Qualifying Investor Alternative Investment Fund Overview and Key Considerations

Qualifying Investor Alternative Investment Funds are designed for sophisticated investors who can handle complex investments and higher risk.

These funds are typically reserved for high net worth individuals and institutional investors who have a deep understanding of alternative investments.

A Qualifying Investor Alternative Investment Fund is a type of fund that is exempt from certain regulatory requirements due to the sophistication of its investors.

The fund's structure and investment strategy can be tailored to meet the specific needs and goals of its investors, which often include institutional investors and high net worth individuals.

Institutional investors, such as pension funds and endowments, are common investors in Qualifying Investor Alternative Investment Funds due to their large asset bases and investment expertise.

An Alternative Investment Fund (AIF) is a type of investment fund that is regulated by the Alternative Investment Fund Managers Directive (AIFMD).

A QIAIF is actually a type of AIF, so if you're looking into investing in a QIAIF, you should already have a good understanding of what an AIF is.

An AIF is required to appoint an alternative investment fund manager (AIFM), which can be either an EU manager or a non-EU manager.

A QIAIF is a regulated investment fund that is targeted at "qualifying investors" and imposes a minimum initial subscription requirement of €100,000 per investor.

A QIAIF constitutes an AIF under the Alternative Investment Fund Managers Directive (AIFMD).

A QIAIF allows for the pooling of assets, giving investors a way to combine their resources for a more significant impact.

QIAIFs can be established as hedge funds, real estate funds, private equity funds, and master-feeder funds, among others, due to the lack of investment restrictions.

There is no requirement to distribute capital or income, so QIAIFs can be set up as either distributing or accumulating funds.

QIAIFs are exempt from Irish taxes, which can be a significant advantage for investors.

A QIAIF can take advantage of Ireland's extensive network of double taxation treaties, providing further tax benefits.

To operate, a QIAIF must comply with its constitutional documents, which outline the rules and regulations of the fund.

The fund must entrust its assets to a depository for safekeeping, ensuring the assets are protected and secure.

The constitutional documents must specify the remuneration and expenditure of the management company, general partner, and depository, as well as the method of calculation.

The fund must also specify the manner of application of its income and the circumstances under which it may be affected.

A QIAIF is a regulated investment fund that targets "qualifying investors" who are classified as professional clients under MiFID or are certified or appraised as being informed investors.

To be considered a QIAIF, the fund must have a minimum initial subscription requirement of €100,000 per investor.

A QIAIF must appoint an alternative investment fund manager (AIFM), which can be either an EU manager or a non-EU manager.

The Central Bank plays a significant role in regulating Qualifying Investor Alternative Investment Funds. The fund's constitutional documents cannot be altered without the Central Bank's control or consent.

There are specific provisions in place for departures from directorships, and any changes must be notified to the Bank immediately if they might create a concern. Restrictions also apply to directors, particularly with regards to shared directorships between the fund and investment company.

At least two investors must be Irish residents, and current directorships must be disclosed. This ensures transparency and accountability within the fund.

A QIAIF can be established as an Irish collective asset-management vehicle (ICAV), which allows it to be treated as a tax transparent vehicle for US federal tax purposes.

An ICAV is a corporate legal structure that's customised specifically for investment funds.

An ICAV's paid-up share capital is equal to the net asset value of the company.

For a QIAIF, an Irish investment company is another option, established under Part 24 of the Companies Act 2014, as amended.

This corporate legal structure has a paid-up share capital equal to the net asset value of the company.

A unit trust is a contractual type vehicle that's established by a trust deed between the QIAIF's depositary and manager/AIFM.

It's not a separate legal entity, and its assets are held by a depositary.

An investment limited partnership is also an option, established by a limited partnership agreement.

It's not a separate legal entity and is most suited for private equity funds or investors who prefer to invest via a tax transparent vehicle.

Here are the different legal structures available for a QIAIF:

Redomiciliation can be a streamlined process for investment funds, allowing them to switch their country of domicile and continue operations in Ireland as a QIAIF.

Investment funds domiciled in offshore jurisdictions such as the Cayman Islands, Jersey, Guernsey, the Isle of Man, Bermuda, and the British Virgin Islands can take advantage of this process.

These jurisdictions offer a re-domiciliation process that enables investment funds to switch their country of domicile and maintain their operations in Ireland.

The Central Bank plays a significant role in regulating Qualifying Investor AIFs, and their consent is required for certain actions. The fund's constitutional documents cannot be altered without Central Bank control or consent.

To make any changes to the fund's directors, the Central Bank must be notified immediately if there's a concern. Restrictions apply to directors, including those who are also directors of an investment company. At least two investors must be Irish residents, and current directorships must be disclosed.

Replacing the depository requires notification to the Central Bank and must be done in a way that satisfies the Bank's requirements. The appointment of a new depository can only be terminated when a successor is appointed.

Replacing the management company, manager, or general partner also requires prior approval from the Central Bank. The procedures for doing so must be approved and documented by the fund. Proposals to replace these roles must be notified in advance to the Central Bank.

Monthly and quarterly returns must be submitted to the Central Bank using its online reporting system. The monthly return includes details such as the unit fund type, closing net assets value, and payments made and received.

To invest in a Qualifying Investor Alternative Investment Fund, you'll need to meet certain conditions and follow specific rules.

The minimum subscription amount is €100,000 or its equivalent in another currency. This is a non-negotiable requirement for individual investors.

You must be a professional client, as defined by the MiFID Directive, to invest in this type of fund.

To qualify as a professional client, you'll need to meet one of two criteria: either receive an appraisal from a credit institution, a MiFID firm, or a UCITS management company that you have the necessary expertise and experience to understand the investment, or certify that you're an informed investor with the knowledge and experience to evaluate the merits and risks of the investment.

You can also invest in the fund if your business involves managing, acquiring, or disposing of property similar to the assets of the fund.

Here are the specific requirements for exemption from the minimum subscription amount:

If you're an employee investing in the fund, you'll need to certify that you meet the exemption criteria and are aware of the normal minimum subscription amount of €100,000.

QIAIFs are not subject to Irish corporation tax, and are not liable for capital gains taxes on profits or gains.

Investors (other than Irish resident investors) may redeem or transfer their units, or receive distributions from the QIAIF without the application of Irish withholding tax.

No capital duty is payable on the issue or transfer of units of a QIAIF.

A QIAIF established as an investment limited partnership or a common contractual fund is treated as being tax transparent.

Units may only be sold if the price is arrived at by dividing the net asset value of the fund by the number of units.

Units may be redeemed and repurchased at a price arrived at by dividing the net asset value by the number of units.

QIAIFs are required to provide redemption facilities on a quarterly basis at least, or on request, at least 10% of its net assets on a monthly basis of 25% on a quarterly basis.

A redemption fee in excess of 5% of its net assets value is not allowed.

Taxation is a crucial aspect to consider when investing in a QIAIF. QIAIFs are not subject to Irish corporation tax.

This means investors can enjoy tax benefits, including no capital gains taxes on profits or gains. Investors (other than Irish resident investors) may redeem or transfer their units without the application of Irish withholding tax.

No capital duty is payable on the issue or transfer of units of a QIAIF. A QIAIF established as an investment limited partnership or a common contractual fund is treated as being tax transparent.

This tax transparency allows investors to enjoy reduced rates of foreign withholding taxes on foreign source income or profits. A QIAIF established as an ICAV or an investment company, is normally entitled to benefit from Ireland’s extensive double-tax treaty network.

Redemption is a crucial aspect of investment funds. Units may only be sold if the price is arrived at by dividing the net asset value of the fund by the number of units.

The price may be increased by duties and charges, but units may be redeemed and repurchased at a price arrived at by dividing the net asset value by the number of units. Such prices may be decreased by duties and charges.

For open-ended Qualifying Investor Funds, redemption facilities must be provided on a quarterly basis at least. Qualifying funds which offer redemption and settlement facilities, unless on a quarterly basis or provide a period of 90 days or greater between dealing deadline and payment, are not subject to any regulatory parameters.

A qualifying fund must redeem on request, at least 10% of its net assets on a monthly basis and 25% on a quarterly basis. It shall not impose a redemption fee in excess of 5% of its net assets value.