Summary. 1. General overview. 2. Investment funds in Luxembourg

Transcription

1 Summary 1. General overview 1.1 Luxembourg: a major financial place 1.2 Principal laws and regulations 1.3 Investment fund features in Luxembourg 1.4 Legal forms available for investment funds 1.5 Focus on AIFM Directive 2. Investment funds in Luxembourg 2.1 Cycle of life for investment funds 2.2 Service providers 2.3 Regulated investment funds 2.4 Classic form of non regulated investment fund 1 / L_LIVE_EMEA2: v1

2 1. General overview 1.1 Luxembourg: a major financial place First investment fund center in Europe and second largest investment fund center in the world after the United States Worldwide recognition of Luxembourg specialised investment funds ( SIF ) and Undertakings for Collective Investments in Transferable Securities ( UCITS ) Consistently rated AAA by all three major credit-rating agencies Key advantages: leading investment fund center very stable EU Member State innovative and international orientation modern legal and regulatory framework that is continuously updated and which offers an attractive range of investment funds the Luxembourg supervisory authority of the financial sector, the Commission de Surveillance du Secteur Financier ( CSSF ) is a proactive, pragmatic, multilingual and business oriented regulator 2 / L_LIVE_EMEA2: v1

3 competitive tax regime efficient and reliable investment fund operational infrastructures with qualified, high experienced and multi-lingual service providers The association luxembourgeoise des fonds d investissement (ALFI), since 1988, successfully represents and promotes the Luxembourg fund industry three billion seven hundred forty-one million three hundred thirty thousand euros (EUR 3,741,330,000.-) of assets under management as at 31 October 2016 (annual growth of six point seven percent (6.7%))* three thousand eight hundred ninety-one (3,891.-) investment funds (i.e. undertakings for collective investment UCIs and SIFs) in 2016** fourteen thousand three hundred and seven (14,307.-) sub-funds in 2016** access to double tax treaties with more than sixty (60) countries Luxembourg is the largest fund domicile in Europe * Source: ALFI press realised 17 February 2017 ** Source: CSSF newsletter January / L_LIVE_EMEA2: v1

4 These figures illustrate that Luxembourg remains the leading fund domicile in Europe 4 / L_LIVE_EMEA2: v1

5 1.2 Principal laws and regulations European legal framework: Directive 2011/61/EU of the European parliament and of the council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 ( AIFM Directive ) Directive 2009/65/EC of the European parliament and of the council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities ( UCITS Directive ) 5 / L_LIVE_EMEA2: v1

6 Luxembourg legal framework: Law of 10 August 1915 on commercial companies (loi du 10 août 1915 sur les sociétés commerciales), as amended from time to time Law of 14 June 2004 relating to the investment company in risk capital (loi du 14 juin 2004 relative à la société d investissement en capital à risque - SICAR Law ), as amended from time to time Law of 13 February 2007 on specialised investment funds (loi du 13 février 2007 sur les fonds d investissement spécialisés - SIF Law ) Law of 17 December 2010 relating to undertakings for collective investment (loi du 17 décembre 2010 concernant les ogranismes de placement collectif - UCI Law ), as amended from time to time Law of 12 July 2013 on alternative investment funds managers (loi du 12 juillet 2013 sur les gestionnaires de fonds d investissement alternatifs) - AIFM Law ), as amended from time to time Law of 23 July 2016 relating to reserved alternative investment funds (loi concernant les fonds d investissement alternatifs réservés - RAIF Law ), as amended from time to time 6 / L_LIVE_EMEA2: v1

7 1.3 Investment fund features in Luxembourg Open-ended / closed-ended structure: open-ended structure: shares or units of open-ended UCIs are, at the request of the holders, easily redeemable, directly out of the UCI s assets closed-ended: closed-ended structure does usually not allow the redemption of the shares or units at the request of their holders Stand-alone and umbrella structure: stand-alone structure: the fund is established as a single pool of assets and has a unique investment policy for the structure umbrella structure: the fund is established with two (2) or more sub-funds, each with different features each sub-fund of a UCITS is to be considered as segregated provided that the principle of segregation of the obligations of the various sub-funds vis-à-vis third parties is ensured each sub-fund of other investment funds is to be considered as segregated, unless a clause included in the constitutive documents provides otherwise 7 / L_LIVE_EMEA2: v1

8 Share or unit classes: share or unit classes may be created within a UCI or within a sub-fund of a UCI share or unit classes may have the following features: different distribution policy (accumulation or distribution shares/units), currency (USD, EUR, JPY, etc.), investors targeted (either professional or institutional investors, retail or investors of a different nationality), structure of fees, currency hedging, minimum subscription and holding requirements, etc. FCP or SICAV or SICAF: contractual vehicle: certain investment fund may be structured as a common fund (Fonds Commun de Placement - FCP ) which does not have legal personality and must be managed by a management company and/or alternative investment fund manager ( AIFM ) corporate vehicle: an investment fund may be structured as an investment company with variable capital (société d investissement à capital variable - SICAV ). A SICAV is a company whose share capital is always equivalent to its net asset value ( NAV ) and no formalities are required for increases or decreases in capital an investment fund may be structured as an investment company with fixed capital (société d investissement à capital fixe - SICAF ): the share capital of the company is fixed and may generally only be increased or decreased by decision of the general meeting of shareholders to be held before a notary 8 / L_LIVE_EMEA2: v1

9 Master-feeder structure: feeder fund invests most of its assets in a master fund (at least eighty five percent (85%) of its assets) the management of a significant portion of the assets of the feeder fund is therefore effectively performed by the manager of the master fund master-feeder structure may be used by asset managers as a distribution mechanism to facilitate access to certain markets as the master fund and the feeder fund may be located in different countries Funds of funds structure: invests in several other investment funds may offer investors double layer diversification Regulated investment funds: subject to the approval and ongoing supervision by the CSSF are regulated by specific Luxembourg and European rules which are layered to common rules (e.g. company law) requirement for investment by certain type of investors (e.g. institutional investor) 9 / L_LIVE_EMEA2: v1

10 Non-regulated investment funds: not subject to the approval and ongoing supervision by the CSSF are only governed by common rules and therefore does not benefit from the specific features of regulated investment funds 10 / L_LIVE_EMEA2: v1

11 1.4 Legal forms available for investment funds Public limited liability company (société anonyme S.A. ) may be used for UCITS, SIF, RAIF, SICAR and Part II fund minimum capital of thirty thousand euros (EUR 30,000.-) shareholders are liable to the extent of their respective contributions legal personality notarial deed required for the incorporation contributions may be made in cash or in kind (which are subject to a valuation report from an independent auditor) articles of incorporation are published in full no disclosure of shareholders identity and commitments other than the shareholder(s) at the incorporation 11 / L_LIVE_EMEA2: v1

12 Private limited liability company (société à responsabilité limité S.à r.l ) may be used for SIF, RAIF, SICAR and Part II fund (but not market practice) minimum capital of twelve thousand euros (EUR 12,000.-) shareholders are liable to the extent of their respective contributions legal personality notarial deed required for the incorporation contributions may be made in cash or in kind articles of incorporation are published in full disclosure of shareholders identity and commitments other than the shareholder(s) at the incorporation 12 / L_LIVE_EMEA2: v1

13 Partnership limited by shares (société en commandite par actions S.C.A ) may be used for SIF, RAIF, SICAR and Part II fund minimum capital of thirty thousand euros (EUR 30,000.-) company established by contract between one or more general partners (associé(s) commandité(s)) with unlimited, joint and several liability for the obligations of the company and one or more limited partners (associé(s) commanditaire(s)) who only contribute a certain amount legal personality notarial deed required for the incorporation contributions may be made in cash or in kind (which are subject to a valuation report from an independent auditor) articles of incorporation are published in full no disclosure of shareholders identity and commitments other than the shareholder(s) at the incorporation 13 / L_LIVE_EMEA2: v1

14 Special limited partnership (société en commandite spéciale S.C.Sp ) may be used for SIF, RAIF, SICAR and Part II fund no minimum capital requirement partnership established by contract between one or more general partners (associé(s) commandité(s)) with unlimited, joint and several liability for the obligations of the company and one or more limited partners (associé(s) commanditaire(s)) who only contribute a certain amount no legal personality limited partnership agreement will lay down the rules applicable to the S.C.Sp contributions may be made in cash, in kind or in industry limited partnership agreement is published by excerpts only confidentiality of limited partners identity and commitments, except for founding general partners and limited partners 14 / L_LIVE_EMEA2: v1

15 Limited partnership (société en commandite simple S.C.S ) may be used for SIF, RAIF, SICAR and Part II fund no minimum capital requirement partnership established by contract between one or more general partners (associé(s) commandité(s)) with unlimited and joint and several liability for the obligations of the company and one or more limited partners (associé(s) commanditaire(s)) who only contribute a certain amount legal personality limited partnership agreement will lay down the rules applicable to the S.C.S contributions may be made in cash, in kind or in industry limited partnership agreement is published by excerpts only confidentiality of limited partners identity and commitments, except for founding general partners and limited partners 15 / L_LIVE_EMEA2: v1

16 Summary of main corporate structures of investment funds Key features Public limited liability company Private limited liability company Partnership limited by shares Special limited partnership Limited partnership S.A. S.à r.l S.C.A S.C.Sp S.C.S Possible use for investment funds UCITS Part II fund SIF RAIF SICAR Part II fund SIF RAIF SICAR Part II fund SIF RAIF SICAR Part II fund SIF RAIF SICAR Part II fund SIF RAIF SICAR Legal personality Yes Yes Yes No Yes Minimum capital Thirty thousand euros (EUR 30,000.- ) Twelve thousand euros (EUR 12,000.- ) Thirty thousand euros (EUR 30,000.- ) No minimum No minimum Constitutive documents/formation Articles of incorporation ( AoI ) By notarial deed AoI By notarial deed AoI By notarial deed Limited partnership agreement (LPA) Under private seal or by notarial deed LPA Under private seal or by notarial deed Publicity AoI are published in full No disclosure of shareholders identity and commitment other than at the incorporation AoI are published in full Disclosure of shareholders identity AoI are published in full No disclosure of limited partners identity and commitment other than at the incorporation LPA is published by excerpts only Confidentiality of limited partners identity and commitment, except for founding general partners and limited partners LPA is published by excerpts only Confidentiality of limited partners identity and commitment, except for founding general partners and limited partners Minimum number of shareholders, partners or members One (1) One (1) Two (2) (one (1) general partner and one (1) limited partner) Two (2) (one (1) general partner and one (1) limited partner) Two (2) (one (1) general partner and one (1) limited partner) 16 / L_LIVE_EMEA2: v1

17 Key features Public limited company Private limited liability company Partnership limited by shares Special limited partnership Limited partnership S.A. S.à r.l S.C.A S.C.Sp S.C.S Maximum number of shareholders, partners or members Unlimited One hundred (100) Unlimited Unlimited Unlimited Minimum number of directors or managers Three (3) directors One (1) manager One (1) manager or a general partner One (1) manager or a general partner One (1) manager or a general partner Management Board of directors Sole manager or board of managers Sole manager or board of managers / general partner Sole manager or board of managers / general partner Sole manager or board of managers / general partner The managers/general partner are vested with the broadest powers to accomplish the partnership s purpose The managers/general partner are vested with the broadest powers to accomplish the partnership s purpose The managers/general partner are vested with the broadest powers to accomplish the partnership s purpose Flexibility Limited flexibility Limited flexibility Limited flexibility High flexibility High flexibility Tax Tax opaque Tax opaque Tax opaque Tax transparent Tax transparent 17 / L_LIVE_EMEA2: v1

18 1.5 Focus on AIFM Directive The AIFM Directive essentially lays down the rules for the authorisation, ongoing operation and transparency of fund managers that manage and/or market alternative investment funds (the AIF ) in the European Union The following are the main functions of the AIFM: portfolio management risk management Other functions: administration marketing activities related to the assets of AIFs, namely services necessary to meet the fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF 18 / L_LIVE_EMEA2: v1

19 AIFM Directive passport In Europe: The passport is currently only available to EU AIFMs: either to manage EU AIFs; or to market EU AIFs Nonetheless, harmonisation in Europe is not entirely completed. In this respect, the European Securities and Markets Authority ( ESMA ) notes two issues namely that: divergent approaches exist among Member States in respect of marketing rules, including heterogeneity of fees charged by the relevant authorities where the AIFs are marketed and the definition of what constitutes a professional investor ; and Member States also vary in their interpretation as to what constitutes marketing and material changes under the passport regime 19 / L_LIVE_EMEA2: v1

20 In Luxembourg: The following possibilities may apply in relation to the use of a passport in Luxembourg (mainly related to exchange of information / files between relevant authorities): Marketing ü ü ü AIFMs established in Luxembourg marketing in Luxembourg units or shares of EU AIFs they manage (Article 29 of the AIFM Law) AIFMs established in Luxembourg marketing in another Member State units or shares of EU AIFs they manage (Article 30 of the AIFM Law) AIFMs established in another Member State marketing in Luxembourg units or shares of EU AIFs they manage (Article 31 of the AIFM Law) Management ü ü AIFMs established in Luxembourg managing EU AIFs established in another Member State (Article 32 of the AIFM Law) AIFMs established in another Member State managing AIFs established in Luxembourg (Article 33 of the AIFM Law) 20 / L_LIVE_EMEA2: v1

21 Third countries situation/aifm Directive national private placement regimes ( NPPRs ) In Europe: ESMA's advice to the European Parliament, the Council and the Commission on the application of the AIFM Directive passport to non-eu AIFMs and AIFs dated 12 September 2016 mainly states the following: currently, non-eu AIFMs and AIFs must comply with each EU country s national regime when they market funds in that country ESMA s advice relates to the possible extension of the passport, which is presently only available to EU entities, to non-eu AIFMs and AIFs so that they could market and manage funds throughout the EU different degree of difficulties according to the country (e.g. Bermuda and Cayman Islands, high level of obstacles) 21 / L_LIVE_EMEA2: v1

22 In Luxembourg: Chapter 7 Specific rules in relation to third countries of the Luxembourg AIFM Law, and more specifically Articles 37 to 45 of such law In practice, two (2) main situations being seen in Luxembourg: marketing in Luxembourg without a passport of non EU-AIFs managed by an authorised AIFM established in Luxembourg or in another Member State (Article 37 of the Luxembourg AIFM Law): ü all of the requirements of the AIFM Directive, exception made for Article 21 (Depositary) requirements, but still need to comply with article 21(7) (cashmonitoring), (8) (safe keeping of AIF s assets) and (9) (oversight of certain operational functions) of the AIFM Directive 22 / L_LIVE_EMEA2: v1

23 Marketing in Luxembourg without a passport of non-eu AIFs managed by a non- EU AIFM (Article 45 of the Luxembourg AIFM Law): ü comply with Articles 22 (annual report), 23 (disclosure to investors) and 24 (Annex IV reporting) of AIFM Directive ü ü if applicable, comply with 26 to 30 (major holdings and control of non-listed companies and issuers acquired) of the AIFM Directive section XIII (Guidelines on disclosure) of the ESMA Guidelines on remuneration policies On top of the conditions referred above those 2 (two) situations, (i) cooperation arrangement between the third country s authority and the CSSF and (ii) the third country where the non-eu AIFM or the non-eu AIF is established is not listed as a non-cooperative country and territory by the Financial Action Task Force ( FATF ) Notification forms available on the CSSF s website 23 / L_LIVE_EMEA2: v1

24 2. Investment funds in Luxembourg 2.1 Cycle of life for investment funds Structuring of the features of the investment fund Liquidation of the investment fund Proceed with investment/ disinvestment processes Approval by the CSSF of the investment fund* Incorporation of the investment fund Appointment of service providers*: - management company/aifm - depositary - administration agent - investment manager(s) - investment advisor(s) - registrar and transfer agent - domiciliation agent - distributor/placement agent(s) - prime broker(s) Distribution of shares/units of the investment fund/or investment fund directly * To the extent necessary Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 24 // L_LIVE_EMEA2: v1

25 Incorporation process for regulated investment fund Drafting of the legal documentation in relation to the investment fund and submission to the CSSF Approval by the CSSF of the investment fund Incorporation of the investment fund after the CSSF approval Timeline for the incorporation of regulated/indirectly regulated investment funds Timeline in months UCITS PART II FUND 1 4 months months SIF SICAR 1 4 months months RAIF weeks Note: this estimate assumes plain vanilla or non-complex investment funds and that all information regarding the investment fund has been provided to Simmons & Simmons to proceed with the drafting of all legal documents. Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 25 // L_LIVE_EMEA2: v1

26 2. Investment funds in Luxembourg 2.2 Service Providers Management company or AIFM entity which has the responsibility for the management and administration of the UCITS or AIF and their investments ultimately liable for all the delegated activities mandatory for RAIF AIFs regime: external AIFM: separate legal entities that can manage one or more AIFs internally managed AIF AIFM full authorisation is required when the assets it manages are above the de minimis thresholds provided by the AIFM Law: assets under management < one hundred million euros (EUR 100,000,000.-) assets under management < five hundred million euros (EUR 500,000,000.-), when AIFs are not leveraged and have no redemption rights exercisable during a period of five (5) years following the date of initial investment in each AIF fully authorised AIFM are required to fully comply with the AIFM Law 26 / L_LIVE_EMEA2: v1

27 UCITS regime: self-managed (only for SICAV and SICAF) management company (Chapter 15 of the UCI Law), mandatory for FCP SuperManco: management company which is authorised in accordance with both Chapter 15 of the UCI Law and the AIFM Law can manage both UCITS and AIFs Depositary depositary bank or professional of financial services sector providing depositary services appointed for UCITS and AIFs UCITS depositary regime aligned with corresponding provisions in AIFM Directive safekeeping of the assets of the fund day-to-day administration of the assets based on instructions received from the investment manager or management company/aifm cash monitoring oversight duties 27 / L_LIVE_EMEA2: v1

28 Administration agent: keeping the accounting records of the funds customer inquiries valuation of the portfolio and calculating of the NAV regulatory compliance monitoring assisting in preparing the financial statements client due diligence acting with the service providers Investment manager manages the assets of the fund or certain of its sub-funds with respect to the investment, disinvestment and reinvestment delegate of the fund or its management company/aifm Investment advisor advises the investment manager, the management company/aifm or the fund itself with respect to the investment, divestment and reinvestment of the assets of the fund does not make decisions of investment 28 / L_LIVE_EMEA2: v1

29 Registrar and transfer agent responsible for keeping the principal register of shareholders or unitholders of the fund arranging the issue, transfer, allotment, conversion, subscription, redemption and/or purchase and sale of shares or units of the fund Domiciliation agent provides the registered office of the fund responsible for providing office accommodation and other facilities to the fund responsible for keeping all correspondences of the fund responsible for arranging payment of bills on behalf of the fund Distributor/placement agent actively markets the share or units of the fund or the fund itself to the extent applicable/necessary receive subscription and redemption orders as appointed agent of the fund Prime broker offers one or more services to investment funds primarily to finance or execute transactions in financial instruments as counterparty provides other services (clearing and settlement of trades, custodial services, securities lending ) subject to prudential regulation and ongoing supervision 29 / L_LIVE_EMEA2: v1

30 2.3 Regulated investment funds SIF Regulation must be authorised by the CSSF prior to set-up supervision of the CSSF subject to the SIF Law Structure legal form: FCP, SICAV or SICAF subscribed capital (increased by any issue premium) shall reach one million two hundred fifty thousand euros (EUR 1,250,000.-) within twelve (12) months following authorisation by the CSSF shareholders/unitholders: - no minimum/maximum limits - shares must be paid up to a minimum of five percent (5%) per share/unit on issue sub-funds: - possibility to use sub-funds - cross-investment* between sub-funds is allowed - possibility to use share or unit classes Transferability of shares or units constitutive documents provide for (i) specific provisions relating to eligible investors within a SIF, and (ii) specific rules to ensure commitment and follow-up obligations in this respect Redemption of shares or units in accordance with the conditions laid down in the constitutional documents mandatory redemption usually inserted in case of defaulting investors redemption provisions drafted in light of targeted investments/portfolios Investors eligible investors: well-informed investors only (professional investors, institutional investors and other investors under conditions*) distribution in economic European area ( EEA ): - professional investors: AIFM Directive passport, if EU AIF managed by an authorised AIFM in the European Union - NPPRs * within umbrella structure, a sub-fund may invest in other sub-funds of the same umbrella structure as long as certain conditions are fulfilled ** other investors are those who confirm in writing that they adhere to the status of well-informed investors and who either invest a minimum of EUR 125,000 (one hundred twenty-five thousand euros) or (ii) have been assessed by a credit institution, an investment firm or a management company/aifm which certifies the investors ability to understand the risks associated with investing in the SIF 30 / L_LIVE_EMEA2: v1

31 SIF Information for investors E l i g i b l e investments offering document financial statements periodic disclosures, if subject to AIFM Directive in all types of assets Diversification subject to the principle of risk-spreading: may not invest more than thirty percent (30%) of its assets or subscription commitments in securities of the same type issued by the same issuer ramp-up period may apply Risk management if SIF only: implement and maintain an appropriate and documented risk management policy that allows an adequate detection, measurement, management and monitoring of exposure to market, liquidity and counterparty risks, as well as exposure to all other risks, including operational risk, which may be significant in the context of the activities of the SIF ensure compliance with the risk limitation system of the SIF SIF shall consider the nature, scale and complexity of the activities, as well as the structure of the SIF if SIF subject to AIFMD Directive: implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the SIF, according to the investment strategy, the objectives and risk profile of the SIF ensure that the risks associated with each investment position of the SIF and their overall effect on the SIF s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedure ensure that the risk profile of the SIF shall correspond to the size, portfolio structure and investment strategies and objectives of the SIF as laid down in the SIF rules or instruments of incorporation, prospectus and offering documents T a x considerations exempt from corporate income tax and net wealth tax subject only to a annual subscription tax (taxe d abonnement) of 0,01% of the net asset value at the level of the SIF access to certain double tax treaties no withholding tax on distributions from the SIF to investors capital gains should be exempt 31 / L_LIVE_EMEA2: v1

32 SICAR Regulation must be authorised by the CSSF prior to set-up supervision of the CSSF subject to the SICAR Law Structure legal form: SICAV or SICAF subscribed capital (increased by any issue premium) shall reach one million euros (EUR 1,000,000.-) within twelve (12) months following authorisation by the CSSF shareholders/unitholders: - no minimum/maximum limits - shares must be paid up to a minimum of five percent (5%) per share/unit on issue sub-funds: - possibility to use sub-funds - cross-investment* between sub-funds is allowed - possibility to use share or unit classes Transferability of shares or units Redemption of shares or units constitutive documents provide for (i) specific provisions relating to eligible investors within a SICAR, and (ii) specific rules to ensure commitment and follow-up obligations in this respect in accordance with the conditions laid down in the constitutional documents mandatory redemption usually inserted in case of defaulting investors redemption provisions drafted in light of targeted investments/portfolios Investors eligible investors: well-informed investors only (professional investors, institutional investors and other investors under conditions*) distribution in EEA: - professional investors: AIFM Directive passport, if EU AIF managed by an authorised AIFM in the European Union - NPPRs * within umbrella structure, a sub-fund may invest in other sub-funds of the same umbrella structure as long as certain conditions are fulfilled 32 / L_LIVE_EMEA2: v1

33 SICAR Information for investors offering document financial statements periodic disclosures, if subject to AIFM Directive Eligible investments securities that represent risk capital. Risk capital consists mainly of high risk investments made in view of their launch, development or listing on a stock exchange may also marginally hold financial derivative instruments on an exceptional basis temporary investment in other assets is allowed pending they qualify as investment in risk capital Diversification there are no investment diversification rules Risk management If SICAR subject to AIFMD Directive: implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the SICAR, according to the investment strategy, the objectives and risk profile of the SICAR ensure that the risks associated with each investment position of the SICAR and their overall effect on the SICAR s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedure ensure that the risk profile of the SICAR shall correspond to the size, portfolio structure and investment strategies and objectives of the SICAR as laid down in the SICAR rules or instruments of incorporation, prospectus and offering documents T a x considerations SICARs in a corporate form are subject to corporate income tax (at an aggregate rate of 27,08% in Luxembourg City for 2017). Notwithstanding, income related with risk capital is exempt subject to minimum net wealth tax of EUR (to be determined based on the type of assets) access to certain double tax treaties (to be checked on a case by case basis) no withholding tax upon dividend distributions capital gains should be exempt (if related to risk capital) 33 / L_LIVE_EMEA2: v1

34 RAIF Regulation RAIF must be managed by an authorised EU AIFM which will be supervised by the competent authority of its country of domicile RAIF will not be directly supervised by the CSSF no authorisation from the CSSF subject to the RAIF Law Structure legal forms: FCP, SICAV or SICAF subscribed capital (increased by any issue premium) shall reach one million two hundred fifty thousand euros (EUR 1,250,000.-) within twelve (12) months following authorisation by the CSSF shareholders/unitholders: - no minimum/maximum limits - only five percent (5 %) of the capital needs to be paid up on subscription sub-funds: - possibility to use sub-funds - cross-investment* between sub-funds is allowed - possibility to use share or unit classes Transferability of shares or units constitutive documents provide for (i) specific provisions relating to eligible investors within a RAIF, and (ii) specific rules to ensure commitment and follow-up obligations in this respect Redemption of shares or units in accordance with the conditions laid down in the constitutional documents mandatory redemption usually inserted in case of defaulting investors redemption provisions drafted in light of targeted investments/portfolios Investors eligible investors: well-informed investors only (professional investors, institutional investors and other investors under conditions*) distribution in economic European area ( EEA ): - professional investors: AIFM Directive passport, if EU AIF managed by an authorised AIFM in the European Union - NPPRs * within umbrella structure, a sub-fund may invest in other sub-funds of the same umbrella structure as long as certain conditions are fulfilled 34 / L_LIVE_EMEA2: v1

35 RAIF Information for investors Eligible investments offering document financial statements periodic disclosures in all types of assets if investments in capital risk, same regime as for SICAR Diversification if investment policy similar to SIF: subject to the principle of risk-spreading, may not invest more than 30% (thirty percent) of its assets or subscription commitments in securities of the same type issued by the same issuer ramp-up periods may apply if investment policy similar to SICAR: there are no investment diversification rules Risk management AIFMD Directive requirements apply: implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the RAIF, according to the investment strategy, the objectives and risk profile of the RAIF ensure that the risks associated with each investment position of the RAIF and their overall effect on the RAIF s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedure ensure that the risk profile of the RAIF shall correspond to the size, portfolio structure and investment strategies and objectives of the RAIF as laid down in the RAIF rules or instruments of incorporation, prospectus and offering documents 35 / L_LIVE_EMEA2: v1

36 RAIF Tax considerations tax treatment similar to the SIF if no investments in risk capital tax treatment similar to the SICAR if investments in risk capital access to double tax treaties should be monitored Focus of RAIF Pros: full flexibility quick set-up and improve time to market, especially in case of launching of new sub-funds no approval requested / no on-going supervision from the CSSF main features already well-known in the market due to SIF parallelism same tax treatment as for regulated vehicles benefit from the AIFM Directive marketing passport through its EU AIFM Cons: no visa stamped document from the CSSF indirectly supervised through AIFM and then AIFM Law requirements applying costly for small structures 36 / L_LIVE_EMEA2: v1

37 Part II funds Regulation supervision of the CSSF must be authorised by the CSSF prior to set-up subject to Part II of UCI Law Structure legal forms: FCP, SICAV or SICAF subscribed capital (increased by any issue premium) shall reach one million two hundred fifty thousand euros (EUR 1,250,000.-) within six (6) months following authorisation by the CSSF shareholders/unitholders: - no minimum/maximum limits sub-funds: - possibility to use sub-funds - cross-investment* between sub-funds is allowed - possibility to use multiple share or unit classes Transferability of shares or units Redemption of shares or units generally freely transferable redemption price: NAV per share price Investors eligible investors: professional and retail investors distribution in EEA: - retail investors: national retail distribution requirements - professional investors: AIFM Directive passport, if managed by an authorised AIFM - NPPRs Information for investors prospectus financial statements periodic disclosures * within umbrella structure, a sub-fund may invest in other sub-funds of the same umbrella structure as long as certain conditions are fulfilled 37 / L_LIVE_EMEA2: v1

38 Part II funds Eligible investments no restriction in terms of eligible assets of a Part II fund Diversification risk diversification requirements are defined by IML Circular n 91/75 and are less stringent than the ones in application for UCITS. Specific restrictions concerning funds adopting an alternative investment strategy are contained in CSSF Circular n 02/80. Risk management if Part II fund subject to AIFMD Directive: implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the Part II fund, according to the investment strategy, the objectives and risk profile of the Part II fund ensure that the risks associated with each investment position of the SIF and their overall effect on the Part II fund s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedure ensure that the risk profile of the Part II fund shall correspond to the size, portfolio structure and investment strategies and objectives of the Part II fund as laid down in the Part II fund rules or instruments of incorporation, prospectus and offering documents Tax consideration exempt from corporate income tax and net wealth tax subject only to a annual subscription tax (taxe d abonnement) of 0,05% of the net asset value at the level of the Part II fund (0,01 % rate should apply in certain cases, e.g. money market funds) access to certain double tax treaties (to be checked on a case by case basis) no withholding tax on distributions from the Part II fund to investors capital gains should be exempt 38 / L_LIVE_EMEA2: v1

39 UCITS Regulation supervision of the CSSF must be authorised by the CSSF prior to set-up subject to Part I of UCI Law Structure legal forms: FCP, SICAV or SICAF subscribed capital (increased by any issue premium) shall reach one million two hundred fifty thousand euros (EUR 1,250,000.-) within six (6) months following authorisation by the CSSF. For self-managed UCITS (SICAV/SICAF), the minimum capital at the date of authorisation is three hundred thousand euros (EUR 300,000.-) shareholders/unitholders: - no minimum/maximum limits sub-funds: - possibility to use sub-funds - cross-investment* between sub-funds is allowed - possibility to use share or unit classes Transferability of shares or units Redemption of shares or units generally freely transferable redemption price: NAV price per share Investors eligible investors: professional and retail investors distribution in EEA: - retail investors: UCITS passport - professional investors: UCITS passport Information for investors prospectus key investor information documents (KIIDs) financial statements periodic disclosures * within umbrella structure, a sub-fund may invest in other sub-funds of the same umbrella structure as long as certain conditions are fulfilled 39 / L_LIVE_EMEA2: v1

40 UCITS Eligible investments possibility to invest in derivatives for: - efficient portfolio management - hedging and investment purposes the eligible assets in which a UCITS can invest include: - transferable securities: effectively, publicly traded equities or bonds, listed on mainstream stock exchanges. An eligibility test has to be run for each security the fund wants to invest in - deposits and Money Market Instruments ( MMIs ): cash deposits with «credit institutions» or cash funds can be held together with MMIs - other mutual funds: development of UCITS funds of funds - financial Derivative Instruments: use of derivatives for investment purposes, using exchange-traded or over-thecounter instruments with some limitations Diversification a UCITS must be properly diversified: 5/10/40 rule: - no more than ten percent (10%) of a UCITS net assets invested in transferable securities or money market instruments issued by the same body - with a further aggregate limitation of forty percent (40%) of net assets on exposures of greater than five percent (5%) to single issuers borrowing restrictions: limit at 10% (ten percent) (temporarily) and under conditions Risk management risk management process that enables it to monitor and measure at any time the risk of the positions and the contribution to the overall risk profile of the portfolio must assess, monitor and periodically review the adequacy and effectiveness of the risk management policy and any measures take to address any deficiencies in the risk management process Tax consideration exempt from corporate income tax and net wealth tax subject only to a annual subscription tax (taxe d abonnement) from 0.01 to 0.05 % on its net assets (certain types of UCITS, mainly financial institutions, are exempt from this tax) access to certain double tax treaties (to be checked on a case by case basis) no withholding tax on distributions from the UCITS to investors capital gains should be exempt 40 / L_LIVE_EMEA2: v1

41 Comparative Overview UCITS PART II FUND SIF RAIF SICAR Definition Regulated fund investing in transferable securities Regulated fund for traditional and a l t e r n a t i v e investments (residual s i n c e t h e implementation of the AIFM Directive) Regulated fund for a l t e r n a t i v e investments Indirectly regulated fund for alternative investments F u n d s p e c i a l l y r e g u l a t e d f o r investment in risk capital Investors All types of investors (well-informed and retail investors) All types of investors (well-informed and retail investors) Only well-informed investors Only well-informed investors Only well-informed investors Eligible assets Only financial liquid assets All types of assets All types of assets All types of assets Securities that represent risk capital Diversification High diversification level for type of assets and issuers <Twenty percent (20%) per issuer <Thirty percent (30%) per issuer Diversify if similar to SIF No diversification rules if similar to SICAR No restriction Supervision Strict supervision due to the protection of the investors Strict supervision due to the protection of the investors Strict supervision due to the protection of the investors Only at the level of the AIFM Strict supervision due to the protection of the investors 41 / L_LIVE_EMEA2: v1

42 2.4 Classic form of non regulated investment fund Special limited partnership (S.C.Sp) usually set up as S.C.Sp or S.C.S it is governed principally by the provision of the law of 10 August 1915 on commercial companies, as amended may be used for structuring both real estate investment funds and dedicated vehicles to the real estate industry an unregulated S.C.Sp/S.C.S is not subject to the prior authorisation and ongoing supervision of the CSSF an unregulated S.C.Sp/S.C.S may not be set up as an umbrella structure, but may benefit from share classes tax treatment: tax transparent, may be subject to municipal business tax (to be checked on a case by case basis), no access to double tax treaties 42 / L_LIVE_EMEA2: v1

43 SIF Structure 43 / L_LIVE_EMEA2: v1

44 RAIF Structure 44 / L_LIVE_EMEA2: v1

45 45 / L_LIVE_EMEA2: v1

46 José Ignacio Pascual Gutiérrez Partner Investment Funds Practice simmons-simmons.com elexica.com 46 / L_LIVE_EMEA2: v1