The growth of alternatives as an asset class in recent years has been unwavering. Investors continue to allocate increased portfolio weightings to alternative assets coupled with the evolution of the asset class into new types of investments.
In this comprehensive report, Philip Murphy and Emily Lawlor from our Asset Management Tax team provide an overview of the key tax considerations applicable to alternative funds across investor, investment, fund and manager level, in addition to focusing on the critical tax issues that need to be considered across specific asset classes.
The evolving international tax landscape is also particularly relevant to alternative funds and the report includes a synopsis of some of the key developments of potential relevance.
Background
As at 31 December 2023, the net asset value of Irish domiciled funds regulated as Alternative Investment Funds (AIFs) was €865bn, with this figure expected to grow in the years ahead. AIFs would historically have attracted much of their capital from institutional investors however the so-called “democratization” of alternatives has become a clear theme with retail investors seeking to add diversification to their portfolio through increased allocations to alternatives. The nature of assets held by alternative funds also continues to evolve beyond private credit, real estate and infrastructure into new asset classes such as royalties, aviation and digital assets. In addition, broader macroeconomic factors such as rising interest rates, changes in the international tax landscape and the continued focus from investors on Environmental, Social and Governance (ESG) are shaping future trends.
Change has, and will continue to, increase complexity across the full spectrum of the fund life cycle as the sector evolves. The expected focus by non-institutional investors on allocations to alternatives is complemented by the recent introduction of the EU’s revised European Long Term Investment Fund (ELTIF 2.0) Regulation (which entered into force in Ireland on 10 January 2024). This regime is designed to provide both retail investors and professional investors access to longer term investments which cannot currently be accommodated by the existing AIF and UCITS regimes.
Given the diverse range of asset classes which are typically considered “alternative”, there is usually increased tax complexity associated with establishing and operating an alternative fund structure. This report outlines some of the specific tax considerations, both generally and also in the context of certain specific asset classes.
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Philip Murphy
Partner, Asset Management Tax
KPMG in Ireland
Emily Lawlor
Associate Director
KPMG in Ireland