The Bill n°6929 on reserved alternative investment funds was adopted yesterday by the Luxembourg Parliament and shall come into force three (3) days after its publication in the official Gazette (the "RAIF Law").

The RAIF Law creates an unregulated alternative investment fund called "Reserved Alternative Investment Fund" or "RAIF" similar in its attributes to the renown Luxembourg regulated SIFs and SICARs. RAIFs are therefore not subject to the direct supervision of the Luxembourg financial supervisory authority (Commission de Surveillance du Secteur Financier or "CSSF"). This will allow for fund promoters using RAIFs to improve substantially the time-to-market of their new fund products while reducing their set-up and running costs.

RAIFs are reserved to well-informed investors.

They must be managed by a duly authorised alternative investment fund manager (the "AIFM") located in the EU/EEA (or, at a later stage, an approved third country) and comply with the EU Directive 2011/61 on alternative investment fund managers (the "AIFMD"). RAIFs will therefore benefit from the AIFM passport for the marketing of their shares/units to professional investors within the EEA.

A RAIF must either:

  • comply with light risk diversification rules without any limitation on eligible assets (i.e. in principle that none of its assets may represent more than 30% of its portfolio) (the “SIF-like RAIF”), or
  • adopt a risk capital investment policy, which means that they must invest in private equity/venture capital-like assets and pursuant to a private equity/venture capital-like strategy but no risk diversification requirement (the “SICAR-like RAIF”)

They may be structured as standalone or multi-compartments vehicles taking the form of:

  • common funds (fonds commun de placement or “FCP”), or
  • investment companies (“SICAV” or “SICAF”) being partnerships (such as the special limited partnership (the “SCSp”), the common limited partnership (the “SCS”), or the corporate partnership limited by shares (the “SCA”)) or companies (such as the public limited company (the “SA”) or the private limited liability company (the “Sàrl”)).

RAIFs must only have at incorporation the minimum capital required by law depending on the form chosen (e.g. RAIFs set-up as SCSp or SCS SICAV RAIFs do not have any minimum capital), and their net assets must reach EUR 1,250,000 within 12 months from incorporation.

Although unregulated but managed by an authorised AIFM, RAIFs will be indirectly supervised through their AIFM’s financial supervisory authority and therefore should offer investors a similar level of protection as SIFs or SICARs managed by authorised AIFMs. Still on the topic of investor protection, a Luxembourg depositary and independent auditor must be appointed by the RAIF or its AIFM.

Finally, RAIFs are tax efficient:

  • the tax regime applicable to SIFs shall apply to SIF-like RAIFs (i.e. not subject to tax except for the annual subscription tax (taxe d'abonnement) of 0.01% of its net assets; no net wealth tax except or registration duties except for a one-off fixed capital duty of EUR 75; bilateral tax Treaty access in some instances; no withholding tax); and
  • the tax regime applicable to SICARs shall apply to SICAR-like RAIFs (i.e. SCA or SA or Sàrl SICAV RAIFs are subject to corporate income tax but the returns derived from securities are exempt; They are not subject to net wealth tax except for an annual minimum net wealth tax of typically EUR 3,210. SCSp or SCS SICAV RAIFs or FCP RAIFs are tax transparent for income tax purposes; no net wealth tax and no registration duties apply except for a one-off fixed capital duty of EUR 75, bilateral tax Treaty access in general for SCA or SA or Sàrl SICAV RAIFs or the Lux SPV of SCSp or SCS SICAV RAIFs or FCP RAIFs; no withholding tax).

RAIFs are expected to become the most commonly used form of EU-based multi-compartment alternative investment funds.

The RAIF structure will reinforce the position of Luxembourg as #1 European fund jurisdiction and #2 worldwide after the USA. 

To see the French/English translation of the RAIF Law click here