The Luxembourg alternative investment fund environment has been significantly improved on the 14 of July 2016 with the adoption of the law on Reserved Alternative Investment Funds (RAIF).
Luxembourg is the prime location for the pan-European and global distribution of investment funds under the UCITS brand and the world's second largest investment funds domicile. Initially designed as a global retail funds hub, Luxembourg has gradually opened up to alternative asset classes, offering bespoke structuring solutions for alternative investment fund players.
Structuring flexibility, investor protection and tax efficiency are key elements of the Luxembourg investment fund offering for decades. These are the core features that have helped convince international managers and investors to shift their fund platforms, operations and investments to Luxembourg. The RAIF is an innovative addition to the Luxembourg toolbox.
Before the adoption of the AIFM Directive in 2013, the EU, its Member States, and Luxembourg in particular, were focused on product level regulations. The AIFM Directive has changed the scene by shifting regulation from "funds" to "managers".
The RAIF is a non-regulated alternative investment fund platform and it is therefore a logic response to this trend.
RAIFs are not subject to the direct supervision of the Luxembourg regulator and may be launched without prior or ex-post regulatory approval. They will be managed by authorised alternative investment fund managers irrespective of whether such managers are established in Luxembourg, another EU Member State or a third country (upon and subject to the implementation of the third-country management passport).
RAIFs benefit from the same level of structuring flexibility as the specialised investment fund (SIF) and the investment company in risk capital (SICAR) and combine the favourable legal and tax features of these two regulated regimes.
RAIF are multi-purpose/policy alternative investment funds which can be organised as partnerships, common funds (FCP), or investment companies with variable or fixed capital (SICAV - SICAF) on a stand-alone and multi-compartments/umbrella basis.
RAIFs are subject to risk diversification requirements, unless they restrict their investment policy to risk capital investments. RAIFs are strictly reserved to qualified investors being institutional, professional or so-called "well-informed investors". In terms of marketing, RAIFs may only be marketed to professional investors.
From a tax perspective, RAIFs benefit either from a tax exemption and, similarly to the SIF, are subject to an annual subscription tax (i.e. a 0.01 % yearly subscription tax levied on the net asset value of the RAIF) or from the same tax regime as the SICAR, depending on their investment policy (i.e. favourable tax regime enabling treaty protection and participation exemption with various jurisdictions). The VAT exemption applicable to AIF management services will also apply.
By removing the dual regulatory supervision and thus improving the business environment - mainly by reducing the costs and time to market, and by increasing the structuring flexibility without impacting the investors' protection - the RAIF law contributes to bolster Luxembourg's position as the main alternative investment fund structuring hub in the EU.
Key elements to keep in mind about the RAIF:
- Alternative Investment Fund
- Not regulated: no authorisation nor supervision
- Multi-purpose/policy investment fund regime available to AIF managed by authorized AIFM
- Risk diversification principle applies (30% limit) unless the exclusive purpose of the RAIF is to invest in risk capital investments (high risk and intention to develop the target companies)
- Reserved for qualified investors
- Structuring options: FCP, SICAV/SICAF or partnership form
- Can be set up as an umbrella/multi-compartments platform
- Depositary, central administration and auditor to appoint
- Depending on the investment strategy, taxation either as the SIF or as the SICAR
- Entry into force within 3 days following publication in the official gazette