Has Luxembourg Found The Middle Ground For Hedge Funds?

Has Luxembourg Found The Middle Ground For Hedge Funds?

Prior to the much heralded roll out of the Alternative Investment Fund Management Directive (AIFMD) in 2013, Luxembourg was staunchly entrenched as the leading domicile for regulated mutual funds (UCITS) and private equity funds in Europe. It lagged in terms of attractiveness to alternative fund managers, with Cayman and BVI being the offshore domiciles of choice and Ireland stealing a march once AIFMD delivered a widely accepted European alternative product.

In recent times Luxembourg has taken numerous measures to enhance its offering for managers in the alternative investment space. The most recent measure is the introduction of the Reserved Alternative Investment Fund (“RAIF”). The RAIF was passed into Law in July 2016 and its unique features greatly enhance the product offering for managers structuring alternative funds in Luxembourg.

Whilst a RAIF itself isn’t approved by the Luxembourg regulator, the CSSF, the service providers to the vehicle are regulated. The RAIF fits perfectly with the AIFMD regulatory environment as only authorized AIFMs will be permitted to manage RAIFs. “Time to market” for Specialized Investment Funds (“SIF”) has been one of the main challenges faced by the Luxembourg funds industry and the RAIF is designed to resolve this by eliminating the double layer of regulatory approval with regulation being focused on the AIFM. This allows mangers to focus on market opportunities and generate alpha.

As a leading European hosting platform provider for AIFM and UCITS managers, DMS has been leading discussions with managers and investors considering the RAIF as a suitable vehicle for fund launches and replacing existing fund vehicles such as the SIF. DMS is already seeing strong interest from its global client base in the RAIF and in response, DMS are delighted to announce that we have now established a fully serviced RAIF platform in Luxembourg.

Benefits of a RAIF structure

  • All of the advantages of an AIF
  • Favorable tax treatment
  • Speed to market
  • Access to European marketing passport
  • Supervision through its AIFM
  • May take various legal forms e.g. SICAV, SCSP.

In summary it offers significant structuring flexibility and replicates many of the structural features of existing regimes.

Key Features 
RAIF  SIF  SICAR 
Investment Allocation
No restriction on asset class
No restriction on asset class
No restriction once in PE & VC
Risk Spreading 
Risk diversification required
Risk diversification required
No risk diversification required
Investors Restriction Well informed investors Well informed investors Well informed investors

EU Marketing Passport Available

Yes Yes Yes

Management Company Required

Yes Yes Yes
Supervision No CSSF supervision
AIFM supervision
Depository Supervision
Auditor Supervision
CSSF supervision
AIFM supervision
Depository Supervision
Auditor Supervision
CSSF supervision
AIFM supervision
Depository Supervision
Auditor Supervision
Other Service Providers Required

A Luxembourg approved Auditor, Depository & Administrator

A Luxembourg approved Auditor, Depository & Administrator

A Luxembourg approved Auditor, Depository & Administrator

Regulatory Reporting None Monthly Monthly

 

 

 

 

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