INTRODUCTION

The reserved alternative investment fund (“RAIF(s)“) was first introduced by the Law of 23 July 2016 (“RAIF Law”)1 and has since enjoyed great success. The RAIF is a Luxembourg undertaking for collective investment (“UCI(s)”) qualifying as alternative investment fund (“AIF(s)”) managed by an authorised alternative investment fund manager (“AIFM(s)”) within the meaning of the AIFMD2 , but is not supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), making it an attractive vehicle from a time-to-market perspective. The scope of eligible investors includes not only institutional investors and professional investors but also other types of well-informed investors, such as sophisticated private investors meeting certain conditions

The RAIF regime was amended among others by the Law of 21 July 2023, which modernises the Luxembourg toolbox relating to investment funds (including RAIFs), namely to take into certain legal changes and market requirements.

In order to be eligible for the RAIF regime, the RAIF has to be an AIF managed by an AIFM that is authorised in accordance with the Law of 12 July 2013 on alternative investment fund managers (“AIFM Law”) or AIFMD. For the time being, the AIFM must be established in Luxembourg or in another Member State of the European Union (“EU”)3 . The RAIF Law also provides for the possibility for the AIFM of a RAIF to be established in a third country once the AIFMD passport is available to third countries.

Due to the necessity for the RAIF to be managed by an authorised AIFM, it is indirectly supervised through the prudential supervision exercised by the competent authority of its AIFM. For the same reason, the RAIF benefits from the EU passport granted by the AIFMD for marketing to professional investors in the EU.

The other features of the RAIF are substantially identical to those of the specialised investment fund (“SIF(s)”)4 and the RAIF Law has been drafted drawing heavily from the text of the SIF Law5 .

The main differences between the RAIF Law and the SIF Law result from the fact that all references to the role and mission of the CSSF found in the SIF Law have been excluded from the RAIF Law. However, certain mechanisms have been introduced to ensure compliance with the RAIF Law, particularly by the AIF's management body.

The European long term investment fund Regulation (“ELTIF Regulation”)6 may also offer new opportunities to certain RAIFs as it enables AIFMs to market RAIFs with an ELTIF label to retail investors in the EU, provided that the relevant investors qualify as well-informed investors under the RAIF Law.

CHAPTER I: GENERAL PROVISIONS

1. SCOPE

The RAIF regime is applicable to Luxembourg AIFs (i) managed by an authorised AIFM, (ii) that invest in accordance with the principle of risk-spreading7 , (iii) whose securities or partnership interests are reserved for well-informed investors, and (iv) whose constitutive documents8 provide that they are subject to the provisions of the RAIF Law

1.1. AIF managed by an authorised AIFM

RAIFs represent a specific category of AIFs that must be managed by an authorised AIFM.

Therefore, unlike a SIF, a RAIF cannot be a non-AIF or be managed by an exempted AIFM9 . Moreover, a RAIF cannot, in principle, be internally managed10.

1.2. Not supervised by the CSSF

An essential difference between the RAIF and the SIF is that the latter is subject to approval and supervision by the CSSF whereas the RAIF is not subject to such approval and supervision.

There is thus no need for CSSF approval for the creation, launch or even termination of a RAIF and, similarly, no approval is required in the event of changes to its constitutive documents, offering document or other documents governing its functioning. The operations and activities of the RAIF are at no point under the ongoing supervision by the CSSF or any supervisory authority (other than via the AIFM). The timeframe within which a RAIF can be set up and launched is therefore more attractive from a time-to-market perspective.

1.3. Reserved to well-informed investors

In the same manner as for SIFs, investment into RAIFs is limited to well-informed investors that are able to adequately assess the risks associated with an investment in such a vehicle.

The RAIF Law defines well-informed investors as (a) institutional investors, (b) professional investors within the meaning of Annex II of MiFID11, and (c) other investors who:

  • confirm in writing that they adhere to the status of well-informed investors; and
  • either
    1.  invest a minimum of EUR 100,000; or
    2. benefit from an assessment made by an EU credit institution, MiFID investment firm, UCITS management company or authorised AIFM certifying that they have the adequate expertise, experience and knowledge in order to appraise the contemplated investment in the RAIF.

Therefore, sophisticated retail or private investors will be authorised to invest in RAIFs through the use of this latter category (c).

The above conditions do not apply to the directors and those other persons involved in the management of the relevant RAIF

1.4. Optional regime

The RAIF regime is optional to the extent that the constitutive documents must expressly provide that the investment vehicle is subject to the provisions of the RAIF Law. Accordingly, any investment vehicle which is reserved to one or more well-informed investors will not necessarily be governed by the RAIF regime. Instead it could opt to be established as an unregulated company subject to the general rules of Luxembourg Company Law12 or as a SIF or an investment company in risk capital (société d'investissement en capital à risque or “SICAR(s)”) supervised by the CSSF.

It should be noted that those various available Luxembourg regimes can also be combined when structuring an investment project either by setting up different vehicles to meet the specific needs of various investors (e.g. by creating dedicated feeder funds or parallel vehicles), but they can also be combined in a “phased” approach as conversions from one regime to the other are possible. A fund could, for instance, be established as a RAIF to be in a position to organise a rapid first closing with investors not requiring a product subject to direct supervision, and to be converted into a SIF later on, once CSSF approval is obtained to welcome other investors that wish to or must, invest in a directly supervised product.

Footnotes

1. The RAIF Law is available on our website www.elvingerhoss.lu in both English and French.

2. “AIFMD” refers to Directive 2011/61/EU on alternative investment fund managers, as amended.

3. For the purposes of this Memorandum, the terms “European Union”, “EU” and “EU Member States” also refer to and include the European Economic Area (“EEA”) and the States that are contracting parties to EEA agreement other than the Member States of the European Union, within the limits set forth by this agreement and related acts.

4. Notably as regards the various legal forms (corporate and contractual) which are available, the absence of limitation as regards eligible assets or investment policies, the possibility to have multiple compartments and multiple share classes as well as the flexible subscription, redemption and distribution features and, as a matter of principle, the tax regime of a taxe d'abonnement at a 0.01% rate (or nil rate in certain circumstances).

5. “SIF Law” refers to the Law of 13 February 2007 on SIFs, as amended. For more information, see our Memorandum “Specialised Investment Funds, Luxembourg regime for investment funds dedicated to sophisticated investors” on our website www.elvingerhoss.lu.

6. “ELTIF Regulation” refers to Regulation (EU) 2015/760 on European long-term investment funds, as amended.

7. Except for certain RAIFs investing solely in risk capital as discussed in Chapter III Section 1.2 of this Memorandum.

8. i.e., mainly the articles of incorporation (statuts), the management regulations (règlement de gestion) or the partnership agreement (contrat social), depending on the legal form of the RAIF.

9. An “exempted” AIFM” is an AIFM that benefits from one of the exemptions of Article 3 of the AIFMD (i.e. small manager exemption or group exemption), that does not have to comply with all the provisions of the AIFMD, but which is therefore deprived of the benefit of the EU marketing passport provided for by the AIFMD.

10. In line with the provisions of the AIFMD, there is one exemption to the obligation for RAIFs to appoint an external AIFM, which applies to RAIFs that are AIFs exempted under Article 2.3(c) or (d) of the AIFMD because they are managed either (i) by a supranational institution or by another similar international institution acting in the public interest, or (ii) by the Central Bank of Luxembourg or another national central bank. Such RAIFs will have access to the RAIF Law without having to appoint an external AIFM.

11. “MiFID” refers to Directive 2014/65/EU on markets in financial instruments, as amended.

12. “Luxembourg Company Law” refers to the Law of 10 August 1915 on commercial companies, as amended.

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