Luxembourg is increasingly a preferred destination for non-EU managers seeking to access European capital by way of parallel funds.
5 things to know about parallel funds
Preferred destination: Luxembourg limited partnerships are increasingly popular with sophisticated managers and investors experienced in the Anglo-Saxon market, with an appetite for large fund raises and a diverse investor pool
Sponsor: EU regulatory law may require third party service providers to the parallel fund, and consideration will need to be given to the flow of moneys through the structure to the fund sponsor, thus requiring tax compliant and efficient structuring solutions
Operating structure: The Luxembourg parallel will typically use the terms of the main fund (investment strategy/asset portfolio), yet is a separate legal entity required to be compliant with applicable EU laws. Each participant in the structure will need to have a keen understanding of its role in the overall management and functioning of the fund
Operating model: The regulatory impact in the context of investment decisions/substance requirements in relation to the Luxemburg parallel must be understood by the non-EU main fund in order to avoid functional conflicts during the life of the fund(s). The mechanics of the distribution waterfall and costs allocation must be modelled at the structuring phase
Flexibility: These structures offer a variety of options to investors who are provided the ability to participate through the fund that is best suited to their risk, regulatory and tax appetites, and the AIFMD impact is restricted to the Luxembourg parallel with no regulatory scope creep with respect to the non-EU main fund