The Irish Funds Industry Association has welcomed the Central Bank of Ireland’s proposals to establish a regulated loan fund framework in Ireland.
This will be the first dedicated regulatory regime in the EU for loan funds and will operate under the EU’s Alternative Investment Fund Manager’s Directive (AIFMD).
Managers should be able to avail of the AIFMD’s Europe-wide marketing passport for professional investors when selling the Irish loan fund structure in Europe.
The new fund product will be of particular benefit to large SMEs and intermediate sized companies which are too small to access the corporate bond market.
Loan origination by investment funds has grown in popularity in recent years in response to a funding gap created by restrictions on access to bank credit in the aftermath of the financial crisis. It is estimated that the European private debt investment market, which includes direct lending funds, currently has assets under management of USD33 billion.
The new loan origination fund product will be structured as a Qualifying Investor Alternative Investment Fund (AIF). The Central Bank is proposing to permit such Qualifying Investor AIFs to derogate from its general prohibition on lending, subject to specific investor protections and risk management safeguards covering credit assessment, diversification, liquidity, due diligence, leverage, disclosure, reporting and stress testing. The new fund structure will be introduced via a new section in the Central Bank’s AIF Rulebook.
Pat Lardner, CEO of the Irish Funds Industry Association, says: “The IFIA is strongly supportive of the Central Bank’s proposals on a loan originating Qualifying Investor AIF and welcomes the consultation initiative. With appropriate risk measures in place, loan origination can perform a valuable economic function through the promotion of beneficial long-term investment in infrastructure, technology and businesses generally.
“We agree that there is a public good to be served in allowing pooled investment funds to directly lend to the corporate sector, which has witnessed a reduction in lending from traditional banking institutions in recent years. The development of a bespoke loan origination fund product under AIFMD is yet another example of how Ireland continues to focus on product development in the alternatives space. We intend to work with the Central Bank over the coming weeks to address the finer details and look forward to the launch of the Irish loan originating AIF in the very near future.”
