UK: A Quick Start Guide To RAIFs: Why, How And How Long Does It Take?

Last Updated: 10 January 2018
Article by Ben Watford

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.

How?

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)
  • Engage MJ Hudson and Arendt & Medernach
  • Start work on the PPM
  • Engage service providers, directors, auditors and tax advisers
LD minus 8 weeks
  • Agree PPM and provide to service providers
  • Start to negotiate service provider agreements
  • Decide on board members (if RAIF is structured as a company) / decide on Luxembourg management company (if RAIF is structured as common fund)
LD minus 4 weeks
  • Obtain director sign off on RAIF documents (if RAIF is structured as a company) / obtain Luxembourg management company sign off on RAIF documents (if RAIF is structured as a common fund)
  • Pre-marketing of the RAIF
LD minus 1 week
  • Finalise documents
  • Incorporate and register RAIF
  • Obtain notarial certification (if RAIF is structured as a company, this is simultaneous with the incorporation)
  • Hold launch board meeting (if RAIF is structured as a company) / hold board of Luxembourg management company launch meeting (if RAIF is structured as a common fund)
  • Arrange execution of documents
LD
  • RAIF initial offer period opens

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions