The Irish Funds Industry Association has welcomed the announcement by the Central Bank of Ireland (CBI) on the finalisation of the framework for Ireland’s loan origination fund structure.
This will be the first dedicated regulatory regime in the EU for loan funds and will operate under the EU’s Alternative Investment Fund Managers Directive (AIFMD).
Managers who are authorised AIFMs and that meet the additional conditions under the Central Bank’s AIF Rulebook will be able to avail of the new structure in order to market loan origination funds within the EU under the AIFMD passport.
The funds will be open to qualifying investors including pension funds, insurers, banks and high net worth individuals that make an initial minimum investment of EUR100,000.
The development of the structure is a direct result of an increase in demand for an alternative to bank finance. An estimated funding gap in Europe over the next five years of USD2-4 trillion has emerged due to restricted access to bank credit and deleveraging in the aftermath of the financial crisis.
The new loan originating fund is an important enhancement to Ireland’s product offering for AIFMs because it is designed to meet the needs of this growing sector which has raised over USD322 billion over the past five years. The loan origination market is currently more developed in the US where approximately 80 per cent of loan origination takes place via capital markets. In Europe, the situation is reversed, where approximately 80 per cent of all lending is performed by commercial banks. This points to significant growth potential, which Ireland aims to harness with the provision of a regulated framework for loan origination.
The new loan origination fund product will be structured as a Qualifying Investor Alternative Investment Fund (QIAIF). The Central Bank will permit such QIAIFs to lend subject to specific investor protections and risk management safeguards covering credit assessment, diversification, liquidity limitations, investor due diligence, leverage, disclosure, stress testing and reporting. The new fund product will be introduced via a dedicated section in the Central Bank’s AIF Rulebook and it is thought that the Central Bank intends to begin accepting applications soon.
Pat Lardner, CEO of the Irish Funds Industry Association, says: “This is a significant development for the funds industry in Ireland. This will bring new funds, new projects and new expertise to the Irish funds industry and will position us as the clear domicile of choice for loan origination funds in Europe.
“The IFIA has been strongly supportive of the initiative since it was first announced. The CBI has left nothing to chance, having identified and addressed any potential risks involved through full compliance with AIFMD and additional product specific requirements. The Irish loan originating QIAIF represents an attractive AIFMD-regulated structure for managers seeking to attract professional investors.”