On 14 July 2016, the draft bill n°6929 creating a new Luxembourg fund structure called the Reserved Alternative Investment Fund (RAIF) (in French, the Fond d'Investissement Alternatif Réservé (FIAR)) was adopted by the 'Chambre des Députés' (Luxembourg Parliament).
This eagerly awaited bill adds a new fund vehicle, qualifying as an Alternative Investment Fund (AIF), to Luxembourg's fund structuring toolbox. The RAIF will not be subject to authorisation or ongoing supervision by the Commission de Surveillance du Secteur Financier (CSSF), and investor protection is built on the premise that only authorised Alternative Investment Fund Managers (AIFMs) will be allowed to establish and manage the RAIF. This approach implies that the RAIF will be regulated indirectly through the rules and requirements applicable to funds managed by an AIFM, including the AIFMD Depositary regime. The AIFM will be responsible for proper portfolio management, risk management, valuation, reporting and investor disclosures relating to the RAIF, in line with AIFMD standards.
Many features of the new RAIF have strong parallels with the existing successful Specialised Investment Funds (SIF) and Investment Companies in Risk Capital (SICAR) regimes. The core features are:
- Although no specific risk diversification limits are laid down in the bill, in general the RAIF should invest its capital in accordance with the principle of risk spreading, for the benefit of its investors. The comments to the draft bill indicated that the FIAR could use the CSSF Circular 07/309 to apply the principle of risk spreading. If the RAIF invests solely in Risk Capital, no risk diversification requirements apply.
- The RAIF may only be managed by an authorised AIFM established in Luxembourg, in another European Union Member State or in a third country that benefits from the future AIFMD passport regime.
- Eligible investors are limited to (1) institutional investors, (2) professional investors, and (3) 'well-informed investors (minimum investment amount of EUR125,000 and have investment expertise).
- In terms of taxation, the RAIF will only be subject to a subscription tax (taxe d'abonnement) of 0.01% of NAV, with exemptions available for certain Money Market Funds, for funds dedicated to pension fund investors and for microfinance funds. RAIFs that invest exclusively in Risk Capital investments, similar to SICARs, will not be subject to the subscription tax. These RAIFs will be subject to the same tax treatment as SICARs, namely exempt from tax on income derived from transferable securities, and exempt from net wealth tax.
- The RAIF can take the form of a contractual fund, or a corporate fund with the legal form of a partnership, private or public company. The RAIF may take the form of a single fund or an umbrella fund with separate ring-fenced sub-funds. Cross-investment by sub-funds is allowed under certain conditions.
- The RAIF must appoint an appropriately experienced Luxembourg depositary, which can either be a credit institution, an investment firm or a Specialised PSF (only for certain types of RAIF). The depositary must have already experience and expertise in servicing SIFs and part II funds (not required for entities that are licensed as Specialised PSFs).
- The RAIF must issue an Offering Document that satisfies the AIFMD pre-investment transparency requirements. For umbrella funds, each sub-fund may have its own Offering Document that needs to mention the existence of other sub-funds.
- The RAIF is required to produce an annual report that is subject to external audit by an appropriately experienced Réviseur d'Entreprises, within 6 months of year end. A separate annual report can be issued for each sub-fund as long as it also contains the aggregated data of all sub-funds.
- The minimum capital of a RAIF is EUR 1,250,000 and must be reached within 12 months.
- The RAIF's document must be stamped by a Luxembourg notary and the fund must be registered and maintained on a list with the Registre de Commerce et des Sociétés (Company Register).
- The Central Administration activity for the RAIF has to be performed in Luxembourg.
- The bill foresees the possibility for the RAIF to be converted into a fund subject to the UCI bill, into a SIF or a SICAR with their incorporation documents being harmonised by a resolution of the general shareholder's meeting passed at a majority of two thirds of the votes cast irrespective the share capital represented.
- Unregulated Alternative Investment Funds that are set up under Luxembourg Company Law may convert into a RAIF subject to shareholder approval.
- Eligible to benefit from the AIFM's passport for distribution to professional investors across the EU under the AIFM notification procedure.
The new RAIF gives Investment Managers and their sophisticated investors the choice between creating a fund subject to a dual regulatory and supervisory regime such as the SIF or the SICAR, regulated both at the level of the manager and at the level of the fund, and the option of creating a fund (RAIF) subject solely to indirect regulation and supervision through its authorised Manager (AIFM).
The official text dated 23 July 2016 was published in the Mémorial on 28 July 2016 and entered into force on 1 August 2016.
The full text of the RAIF bill is available on the website of the Mémorial via the following weblink.
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.