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Irish QIAIF becoming a ‘go-to’ solution

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According to Ken Somerville (pictured), head of business development at Quintillion Limited, Ireland's fund administrators are starting to see real interest among global fund managers, running both hedge funds and private equity funds, as Europe's credit markets continue to be restructured. This is leading to a wider, more complex range of credit strategies, with loan origination perhaps the most talked about example. 

Quintillion Limited is a European-based affiliate of U.S. Bancorp Fund Services, a global alternative administrator with assets under administration of USD117 billion, with AuA in Europe totalling approximately USD26 billion. 
"At Quintillion, we provide loan servicing through our corporate trust arm. This gives us a particular advantage in the credit space. Forty percent of our client assets are credit strategy products, and we continue to see a trend in the development of these strategies in a QIAIF structure. Ireland has roared back into favour with managers as a complimentary onshore jurisdiction to their offshore jurisdiction," says Somerville. 
It is not easy to get an EU fund to market, and non-EU managers are quickly discovering the extra compliance and infrastructure demands. A QIAIF (Qualifying Investor Alternative Investment Fund), for example, requires the appointment of a depositary (albeit in a less onerous 'depo lite' arrangement for non-EEA AIFs compared to EEA-based AIFs), meaning that the break-even point is greater. 
Somerville says he is detecting a preference among investors to invest in large, well-established fund managers. "We are seeing more funds being launched, but fewer management company launches, and as a result, managers are becoming bigger and more sophisticated. Irish funds are finding real appeal with those managers as they diversify their product offering, especially now that the ICAV is available," says Somerville.

It has become an increasingly popular choice among managers to use the ICAV in conjunction with a QIAIF to structure complex strategies that do not readily fit into the restrictions of the UCITS regime. "The Irish QIAIF is becoming the go-to solution. It's timely because managers are becoming bigger and there is a clear appetite for new funds, as well as an appetite among European investors to commit capital to the alternative funds space," adds Somerville.
Managers looking to do loan origination, or pick up private equity and real estate assets in Europe, need to take care when selecting the right service providers. 
"The more illiquid the asset, the more good governance (valuation and pricing, record keeping) and timely reconciliation becomes a vital value-add of a fund administrator. Ultimately, the administrator has to be central to the construction of the valuation policy. Not at a high level where it is described in the fund's offering memorandum, but at a completely granular level that dictates the mechanism by which the portfolio is priced. Taking on a pricing policy without being central to its creation is a dangerous move," suggests Somerville. 
Under AIFMD, the depositary is required to determine whether or not the AIF has conducted itself in accordance with regulatory requirements. In addition, the depositary compares the conduct of the fund relative to its own offering documents. 
"They look at the prospectus, the fund's investment book of records, and determine that the two are in accordance with each other. That gives an unaffiliated firm the opportunity to examine and oversee the fund's conduct independently, providing additional comfort that AIFMD offers to investors," concludes Somerville.

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