The bill of law introducing the Reserved Alternative Investment Fund (RAIF) was passed on 14 July 2016 by the Luxembourg Parliament. The RAIF will complement Luxembourg’s Alternative Investment Fund (AIF) toolbox and will be available in a few weeks once the law has been published.
The RAIF - a SIF’S DNA without the burden of regulatory approval
The RAIF is intended to be a flexible and efficient structure. Its regime is substantially based on the one applicable to the specialised investment fund (SIF). The RAIF will thus be subject to the well-informed investor and risk diversification requirements and will offer all the features of a SIF, including, amongst others:
- The possibility to provide for ring-fenced sub-funds
- Multiple share classes
- Flexibility of distributions to investors
- The possibility to provide for redemption rights for investors
As there are no limitations in terms of eligible assets, the RAIF may be used for all types of investment policies and strategies. In addition, it can be set up in the form of a corporate structure or contractual structure. Where a corporate structure is opted for, a large choice of corporate forms is available (such as the various Luxembourg partnership types).
The RAIF is particularly attractive as it capitalizes on the SIF’s DNA but its creation, launch and amendments are not subject to the approval of the Luxembourg Financial Regulator (the Commission de Surveillance du Secteur Financier, CSSF). This feature will enable it to optimize the time to market, in an industry where time is often of the essence.
Tax wise, the RAIF will be subject to a subscription tax of 0.01% of the net asset value. Under certain circumstances the subscription tax may be nil.
Requirement to be managed by an authorised AIFM
The RAIF’s absence of regulatory approval and supervision, which could potentially be perceived by investors as a lack of protection, is counterbalanced by the fact that it must be managed by an authorised Alternative Investment Fund Manager (AIFM) based either in Luxembourg or another EU Member State. This requirement ensures the RAIF’s indirect supervision through the regulator of the AIFM’s home Member State as well as its compliance with the requirements of the Alternative Investment Funds Managers Directive (AIFMD), such as the appointment of a depositary, investor information, etc…
Last but not least, this requirement allows the RAIF to benefit from the AIFM passport for marketing to professional investors throughout the European Union.
RAIFs investing exclusively in risk capital
An additional measure of flexibility is provided by the fact that RAIFs may restrict, in their constitutive documents, their investments solely to risk capital. In this case, they shall (i) be exempt from the risk diversification requirement and (ii) become subject to the same tax regime as the one applicable to the Investment Company in Risk Capital (SICAR).
The concept of “risk capital” should be interpreted in a similar manner as in the context of the SICAR.