Fund finance: Irish funds and third-party security

The regulatory framework governing Irish funds, particularly those structured as Qualifying Investor Alternative Investment Funds (QIAIFs), presents unique challenges in fund finance transactions.

A key provision of the Central Bank of Ireland's AIF Rulebook prohibits QIAIFs from guaranteeing third-party obligations, leading to the use of cascading security structures. Fund finance specialist Laura Holtham from our Banking and Finance team in Dublin explores how recent updates from the Central Bank will impact the structuring of fund finance transactions involving an Irish fund.

QIAIFs and security

Irish funds established as Qualifying Investor Alternative Investment Funds (QIAIFs) must follow the rules set out in the Central Bank of Ireland's AIF Rulebook (Rulebook). One rule that consistently comes into play in fund finance transactions is the prohibition on QIAIFs from giving guarantees or providing security for the obligations of any third party other than itself or its  wholly owned subsidiaries.

The prohibition has meant that in subscription line / capital call transactions, where an Irish fund is often required to provide security for a master fund that is not its wholly owned subsidiary, a cascading security structure must be used. The cascading security structure allows the Irish fund to provide security for its own direct obligations to the intermediate fund. The right to that security is then assigned up the chain to the ultimate lender / security agent.

On 7 March 2025, the Central Bank of Ireland (CBI) published the 50th edition of its AIFMD Questions and Answers (the Q&A) which  clarified that a QIAIF is permitted to provide a guarantee in respect of investments and / or intermediate vehicles for such investment in which the QIAIF has a direct or indirect economic interest, provided that:

• the fund's AIFM is satisfied that the granting of the guarantee/provision of security is in the best interests of both the QIAIF and its investors and is ancillary to the QIAIF's predominant investment strategy

• the fund's AIFM (or, in the case of a non-Irish AIFM or registered AIFM, the authorised QIAIF) and the QIAIF's depositary confirm that the proposed transaction is at arm's length and in the best interests of the investors

• the prospectus discloses to the investors that the QIAIF can provide a guarantee in respect investments and / or intermediate vehicles for such investments in which the QIAIF has a direct or indirect economic interest, along with any associated material risks

• the liability of investors in the QIAIF under such arrangements (above the value of their current holdings of shares or other interests in the QIAIF) shall be limited to the amount, if any, unpaid on the shares or other interests held by them

  • this shall include, in the case of a QIAIF that raises capital under a formally agreed capital commitment basis, the amount of the undrawn capital commitments per the prospectus and the constitutional document of the QIAIF

• the QIAIF complies with the provisions set out in QA ID 1159 of the Q&A (relating to investments through co-investment vehicles)

• all applicable requirements of AIFMD regarding leverage and risk management are complied with by the fund's AIFM, including the conducting of regular stress tests in accordance with Article 48 and other relevant requirements of AIFMD which shall cover market risks and any resulting impact, including on margin calls, collateral requirements and credit lines

Next steps

When structuring a fund finance transaction and working out the best security package for a lender, it will still be crucial to review the relevant fund documents to ensure the above requirements are met, but the clarifications set out in the Q&A are a welcome development, enhancing the attractiveness of Ireland's funds offering and provide interim guidance pending a proposed consultation in respect of the Rulebook which is due to take place later this year.

How Ogier can help

Ogier in Ireland provides one of the largest single-source service packages, spanning the full fund life cycle. Our team of experienced investment fund and fund finance experts in Ireland can help advise or aid in any query you may have when it comes to navigating Irish funds, their funding requirements and third-party security.

For questions in relation to this update or other related matters, get in touch with our key contacts below.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice