Specialized Investment Fund (SIF)

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1 CHEVALIER & SCIALES law firm Specialized Investment Fund (SIF) Member of the international legal network Worldlink for Law

2 This publication has been prepared by the law fi rm Chevalier & Sciales and is for general guidance only. Neither the authors nor the publishers can accept any responsibility for any loss whatsoever occasioned to any person acting or refraining from acting as a result of any material in this publication Chevalier & Sciales

3 I. Context II. Why the SIF? (a) Eligible investors - broad On 13th February 2007, the Luxembourg parliament passed a law that introduced the specialized investment fund (SIF) regime. The new law provides a more fl exible framework for specialized investment funds. The SIF is a lightly regulated and tax effi cient fund. The SIF gives fund promoters an on shore alternative to consider (as compared to traditional offshore jurisdictions such as Cayman and BVI) when deciding on the jurisdiction for setting up a fund and the type of fund vehicle to use. application The SIF law offers a broader field of application compared to the law of Even though it is also reserved to certain investors only (the law of 1991 only concerned institutional investors), there is a wider range of eligible investors, which are included in the notion of well-informed investor: institutional investors; professional investors; and and any private individual who (a) confirms formally that he adheres to the status of wellinformed investor AND (b) invests a minimum of EUR or has obtained a certificate of (i) a credit institution or (ii) of another professional of the financial sector certifying his experience and his knowledge in appraising the contemplated investments. (b) Investment fl exibility Large scope of eligible assets and investments as any type of asset can be integrated to the SIF and any type of investment strategies can be pursued. It includes but is not limited to equities, bonds, derivatives, structured products, real estate, hedge fund and private equity investments; Assets of a SIF should be valued at a fair value but

4 it can be determined in its management regulations (if it takes the form of a fonds commun de placement ) or its by-laws (if it takes the form of a SICAV or another statutory form); Although no detailed investment restrictions are imposed on them, SIFs are subject to the principle of risk-spreading. The Luxembourg regulator issued a circular letter 07/30 on 3 August 2007 containing guidelines on the principle of risk-spreading for SIFs. (c) Light supervision The SIF must be approved by the Luxembourg regulator (the CSSF ); Directors must be approved by the CSSF, however an SIF does not need to be set up by an institutional promoter; The SIF can start its activity before the CSSF has granted approval, provided the request for authorization is filed with the CSSF within one month after the SIFs creation; A depositary bank and administrative agent must be appointed. However the role of the depositary bank has been reduced. It does only need to have knowledge at any time of how the assets of the SIF are invested and where and how these assets are available. The depositary bank does not need to perform any monitoring duties as is the case with other Luxembourg mutual funds (for instance ensuring that the sale, issue, redemption and cancellation of units effected are carried out in accordance with the law and the articles of incorporation; ensuring that the income of the fund is applied in accordance with the management regulations or the articles of association; etc.). (d) Flexible organizational structure A SIF can be created under different forms: an FCP (fonds commun de placement (contractual type of fund), a SICAV (corporate type of fund) or any other legal form available under Luxembourg law; Another originality of the SIF law concerns the capital requirement: the amount of Euro must be reached within the 12 months following the authorisation by the CSSF, compared to 6 months as for other UCIs, governed by the law of In a SIF constituted under a statutory form (SICAV or other), 5% of each share issued must be liberated; No debt-equity ratio must be respected; No issue, redemption or distribution restrictions (but the net assets or the capital may not fall below Euro); Valuation of the assets based on fair value; No semi-annual report required (only annual report); No obligation to publish the net asset value. C&S

5 (e) Effi cient tax regime An annual subscription tax of 0, 01% on the net asset value (calculated at the end of each trimester) (which is lower than the subscription tax applied to most of other undertakings of collective investments (0, 05% according to the law of 2002); Fixed flat capital duty of Euro (due at incorporation); No corporate income tax; No wealth tax; No capital gains tax for non-resident investors; VAT exemption on management fees; Choice between tax transparent SIF (in the form of an FCP) or non tax transparent SIF (in the form of a company). (f) Disclosure of required documents An annual audited report and an annual offering document must be issued by the SIF. The offering document must include the information necessary for investors to be able to make an informed judgment of the investment proposed to them and, in particular, of the risks attached thereto; the offering document meets all legal requirements imposed on prospectuses; SIFs are exempt from the obligation to consolidate their accounting. III. Recently handled matters We have been involved in the creation and negotiation of various SIFs. For example, we have recently been involved in the creation of a SIF-SICAV in the form of a SCA (corporate partnership limited by shares société en commandite par actions) with an estimated value of 30 million Euro. We have provided a centralized service (legal advice, contact with the CSSF, banks, auditors, expert accountant and notary). We have drafted and reviewed all documents in relation to the incorporation of the SIF (the prospectus (issue document), articles of association of the SIF, articles of association of the general partner of the SIF, depositary agreement, central administrative agent agreement, etc.). We have been in contact with the Luxembourg regulator (CSSF) for the approval of the SIF and with the different intermediaries (various banks, auditors and expert accountants) in order to obtain the most competitive and suitable offers based on our contacts. No prospectus shall thus be issued by SIFs, which is a great difference compared to other UCIs and to SICARs. Nonetheless, it is recommended that

6 IV. Conclusion and summary of key advantages On shore profile; No prior approval required; No promoter required; No publication of NAV required; Large eligible investor base - no minimum capital requirement (if conditions of well informed investor are met); Time to market, in principle (can be fully operational and approved by the Luxembourg regulator within 2 to 3 weeks); No local directors required; Units / shares of a SIF can be listed on a stock exchange.

7 CHEVALIER & SCIALES law firm 33, boulevard Grande Duchesse Charlotte BP 588 L-2015 Luxembourg Tel : (+352) Fax : (+352) For further information, please contact : Rémi Chevalier, founding partner remichevalier@cs-avocats.lu Mobile : (+352) Olivier Sciales, founding partner oliviersciales@cs-avocats.lu Mobile : (+352) Chevalier & Sciales Member of the international legal network Worldlink for Law