Loan Originating Qualifying Investor Alternative Investment Funds (L-QIAIFs) refers to a category of investment fund authorised by the Central Bank of Ireland (CBI). L-QIAIFs are permitted to originate loans. Investment in such funds is restricted to qualified investors and the manager is authorised by the CBI in accordance with the Alternative Investment Fund Managers Directive (AIFMD). To invest in a Qualifying Investor Alternative Investment Fund (QIAIF), the investor must be a professional investor and subscribe no less than €100,000, as such these are seen as products for the non-Retail sector.
Prior to 2014, all Irish authorised Alternative Investment Funds (AIFs) were prohibited from originating loans. Following a consultation process in 2013, the CBI revised the rules that apply to AIFs, which is the rulebook containing domestic requirements in relation to AIFs, to permit certain AIFs originate loans.
The revisions to the AIF Rulebook introduced a framework for L-QIAIFs. These regulatory requirements sought to strike an appropriate balance between allowing alternative financing options for companies to complement bank-funding, while at the same time addressing potential risks which may arise with respect to non-bank finance.
The specific obligations relating to L-QIAIFs include:
- credit granting by the fund;
- monitoring of the loans and management requirements;
- diversification requirements of the investments;
- the eligible investments by such a fund;
- stress testing of the fund;
- leverage limits;
- liquidity requirements; and
- distributions by the fund to investors.
Initially a L-QIAIF was required to have a sole purpose so as to focus exclusively on lending and related operations “to the exclusion of all other commercial business”.
Following a low take-up of L-QIAIFs, the CBI decided to amend the sole purpose provision. To that end, the AIF Rulebook was amended on two occasions, in January 2017 and in March 2018, to allow for more flexibility.
Following these changes, L-QIAIFs can now invest in equity or high yield instruments issued by a company the fund had originated a loan to. This policy is in line with other European Regulations notably the European Long-Term Investment Funds Regulation (EU) 2015/760 (the ELTIF Regulation).
In addition the Central Bank decided it was appropriate to allow L-QIAIFs to have broader credit focused strategies and this has also allowed L-QIAIFs to invest in debt/credit instruments without being required to also lend to these issuers.