What is an investment fund manager in Luxembourg?
Investment Fund Managers in Luxembourg (IFMs or Gestionnaires de fonds d’investissement) refers to UCITS management companies, other management companies, Luxembourg branches of IFMs, self-managed investment companies, authorised Alternative Investment Fund Managers (AIFMs) and internally managed Alternative Investment Funds (AIFs).
Why set up a IFM in Luxembourg?
Luxembourg is the globally leading fund centre in the world for cross-border funds, Luxembourg is the second largest investment fund centre in the world after the United States and the largest fund domicile in Europe with currently more than EUR 4,7 trillion of assets under management.
The country is a politically and financially stable EU country with a AAA-Rating. As an EU domicile, investment funds established in Luxembourg can be more easily distributed within the EU and have gained furthermore global recognition for the ease of cross-border distribution.
The key advantages of Luxembourg as a jurisdiction for IFMs are:
1. Stability
Luxembourg is a stable and recognized fund centre in the heart of Europe, ideally positioned to use the EU passporting rights to distribute funds across the EU and to global markets.
2. Global Leadership
Luxembourg is the global leader for cross-border fund distribution. All relevant service providers in the asset management industry have a presence and offer services in Luxembourg. The country is known around the world for its capabilities in asset management and its funds are distributed and known around the world.
3. Recognized Financial Regulator
The Commission de Surveillance du Secteur Financier (CSSF) is a globally recognized regulator in the investment management space.
4. European and global distribution
Luxembourg has the flexibility to offer a one stop solution for operating and distributing investment funds, as well as deploying the funds in an efficient and structured manner. Setting up an IFM allows to obtain an an EU passport for fund distribution.
What is the difference between the IFM licenses in Luxembourg?
Luxembourg offers different IFM licenses supervised by the CSSF, which include:
1. UCITS management company (UCITS ManCO)
A UCITS ManCo manages at least one Undertaking for Collective Investment in Transferable Securities (UCITS) and typically performs the functions listed in Annex II of the UCI Law concerning collective portfolio management (such as investment management, administration and marketing).
2. Alternative Investment Fund Manager (AIFM)
An Alternative Investment Fund Manager (AIFM) is a legal entity managing one or more alternative investment funds (AIFs). The AIFM is governed by the Law of 12 July 2013 on alternative investment fund managers (AIFM Law). AIFMs subject to the prudential supervision of the CSSF.
The CSSF observes that AIFMs subject to its supervision continuously comply with the legal and regulatory obligations relating to their organisation and operation, in order to ensure investor protection and integrity of the financial marketplace.
Apart from the exemptions provided for by the AIFM Law, Luxembourg AIFs must have an AIFM, responsible for the compliance with the AIFM Law.
3.Super ManCos
Super ManCo is a commonly used term for UCITS ManCos which are appointed as AIFMs of at least one AIF. Super ManCos are authorised according to Article 101-1 of Chapter 15 of the 2010 Law and authorised or registered in accordance with Chapter 2 of the AIFM Law.
What is the authorization process for an IFM in Luxembourg?
Apart from being subject to prior authorization and ongoing supervision by the CSSF, there are many conditions for authorization, which include that:
- the IFM shall be a corporate entity, taking the form of a public limited company (société anonyme), a private limited company (société à responsabilité limité), a cooperative company (société coopérative) or a cooperative company set up as a public limited company or a corporate limited partnership (société en commandite par actions). The capital of that company must be represented by registered shares.
- the IFM shall have a share capital of at least EUR 125,000.
- The natural persons and, where relevant, the legal persons, the members of the administrative, management and supervisory bodies, the persons in charge of the day-to-day management (referred to hereafter as “dirigeants”) as well as shareholders or members having a qualifying holding must be of adequate professional standing.
- The IFM must have an adequate human and technical infrastructure in order to fulfil its functions.
The IFM has to implement and respect relevant rules and CSSF circulars. In particular with respect to:
- professional secrecy;
- risk management procedures;
- organizational rules, as well as rules of conduct;
- transparency of fees and remuneration; and
- obligations under the Luxembourg law relating to the fight against money-laundering and the financing of terrorism.
What does the ongoing supervision of the IFM include?
The prudential supervision of the CSSF extends to an IFM authorized under Luxembourg law, including the activities which they carry out by means of a branch, and Luxembourg branches of foreign entities.
Prudential supervision is exercised by the CSSF on an IFM by:
(i.)submitted periodically financial information to the CSSF enabling it to monitor continuously the activities of the relevant entities and the inherent risk, together with the monthly control of compliance with the minimum own funds legally required;
(ii.)reviewing documents established yearly by the réviseur d’entreprises agréé, including the audit report and audited annual accounts, control report relating to the fight against money laundering and terrorist financing and, where applicable, the management letter, the internal audit reports relating to audits carried out during the year and the management’s report on the state of the internal audit; and
(iii.)introductory visits and on-site inspections carried out by the CSSF.
What are the main steps for the incorporation of a IFM?
(i.)Written application and following a due examination of the application file by the CSSF. In this process the CSSF reviews inter alia, the corporate documents, the shareholding structure, the structure of the board and the management, as well as the human, technical and material organization of the IFM;
(ii.)Incorporation of the company and transfer of the share capital; and
(iii.)Formal authorisation is granted by the Minister of Finance, based on the application process undertaken by the CSSF.
What are the substance requirements for an IFM?
A IFM needs to evidence that its central administration is in Luxembourg. It needs to demonstrate that the executive day-to-day management and control staff is permanently resident in Luxembourg. It cannot simply have a registered office in Luxembourg, but the head office must be in Luxembourg.
How long does it take to set up an IFM in Luxembourg?
A IFM is a regulated company with the need for regulatory approvals by the CSSF. The approval process can take several months, typically around 3-5 months, depending on the completeness of the application file and the time in which the application file was submitted.
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