The law on reserved alternative investment funds (RAIF) adopted by the Luxembourg parliament on 14 July 2016, will enter into force in the coming days.

The new law is inspired to a very large extent by the existing legal framework on Specialised Investment Funds (SIF) and investment companies in risk capital (SICAR). The proposed legal regime however also encompasses remarkable new features which will certainly impact the landscape of the alternative investment funds in Luxembourg.

What is new?

  • The RAIF is by law an alternative investment fund (AIF) which does not need the approval of the Luxembourg regulator (CSSF) and is not subject to the supervision of the CSSF.
  • It must be constituted by a notarial deed and an issuing document aligned on the provisions of the AIFM Law is mandatory.
  • It must be registered on a publicly available list maintained by the Luxembourg trade and companies register.
  • The RAIF must, irrespective of the size of its assets under management, appoint an external AIFM domiciled either in Luxembourg or in the EU or in the future in a third country upon the conditions set-out in the AIFM Law.
  • An increased degree of responsibility of the governing body of the RAIF and AIFM due to the absence of prudential supervision by the CSSF at the level of the RAIF.
  • Existing AIFs can be converted into a RAIF upon conditions. 

What remains?

  • The RAIF may adopt either a contractual form (FCP) or a corporate form (SA, SCA, SCS, SCSp, Sarl and Scoop.SA).
  • It may be structured as an umbrella fund with sub-funds.
  • Its eligible investors are the same as for the SIF and the SICAR (professional investors as defined in MiFID and well-informed investors).
  • It may have the same investment policy as a SIF or a SICAR.
  • It must diversify its underlying investments unless it has explicitly opted to invest only in risk capital.
  • It will require the involvement of the same services providers as a SIF or SICAR (depositary, auditor, central administration agent…).
  • The AIFM managing the RAIF will benefit from the passport regime in accordance with the AIFMD if the RAIF is marketed to professional investors only.
  • The RAIF is subject to an annual subscription tax of 0.01% unless it invests exclusively in risk capital. The RAIF is exempted from subscription tax on, among other items, investments in other Luxembourg undertakings for collective investment which are subject to subscription tax. A RAIF whose investment objective is to invest in money market instruments and bank deposits or microfinance, or whose units or interests are held by pension scheme providers or by similar institutions, is also exempted from the subscription tax. If the RAIF invests only in risk capital and has been set up in a corporate form, then it is a fully taxable vehicle but income from risk capital is tax exempt. If formed as a common or special limited partnership, it is treated as a tax transparent entity.

What to expect next?

  • In comparison to other (authorised) AIFs, the formation costs as well as the time to market of a RAIF will be considerably lowered given that no prior authorisation from the CSSF is required.
  • The RAIF is likely to be seen as the new European standard in the AIF world and may become more popular than existing AIFs (in the form of SIFs) in Luxembourg.
  • The SICAR and SIF may be still of interest for funds who seek prudential supervision either in order to provide more comfort to their investors or to meet any legal requirements applicable to the targeted investors to allow the latter to invest into the fund.