What is an umbrella fund?
An umbrella fund is collective investment vehicle that exists as a single legal entity but has several distinct compartments or sub-funds. These sub-funds can follow different investment policies and different investors and are treated as separate funds. The assets of each compartment of a multiple compartment vehicle are generally segregated and the accounting records of each compartment are also kept separate.
Why Luxembourg?
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 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 fund domicile 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 the 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 umbrella fund in Luxembourg?
Luxembourg offers a toolbox of solutions to establish an investment fund with multiple compartments. Setting up an umbrella fund in Luxembourg has a variety of advantages:
1. Choice of fund platforms: Fund promoters have the choice between supervised or non-supervised funds. Depending on investor demands, they can either opt for:
(i.)A fund that is not supervised, quickly set up and needs no approval by the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier or CSSF),
(ii.)a fund that is supervised by the CSSF, or
(iii.)a fund that is not supervised but has appointed a supervised Alternative Investment Fund Manager (AIFM).
2. Investor protection: Investors are comfortable with Luxembourg, as it has the following advantages for investors:
(i.)it is a reputable fund jurisdiction with established legal frameworks for funds and investment vehicles,
(ii.)professional and globally recognized fund service providers are established in Luxembourg,
(iii.)depository/custodian is in Luxembourg.
3. Cost: Setting up a fund with multiple compartments/sub-funds is an interesting option for fund managers with different investment strategies and it can be a more cost-efficient way as opposed to setting-up one fund per investment policy.
4. Distribution: The sub-fund could be distributed on the basis of the EU passport, (either UCITS or AIFMD passport).
5. Well-established practice: Setting up an umbrella fund with multiple sub-fund is a well-established practice in Luxembourg. The segregation of the compartments/sub-funds is a tried and tested concept.
Which fund types exist that can be set up as an umbrella fund in Luxembourg?
In principle any fund that offers the possibility of an umbrella structure. In practice, the most commonly offered solutions are the following:
1. UCITS: (Undertaking for Collective Investment in Transferable Securities) is the leading globally distributed investment fund product.
(i.)UCITS is a highly regulated retail fund, supervised by the CSSF.
(ii.)It is subject to strict rules in investment and diversification and may only invest in listed securities, bonds, index components and assimilated assets.
(iii.)UCITS funds benefit from a European passport, meaning that once authorised by the CSSF in Luxembourg, they can be distributed to the public in all other EU Member States, on the basis of a formalized procedure.
(iv.)Due to its global reputation as a European retail fund, many countries around the world recognize the UCITS standard, making this the globally leading fund type distributed around the world.
2. SIF: (Specialised Investment Fund) is a highly flexible fund.
(i.)The SIF is reserved for well-informed and professional investors.
(ii.)The fund can either hold participations or hold assets directly.
(iii.)The SIF requires a low level of diversification of around 30% per asset.
(iv.)The fund may also qualify for the AIFMD passport, provided the conditions are met.
3. RAIF: (Reserved Alternative Investment Fund) has been a highly successful fund type since its introduction in 2016. The RAIF allows for a significantly reduced time to market, with the option to transform later to a SIF or SICAR.
(i.)The RAIF is structurally similar to the SIF or SICAR regime but is not subject to a direct supervision by the CSSF.
(ii.)The RAIF has to appoint an AIFM (Alternative Investment Manager) in Luxembourg, which itself is regulated by the CSSF, but can therefore benefit from the AIFMD passport.
4. Securitisation Vehicles: (SV) are investment vehicles, that can be set up as an alternative investment vehicle to the investment fund platforms mentioned above.
(i.)The SV is flexible in nature and can either be set up as a corporate entity or a securitization fund.
(ii.)The SV is required to issue securities (bonds, notes, etc.) in relation to an underlying risk (receivables, credit risk or any other form of risk).
(iii.)SV offered by service providers in Luxembourg to third parties are typically supervised SV.
How long does it take to establish an umbrella fund?
The time to set-up depends on whether the sub-fund or compartment is a supervised or non-supervised fund. A non-supervised sub-fund can be set up within 2 weeks, whilst a sub-fund on a supervised platform might take 1-2 months, depending on the complexity of the sub-fund structure and the time of approval by the CSSF.
How much does it cost to establish?
As Luxembourg offers a toolbox of different solutions, the establishment and running cost greatly varies between the solution chosen and the service providers used to service the fund.
Please Contact Us for more detailed information. We can guide you to decide on the right structure and find the right fund platform for your project.
