As part of our series of quick start guides for first time managers, we reviewed the pros and cons of some of the primary European and non-European jurisdictions for hedge fund structures (our previous article in relation to Ireland is available here). In this article we review one of those key jurisdictions and its most recent investment product: Luxembourg and the RAIF.
Luxembourg is a leading jurisdiction for investment funds and offers a broad range of collective investment vehicles. Luxembourg has a sophisticated legal and regulatory system, a broad marketing reach with funds being distributed to over 70 countries in the Americas, Europe, Asia and the Middle East and offers four working languages; English, French, German and Luxembourgish.
The RAIF structure has become an attractive option for those wishing to establish their funds in Luxembourg. The RAIF combines the legal and tax features of the SIF or SICAR regulatory regimes (depending on the investment strategy adopted) with added speed to market as there is no need for authorisation (before launch) or supervision by the Luxembourg regulator, Commission de Surveillance du Secteur Financier (CSSF).
Why a RAIF?
The reserved alternative investment fund (RAIF) is an alternative investment fund, which enables the implementation of non-UCITS investment strategies (including hedge fund strategies) across any asset class.
The RAIF can be open-ended or closed-ended, leveraged or unleveraged and structured as a single fund or multi-cell, umbrella structure where each cell or sub-fund can correspond to a distinct and separate part of the assets and liabilities of the RAIF.
RAIFs are not subject to prior authorisation or on-going prudential supervision by the CSSF; these aspects together with the increased contractual freedom (as opposed to Luxembourg regulated fund vehicles) are the most attractive features of the RAIF. However, the RAIF requires notarial certification within 5 (five) days of formation (an appointment with a notary can be obtained within a few days) and must be registered with the Luxembourg Trade and Companies Register (which can be conducted electronically).
Legally, RAIFs can be set up under a corporate form, as partnerships or under a contractual form (i.e. common fund structures without legal personality). RAIFs structured as partnerships or with a corporate form can be set up as investment companies with fixed capital (SICAFs) or variable capital (SICAVs).
The RAIF is subject to minimum risk-spreading requirements (in principle a RAIF may not invest more than 30 percent of its assets or commitments to subscribe for securities of the same type issued by the same issuer), unless the RAIF elects to invest in qualifying risk capital investments in which case no minimum risk-spreading applies. The RAIF can be marketed to “well-informed investors” including institutional investors, professional investors and those adhering to such status provided that they invest certain minimum amounts (Euro 125,000) or alternatively to investors who have been subject to certification from a credit institution, an investment firm or a management company.
MJ Hudson and Arendt & Medernach will assist with setting up and launching a RAIF. We will help you with the private placement memorandum (PPM) and all ancillary legal documents. We will also negotiate and liaise with the following service providers:
AIFM. RAIFs must be managed by an alternative investment fund manager (AIFM). The AIFM must be a full-scope AIFM under the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) (further information about what it means to be a full-scope AIFM is found in our previous article here). Sub-threshold AIFMs cannot manage RAIFs. The AIFM must be an authorised, external manager domiciled in Luxembourg, any other EU member state or in a third country (once the AIFMD management passport becomes available to third countries). Most start-up managers use third party service providers. The role of the AIFM is to perform management functions as per the AIFMD (broadly, portfolio and risk management; compliance and regulatory reporting). Due to the fact that it is managed by a full-scope AIFM, the RAIF benefits from the marketing passport under the AIFMD.
Depositary. All RAIFs must have a depositary based in Luxembourg. The role of the depositary is the safekeeping of assets, cash monitoring and oversight in compliance with the AIFMD requirements. The depositary must approve the RAIF’s choice of prime broker; however the appointment of a prime broker is not mandatory for RAIFs.
Administrator. All RAIFs must have an administrator based in Luxembourg. The role of the administrator is, among others, calculating the net asset value of the RAIF using valuation sources agreed with the AIFM, managing share dealings and drafting financial statements.
Auditor. All RAIFs must have an auditor based in Luxembourg. The role of the auditor involves auditing the annual report prepared by the RAIF.
Directors. There are no residency requirements for directors under the RAIF regime, although careful consideration should be given to tax implications.
How long does it take?
Assuming optimal timing, about eight to twelve weeks’ work is needed to get to the stage where a RAIF can be launched. Protracted negotiations with initial launch investors and / or service providers can lengthen the timetable below.
Outline implementation calendar
|8 to 12 weeks before launch date (LD)||
|LD minus 8 weeks||
|LD minus 4 weeks||
|LD minus 1 week||
Fund Management Solutions:
MJ Hudson recently launched its Fund Management Solutions team in Luxembourg providing full AIFM compliance, risk and portfolio management, operating and financial services, as well as EU Passports to its asset manager clients. As well as serving spin-out and start-up managers, and non-EU managers that want to raise money seamlessly throughout Europe, larger groups can engage the Fund Management Solutions team to outsource certain procedural, personnel and regulatory aspects of fund management, leaving them free to focus on investment activity and generating returns.
Arendt & Medernach
DD: +352 40 78 78 893
Arendt & Medernach
DD: +352 40 78 78 510
Copyright © 2018. All rights reserved.