CLOSED-ENDED AIFS AND OPEN-ENDED AIFS WITH LIMITED LIQUIDITY

i. General

  1. An applicant who wishes to establish a closed-ended Retail Investor AIF must satisfy the Central Bank that the nature of the Retail Investor AIF as reflected, inter alia, in the investment objectives; the nature of the potential unitholders; the life or period of closure of the Retail Investor AIF; the intention regarding the listing of the Retail Investor AIF; and any proposals from the management company and/or AIFM and /or investment company to arrange for a market to be made, or otherwise to provide liquidity in the units; is such that it would be appropriate and prudent to approve the Retail Investor AIF as a closed-ended Retail Investor AIF.
  2. The Retail Investor AIF must have a finite closed-end period, the duration of which must be provided for in the prospectus as a material part of the investment policy.
  3. The Central Bank may permit the Retail Investor AIF to derogate from paragraph 4 of section 1.vii (Valuation) of Part I of the Retail Investor AIF chapter, and provide for the issue of units other than at net asset value. The Retail Investor AIF must demonstrate that unitholders will not be prejudiced by such a provision. The conditions under which units will be issued are subject to approval by the Central Bank.
  4. A Retail Investor AIF/Qualifying Investor AIF established as a closed-ended Retail Investor AIF must confirm in its application that its prospectus is also being submitted separately for approval with the requirements of the Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324 of 2005).
  5. Paragraphs 1-3 of this section specify the extent of the disapplication by the Central Bank of Section 12(1) of the Unit Trusts Act 1990, Section 1386(1)(b)(ii) of the Companies Act 2014and Section 14(1) of the Investment Funds Act 2005.

ii. Liquidity

  1. Section 6.iii (Changes to existing closed-ended Retail Investor AIFs) of Part II of the Retail Investor AIF chapter and section 3.iii (Changes to existing closed-ended Qualifying Investor AIFs) of Part II of the Qualifying Investor AIF chapter set out different requirements which apply depending on whether realistic liquidity provisions exist. Examples of realistic liquidity provisions include the following:
    1. Appointment of market makers (i.e. institutions who would be prepared to make a bid for units presented to it) or other system whereby unitholders would be assured of obtaining a reasonable price for their units within a reasonable time-frame. It is recognised that such a provision does not necessarily entail that a unitholder would receive the prevailing net asset value.
    2. Limited redemption facilities which could take the form of a limited period during which requests for redemption may be accepted.
    3. Listing on a regulated stock exchange in conjunction with the appointment of brokers who would execute orders on a matched bargain basis. The acceptability of this type of provision would depend on the liquidity provided by the listing (i.e. the extent to which a market in units was likely to develop).
  2. It is noted that the appointment of brokers who would execute orders on a matched bargain basis is a desirable feature of a closed-ended Retail Investor AIFs and Qualifying Investor AIFs. However, where a market in units is unlikely to develop, it must be recognised that this provision does not provide realistic liquidity in the units of a Retail Investor AIF or a Qualifying Investor AIF.

iii. Other changes

  1. The Central Bank may require the application of the approach set out in paragraph 6 of section 6.iii (Changes to existing closed-ended Retail Investor AIFs) of Part II of the Retail Investor AIF chapter or paragraph 6 of section 3.iii (Changes to existing closed-ended Qualifying Investor AIFs) of Part II of the Qualifying Investor AIF chapter, as relevant, in the case of other proposed changes depending on the impact of the proposed changes on the unitholders. Circumstances where this approach is likely to be required include changes to the distribution policies of the closed-ended Retail Investor AIF or closed-ended Qualifying Investor AIF or changes to the valuation policies. Proposed changes will be considered by the Central Bank on a case by case basis.

iv. Open-ended AIFs with limited liquidity

  1. In order to be authorised as an open-ended Retail Investor AIF, the Central Bank requires that the unitholders must be able to request redemption of their holdings at least monthly.
  2. Retail Investor AIFs, which are not closed-ended Retail Investor AIFs, but which do not provide redemption facilities monthly, are classified as open-ended Retail Investor AIFs with limited liquidity. Qualifying Investor AIFs, which are not closed-ended Qualifying Investor AIFs, but which do not provide redemption facilities quarterly, are classified as open-ended Qualifying Investor AIFs with limited liquidity. The extent to which the requirements similar to those set out in section 6.iii (Closed ended Retail Investor AIFs or Open-ended Retail Investor AIFs with limited liquidity) of Part II of the Retail Investor AIF chapter or section 3.iii (Closed ended Qualifying Investor AIFs and duration of closed-ended Qualifying Investor AIFs) of Part II of the Qualifying Investor AIF chapter will be applied to open-ended Retail Investor AIFs with limited liquidity or open-ended Qualifying Investor AIFs with limited liquidity, respectively, will be determined by the Central Bank on a case-by-case basis and will depend on the liquidity arrangements which are provided. For example, a Retail Investor AIF or a Qualifying Investor AIF with very few exit mechanisms will be subject to this section whereas it will not be applicable in the case of a Retail Investor AIF or a Qualifying Investor AIF which provides regular redemption facilities.

v. Issuing units other than at net asset value

  1. As part of an application for the Central Bank’s prior approval pursuant to paragraph 2 of section 3.i (General requirements) of Part II of the Qualifying Investor AIF chapter, the Qualifying Investor AIF must demonstrate that unitholders will not be prejudiced by such a provision.

Issued: 3 July 2013
Latest revision: 3 July 2013