Answer ... Luxembourg remains the first investment fund centre in Europe and the second in the world. The net assets under management in Luxembourg funds stood at €4.7 trillion in 2019, according to the latest figures communicated by Luxembourg for Finance, the Agency for the Development of the Financial Centre. Luxembourg is also a major hub for EU and global asset managers, with the presence of 98 of the 100 largest European asset managers.
There is continued interest in the market in unregulated alternative investment funds (AIFs), such as the reserved alternative investment fund (RAIF) and the limited partnerships (société en commandite simple and société en commandite spéciale). Unregulated AIFs offer legal structuring flexibility while allowing for timely marketing and launch, without being subject to the prior authorisation or ongoing supervision of the Luxembourg regulator, thus saving time and cost for managers.
Answer ... With the adoption of a directive and regulation on the cross-border distribution of collective investment funds in summer 2019, a new legal and regulatory framework will harmonise the rules and reduce the barriers and costs for the cross-border distribution of investment funds within the European Union, including Luxembourg. The regulation entered into force on 1 August 2019, while the directive must be transposed into national law by July 2021.
The directive introduces a new harmonised pre-marketing regime with respect to AIF managers (AIFMs). Pre-marketing will be allowed for EU AIFMs, so that fund managers will be able to test the appetite of potential investors for new investment strategies. However, pre-marketing activities will be subject to certain requirements - in particular, formal notification of the home regulator.
In case of pre-marketing, EU AIFMs will not be allowed to rely on reverse solicitation for 18 months from the beginning of the pre-marketing activity, which will substantially limit the possibility to have recourse to reverse solicitation. Pre-marketing and marketing activities will be permitted only for certain entities, such as AIFMs, investment firms, credit institutions, undertakings for collective investment in transferable securities management companies and tied agents.
New requirements have also been introduced regarding the de-notification of marketing activities. Requirements applicable to regulatory fees and charges will also be aligned across EU member states.
Answer ... The steady growth of the number of unregulated AIFs, such as the RAIF and limited partnerships, should continue apace in the coming years. There is a clear preference and market demand for a single-tier regulatory model (ie, regulation of the AIFM only), instead of a double-tier regulatory model (ie, regulation of the AIF and regulation of the AIFM).
The implementation of Directive 2019/1160 on cross-border distributions will ensure a more harmonised approach across the European Union, thus fostering cross-border pre-marketing and marketing activities of AIFMs.
The ongoing review of the AIFM Directive by the European Securities and Markets Authority may give greater insight into the key topics which will be probably addressed at level 2, via regulations or a full review of the AIFMD, such as the rules on remuneration, the depository rules, the national private placement regimes and the AIFMD third country passport.