A globally leading fund centre
Luxembourg is the globally leading fund centre in the world for cross-border funds, 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 an 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 fund domicile are:
Luxembourg is a stable and recognized fund centre in the heart of Europe, ideally positioned to use the EU passporting rights to distribute an investment fund 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. One-Stop Solution
Setting up a fund with an EU passport, using leading service providers, listing it on a recognized stock exchange, setting up SPVs to benefit from double tax treaties, and outsourcing certain functions back to other countries. 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.
Why set up an investment fund?
Investment funds are collective investment vehicles, which invest in assets and may operate according to the principle of risk-spreading. Investment funds may raise capital from the public when capital is raised from a group of investors that go beyond a small circle of persons or may raise capital in a private placement from a selected group of investors. Issuing vehicles, holding companies, or special purpose vehicles (SPVs) are often not considered investment funds, although they might fulfill the above criteria.
What is the RAIF?
The Reserved Alternative Investment Fund (RAIF) is a highly flexible and successful fund structure in Luxembourg that was created in 2016, following the implementation of the Alternative Investment Fund Managers Directive (AIFMD). The RAIF combines the legal and tax features of two well-established Luxembourg fund vehicles: the Specialised Investment Fund (SIF) and the Investment Company in Risk Capital (SICAR).
In contrast to the SIF and the SICAR, the RAIF is not directly subject to supervision by the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier or CSSF), thus allowing asset managers to avoid “double supervision” of both fund and fund manager and reduce the time-to-market of the fund. The AIFMD only requires supervision on the level of the Alternative Investment Fund Manager (AIFM) and thus the double supervision was not seen as a necessity by all asset managers.
The RAIF gives asset managers new structuring possibilities whilst using a framework that is familiar and well known in Europe and around the world. The RAIF has changed the alternative investment space in Luxembourg and according to PWC there were already more than 842 RAIFs established in Luxembourg until December 2019.
Which investors are eligible to invest into a RAIF?
Investments in a RAIF may be made by “well-informed investors”. These are defined as:
1. Institutional investors;
2. Professional investors; or
3. Any other investors who have stated in writing that they adhere to the status of a “well-informed investor” and either (i) invest a minimum of €125,000 or (ii) have obtained an appraisal from a credit institution, an investment enterprise or a management company, certifying the investor’s expertise, experience and knowledge in adequately appraising an investment in the RAIF.
Who manages the RAIF?
RAIFs must appoint an authorised external Alternative Investment Fund Manager (AIFM). As a benefit of the appointment of the AIFM, RAIFs may be marketed to professional investors and other well-informed investors in the EU on the basis of the AIFMD passport. The AIFM may be established in Luxembourg or in another EU Member State.
What are the main advantages of the RAIF?
The main advantages of the RAIF are:
1.Speed to market: The RAIF can be created, launched and terminated without prior approval of the CSSF. Changes to the fund documentation or the activities of the RAIF also do not require prior approval. The establishment of the RAIF occurs with notarial certification, whereby the AIFM confirms the creation of the RAIF, and this information is published in the public register.
2.Structuring flexibility: The RAIF may be established as an investment company with variable capital (SICAV) or an investment company with fixed capital (SICAF). The RAIF may also be created as a contractual fund or fonds commun de placement (FCP), with no legal personality and a management company managing the FCP. The SICAV and SICAF may be established in various corporate forms available under Luxembourg law: (i) public limited company (SA), (ii) private limited company (S.àr.l.), (iii) limited partnership (CLP), (iv) special limited partnership (SLP) or (v) partnership limited by shares (SCA))
3. Umbrella fund: The RAIF may be set up as a fund with multiple ring-fenced compartments.
4. No asset restriction: The RAIF is not restricted to any asset type. That allows the RAIF to be flexible with its investment policy. If the RAIF is investing into risk capital, there is exceptionally also no risk diversification requirement. Otherwise the RAIF has to follow a similar risk diversification as the SIF.
5. Asset protection: The assets of the RAIF must be entrusted to a depositary, who must either have its registered office in Luxembourg or have a Luxembourg branch, if the registered office is in another EU Member State.
6. Indirect supervision: The RAIF is indirectly supervised through the supervision exercised by the competent authority of its AIFM.
7. Possibility to become a supervised fund: A RAIF is often launched as a non-supervised fund and then supervision by the CSSF is sought at a later stage, transforming the RAIF into a SIF or SICAR, if investors request additional regulatory protection.
8. Attractive tax regime: The RAIF may either opt for a (i) tax regime similar to the SIF, with a 0,01% subscription tax on the net asset value of the fund and exemptions from other Luxembourg taxes, or (ii) a tax regime similar to the SICAR.
Which service providers does a RAIF require?
The RAIF must appoint the following service providers:
1.Authorised external AIFM
2. Depositary subject to the AIFMD liability regime
3. Statutory auditor approved by the CSSF to act for regulated funds
4. Central administrator based in Luxembourg
Does the RAIF have access to the EU passport for distribution of the fund?
The RAIF may take advantage of the EU passport, as it has appointed an AIFM, allowing the fund to be passported to well-informed investors within the EU.
How long does it take to set up a RAIF in Luxembourg?
A RAIF is not subject to supervision by the CSSF and can thus be established within a short timeframe, typically 1-2 weeks. The timeframe for the drafting of the documentation, will depend on the complexity and the input of all parties involved.
What are the capital requirements of a RAIF?
The minimum net assets of a RAIF may not be less than EUR 1.250.000. This amount must be reached within a period of twelve months following its establishment. At least 5% of the capital must be paid up at subscription.
How much does it cost to establish a RAIF?
The cost of setting up a RAIF differ, depending on the exact structure and the service providers used. In principle a RAIF can however be established more cost efficiently than a supervised fund.
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