As European fund sponsors contemplate the most suitable location for their fund structure, one of the most important questions is the suitability of the legal vehicle that each short-listed jurisdiction has to offer. Many countries keen to attract private equity business to their shores have long understood the need to offer an organisational structure that works from a tax and legal perspective, and healthy competition among countries has led to many improvements over the last few decades. For instance, the UK has steadily (but rather too slowly) made various helpful changes to its limited partnership structure since 1987; Jersey and Guernsey have both made significant improvements; and Luxembourg launched a new vehicle in 2013 that has been widely adopted.

Ireland – whose position on Brexit has dominated negotiations in Brussels this week – has much to offer British-based fund managers looking for a future-proof structure, especially those with a close connection to the UK and without significant existing presence elsewhere in the EU. One big problem for managers evaluating Ireland, though, is that the “investment limited partnership” structure – although dating from 1994, and closely resembling its British cousin – has not yet been fully modernised.

But the good news for the Irish funds industry is that modernisation is now on the horizon. Although a draft law has not yet been published, the Irish Finance Minister announced in July that the Government will make important changes to the Irish investment limited partnership structure. Despite being originally scheduled for 2017, the changes are now thought likely to pass their legislative hurdles next year.

The reform will aim to modernise the existing structure to align it with international standards and reflect the requirements of the Alternative Investment Fund Managers Directive (AIFMD). In particular, it is expected that the reformed law will confirm the limited liability of passive limited partners, and add a “safe harbour” – similar to that now available in the UK and other jurisdictions – specifying activities that limited partners may engage in without risking their limited liability status. It is hoped that the reforms will also abolish the existing requirement to file the fund limited partnership agreement with the Central Bank of Ireland (which means that it is publicly available), and there are likely to be other simplifications to ensure that disproportionate and unnecessary burdens are not imposed on fund managers.

It is fair to say that Ireland does have an existing fund structure that can be used by private equity fund managers: the Irish Collective Asset Management Vehicle (or ICAV). This can accommodate the main commercial features of a private fund. However, the limited partnership remains the preferred vehicle for the majority of private equity sponsors and investors, and the lack of a suitable partnership vehicle has hampered the development of a private equity fund industry in Ireland.

The approval of the draft law is, perhaps, a symbol of Ireland’s commitment to become a global location for private equity funds – as it already is for many other fund strategies. But one important question remains: how quickly can the legislature approve these changes? The law is now expected to pass in 2018 – but with sponsors weighing their options now, time could be of the essence.

We are grateful to Jennifer Fox at Dillon Eustace for her help in preparing this article.