the "NU Notices") and with further clarification provided for in a series of Financial Regulator guidance notes ("Guidance Notes"), each of which – the legislation, the NU Notices and the Guidance Notes – have evolved and been amended over time.

Hedge Funds and FOHFs

Due to the types of exposures taken, leverage requirements and investment techniques, hedge funds are most frequently established as non-UCITS schemes which do not benefit from the principle of mutual recognition within the European Economic Area and cannot be publicly marketed in many EEA Member States. They are normally private placement vehicles, offered in accordance with the relevant target jurisdictions' local private placement rules.

The investment and borrowing limits for non-UCITS products set down by the Financial Regulator are based on the targeted investor profile - retail investors, professional investors and qualifying investors – with few investment and no borrowing limits, but high minimum subscription requirements and investor net worth criteria, imposed on the most flexible qualifying investor fund structure.

Qualifying investor funds are subject to a minimum subscription requirement of Euro 250,000 per investor. Natural person investors in qualifying investor funds must meet a minimum net worth test of at least Euro 1.25 million (excluding principal private residence/contents), with all other investors being required to own or invest on a discretionary...

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