The Central Bank of Ireland (CBI) is set to approve UCITS funds with 100% CLO exposure, according to sources familiar with the matter.
The move would allow Irish UCITS funds, including ETFs, to reach up to 100% exposure in CLOs, contingent upon compliance with certain distribution criteria to ensure such products are targeted away from retail investors.
Further insights suggest that the CBI’s approval would focus on the quality of the CLO portfolio, This could mean a portfolio weighted heavily towards AAA-rated CLOs, with a smaller portion allocated to other high-quality instruments.
In the context of an expanding interest in active ETFs, this potential development reinforces Ireland’s appeal as a central hub for ETF establishment in Europe.
In August, Fair Oaks launched a Luxembourg-domiciled ETF with 100% CLO exposure, with the jurisdictions share class naming conventions and Ireland’s capping on CLO exposure tied to giving the region an edge over Ireland.
Matthias Kerbusch, partner at Dechert Luxembourg, previously told ETF Stream according to their understanding, the CBI caps CLO exposure at 20%, "so Luxembourg is the natural domicile for these types of funds," he concluded.
The Irish regulator’s changes mark the latest tussle for active share amid the booming active ETF market in Europe.
In July, it was announced actively managed ETFs domiciled in Luxembourg will join passive ETFs in being exempt from subscription tax after 2025.
Finance Minister Gilles Roth announced his intention in March and said he hoped he move would help to harness the growth of the active ETF space by offering favourable tax benefits.
Outside of active ETFs, the CBI announced last week the upcoming release of Q&As which will enable the creation of listed share classes within mutual funds without the ‘UCITS ETF’ moniker at the sub-fund level.
Ireland has a dominant position in housing ETFs in Europe, with the region holding $1.1trn assets under management in exchange traded products compared to $305bn in Luxembourg, as at the end of October 2023, according to data from ETFbook.
