Irish Collective Asset-Management Vehicles (ICAVs) allow for the creation of a new, tax-efficient and innovative corporate structure for Irish investment funds.
The ICAV sits alongside the existing public limited company ("Irish PLC") structure, which has been the most successful and popular of the existing Irish fund structures to date. It complements other legal forms of Irish regulated funds – such as the unit trust, investment limited partnership and the common contractual fund ("CCF") – and can be used in conjunction with these funds as master-feeders or parallel fund structures. Like other regulated fund structures, the ICAV can be established by way of a filing with the CBI and can seek authorisation as either a UCITS or alternative investment fund ("AIF") structure. From a regulatory perspective, an ICAV can be structured to suit all major investment strategies and can accommodate traditional as well as alternative investment policies. It can also avail of a full suite of liquidity options making it suitable for mutual funds, hedge, real estate, infrastructure, lending vehicles, private equity, managed accounts and hybrid funds.
The ICAV is available to both new and existing structures, and an Irish PLC can convert to an ICAV. In order to do so, a filing with the CBI will be required, including the Irish PLC's current and intended constitutional documents, together with a statutory declaration of a director confirming, amongst other matters, the solvency of the Irish PLC and consenting to the proposed conversion. Eligible offshore funds also have the option to migrate to Ireland and be established as an ICAV by way of continuation or to transfer assets to a new ICAV vehicle.
Advantages of the ICAV
The principal advantage to an investment fund established as an ICAV is that it has its own specific legislative code. This means it will not be impacted by amendments to certain pieces of European and Irish company legislation, which are targeted at ordinary companies rather than investment funds, but which currently impact on Irish PLCs. This results in a more straightforward set of legal rules applicable to an ICAV, and lower administration costs.
In addition, the Irish PLC is currently considered to be a "per se corporation" for US tax purposes. As a result, a "check-the-box" election for US tax purposes is not available in respect of an Irish PLC and, accordingly, it is generally treated as a separate entity for US tax purposes.
A key advantage of the ICAV is that it will not automatically be considered a corporation for US tax purposes. Instead it will be possible to make an election under US "check-the-box" tax rules in respect of the ICAV, in order for it to be classified as a partnership or disregarded entity. It is understood that this feature of the ICAV should enhance the attractiveness of Irish funds to US investors and managers who, to date, have traditionally established Irish funds as unit trusts in order to achieve this result. In this regard, it is considered that the ICAV may be regarded as a more suitable fund vehicle than a unit trust by certain investors and managers.
Notable features of the ICAV
An ICAV may be established as either a single fund or as an umbrella structure with a number of sub-funds and share classes. The Act specifically provides for robust segregation of liability between sub-funds in umbrella structures.
The Act allows for the preparation of separate sub-fund accounts for an ICAV. This will be a very important feature for managed accounts and large multi-manager structures, as currently Irish PLCs have to produce one set of accounts for the entire umbrella, which mandates a single year-end date and the ability of investors in one sub-fund to receive financial details for investors in others.
The ICAV is not subject to the principle of risk-spreading (unlike the Irish PLC which must spread investment risk), which will facilitate single asset deals, e.g. single property holdings or exposure to a single issuer.
In the case of changes to the ICAV's instrument of incorporation ("IOI"), there will be no requirement to obtain prior investor approval where the depositary certifies that changes to the IOI do not prejudice the interests of investors (similar to the requirements relating to changes to the trust deed of a unit trust).
To reduce the administrative burden on funds, directors of an open-ended ICAV are permitted to elect to dispense with the holding of an annual general meeting ("AGM") by giving written notice to all of the ICAV’s shareholders. There is a safeguard in that shareholders holding 10% or greater of shares can demand an AGM.
Below is a comparison table of the key features of ICAVs and PLCs.
|Key Features||ICAV||Irish PLC|
|Availability as UCITS||Yes||Yes|
|Availability as AIFs (AIFMD compliant)||Yes||Yes|
|Availability as a segregated umbrella||Yes||Yes|
|Ability to "check-the-box" for US tax purposes||Yes||No|
|Outside of scope of Irish Companies Act||Yes||No|
|Risk spreading requirement||No||Yes|
|Shareholder approval required for every change to constitutional document||No||Yes|
|Ability to dispense with the requirement to hold an annual general meeting||Yes||No|
|Ability to prepare separate accounts at sub-fund level||Yes||No|
|Required to have the aim of spreading investment risk||No||Yes|
|Ability to issue equity and debt to investors||Yes||Restricted|
Irish Tax Treatment of the ICAV
The ICAV will constitute an investment undertaking for Irish tax purposes and will be subject to the same gross roll-up regime that currently applies to existing Irish investment funds, AIFs and UCITS. Broadly, this means that any profits and gains of the ICAV will be exempt from tax in Ireland subject to certain conditions.
For more information about ICAV, contact our Dublin office on +353 1 619 2000.