Luxembourg Reserved Alternative Investment Fund (RAIF) - The best of two worlds?

Luxembourg Reserved Alternative Investment Fund (RAIF) - The best of two worlds?

What is a RAIF? a Luxembourg alternative investment fund ( AIF ) managed and supervised by an external authorised Alternative Investment Fund Manager ( AIFM ) subject to AIFMD requirements but not subject to CSSF (product) supervision Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 1

Why should I use a RAIF? A SIF without CSSF supervision Quick time to market An additional vehicle for Luxembourg investment platforms High flexibility Benefit from investment funds features other unregulated don t have Beneficial tax regime and tax features Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 2

How does the RAIF fit into the Luxembourg toolbox? CSSF product supervision UCITS III eligible assets traditional assets + certain alternative asset classes venture capital/ private equity UCITS Part I * securitisation vehicle UCI Part II SIF all asset classes SICAR sec* sec* most asset classes (with restrictions) LP RAIF all asset classes Structuring Flexibility Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 3

Is it the right fit for my product? Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 4

Key advantages of RAIFs. Time to market Risk diversification requirements more flexible Umbrella vehicles possible Contractual type vehicles allowed (FCP) Attractive tax regime Variable capital possible, no restrictions on distributions, no legal reserve Designation as «fund» based on clear legal definition Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 5

Structuring thoughts. Indirect supervision by AIFM, directors, depositary, auditors Investor requirements Authorised (not registered) AIFM required CSSF approved depositary and auditors Declaration of incorporation before notary, registration on RCS list, notification to CSSF Annual report according to scheme in annex to law Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 6

Structuring ideas. Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 7

RAIF master-feeder set-up. Institutional investors Feeder RAIF Light regulatory regime Quick to market Quick adaptations to regulatory changes at investor level > Feeder for institutional investors: less investor protection required > Master for private investors: full regulatory supervision and investor comfort > Economies of scale in investing > Easier day-to-day investor handling since homogeneous investor groups > Separate equal > Treatment assessment at master and feeder level > Separate general meetings Private investors Master SICAV-SIF CSSF supervision higher investor protection > No need for private investors consent in case of adaptations at feeder level (example: Solvency II) > No subscription tax at feeder level Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 8

Parallel funds. > Access for US managers to European market > Marketing passport Investment Manager Delegation AIFM > Upon AIFMD 3 rd country extension: same AIFM for US and EU fund conceivable US investors e.g. Delaware RAIF EU investors Joint investment by the Investment Manager Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 9

Phased approach. Sponsor investor / restricted circle External investors > Accelerate time to market > Seize time critical investment opportunities RAIF Time lapse Upgrade to SIF > Investment of seed money to build investment portfolio before allowing investors (avoiding J-curve) Building investment portfolio Performing investment portfolio > Setting-up fund for restricted circle of investors (e.g. club deal or sponsor investor), broadening marketing at later stage Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 10

RAIF Master Luxco Investment Platform Pooled Investors 1 Pooled Investors 2 Pooled Investors 3 > Structural segregation of Investors and Investments > Creation / enhancing Luxembourg substance of Master Luxco AIFM EU Master Luxco RAIF > Several tax advantages as compared to a traditional Master Luxco Soparfi Investment 1 Investment 2 Investment 3 Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 11

Key features of RAIFs. Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 12

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Which legal forms may be adopted? > contractual form: common fund (fonds commun de placement FCP) > partnerships: common limited partnership (société en commandite simple SCS or CLP); special limited partnership (société en commandite spéciale SCSp or SLP); partnership limited by shares (société en commandite par actions SCA) > corporate entities: public limited company (société anonyme SA), private limited company (société à responsabilité limitée - S.à r.l.), cooperative organised as a public limited company (société coopérative organisée comme une SA SCOSA) > contractual form: NA > partnerships: common limited partnership (société en commandite simple SCS or CLP); special limited partnership (société en commandite spéciale SCSp or SLP), partnership limited by shares (société en commandite par actions SCA) > corporate entities: public limited company (société anonyme SA), private limited company (société à responsabilité limitée - S.à r.l.), cooperative organised as a public limited company (société coopérative organisée comme une SA SCOSA) > contractual form: NA > partnerships: NA > corporate entities: public limited company (société anonyme SA), private limited company (société à responsabilité limitée - S.à r.l.), cooperative organised as a public limited company (société coopérative organisée comme une SA SCOSA) Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 13

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Promoter/Investment advisor: NA Umbrella form/use of compartments available? YES What management structure may be adopted? Management bodies: Board of directors, manager(s) or general partner dependent on corporate form No nationality/residency requirement for directors (subject to tax substance requirements) Promoter/Investment advisor: No formal approval by the CSSF of the initiator/promoter but often informal inquiry about initiator NO Promoter/Investment advisor: N/A Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 14

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF What types of securities may be issued? Depending on the legal form which has been chosen (shares, units, interests) Shares/bonds Redemption: Redemptions only if and as provided in the management regulations/articles of incorporation (at investor and/or company request) Capital calls / Distributions: Capital calls from and distributions to investors are subject solely to the rules provided in the constitutive documents No limitation on issue price Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 15

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Permissible asset classes: No restriction on asset class unless, in case of RAIF, SICAR equivalent tax regime sought What investment policy may be adopted? Permissible asset classes: Investment in risk capital, by direct or indirect investment in undertakings to be launched, developed or listed Broad concept of risk capital Permissible asset classes: No restriction on asset class Risk spreading: Risk spreading: Risk spreading: Risk spreading: Risk diversification required Risk diversification required No risk diversification required No risk diversification required No minimum spread but responsibility of management body If no risk spreading required, the RAIF restricts its investment policy in its constitutive documents to investments in risk capital then (like SICAR) In principle, no more than 30% of the assets or commitments to subscribe securities of the same type issued by the same issuer (Cf. CSSF Circular 07/309) Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 16

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Who qualifies as an eligible investor? well-informed investors only: > institutional investors > professional investors > any other investors (i) which elect to be treated as well-informed investors and (ii) invest at least 125,000 or (iii) have a recommendation from a credit institution or any other professional of the financial sector or a management company No restriction in principle Such conditions are not applicable to the management team Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 17

Key features. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF What are the capital requirements? Corporate minimum requirements: Depending on the legal form which has been chosen Fixed/variable capital: Fixed capital May opt for variable share capital Form of contribution: Contribution in kind and/or in cash permissible Capital commitments may be contractually agreed Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 18

Governance requirements. Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 19

Governance requirements. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Yes external authorised AIFM required (except for supra national institutions*) By which entities can RAIF/SIF/SICAR be managed? Management company required? for FCP only NA NA AIFM requirement: Yes internal (where the legal form of the fund permits an internal management) or external authorised/registered AIFM (depending on the AuM it manages) Location of the AIFM: > In Luxembourg > In the EU > Outside the EU** * e.g. ECB, EIF, IMF ** subject to the application of article 66 of the AIFMD Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 20

Governance requirements. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF What service providers are required? Depositary: Luxembourg credit institution or Luxembourg branch of a credit institution having its registered office in the EU Offering document: Yes Specific warning to investors regarding the absence of CSSF supervision Luxembourg presence: Registered office and central administration in Luxembourg Auditor: Independent approved Luxembourg auditor What are the transparency requirements? Offering document: Yes Reports? Annual reports to investors (subject to AIFMD requirements) Offering document: NA No report to CSSF Monthly reporting to CSSF Semi-annual reporting to CSSF* No report to CSSF * Monthly as from 30 June 2016, Cf. Circular 15/627 Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 21

Supervision. Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 22

Supervision. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Is there any supervision? No CSSF supervision AIFM supervision Depositary supervision Auditor supervision CSSF supervision AIFM supervision Depositary supervision Auditor supervision No CSSF supervision AIFM supervision Depositary supervision Auditor supervision Official List: Launch without regulatory approval process No registration on an official list held by the CSSF RAIF to be registered within 10 days as from its creation on a specific list held by the Register of Commerce* Mere AIFM notification to the CSSF (Circular 15/612), onward information to ESMA Publication in the RESA* Constitutional documents: No CSSF approval of constitutional documents required Notary deed: depending on the chosen corporate form The constitution of a RAIF shall be subject to a formal ex-post declaration before notary Changes to constitutional documents without regulatory approval Official List: CSSF instruction and prior approval Registration on an official list held by the CSSF Constitutional documents: Approval by the CSSF of the constitutional documents (prospectus and articles/manregs) and service agreements Notary deed: depending on the chosen corporate form Changes to constitutional documents subject to CSSF approval Official List: Launch without regulatory approval process No registration on an official list held by the CSSF Mere AIFM notification to the CSSF (Circular 15/612), onward information to ESMA Constitutional documents: No CSSF approval of constitutional documents (articles) and service agreements Notary deed for articles * Recueil Electronique des Sociétés et Associations, to be further detailed in a Grand Ducal Regulation Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 23

Tax regime. Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 24

Tax regime. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF Corporate Tax: Not subject to corporate income tax (SIF tax regime) Exception: If investing only in risk capital, full liability to corporate income tax but exclusion from taxable profits of any income (dividends, capital gains, ) realised on securities or funds drawn for investment (within 12 months) (SICAR tax regime) Subscription Tax: Subject to yearly subscription tax of 1bp on net asset value but 0 bp if investment in (i) another fund subject to subscription tax or (ii) in a money market or (iii) microfinance fund or (iv) pension fund pooling vehicle (SIF tax regime) Exception: If investing only in risk capital, no subscription tax (SICAR tax regime) What is the level of taxation? Capital duty: Fixed capital duty of 75 upon incorporation and subsequent articles changes Corporate Tax: Not subject to corporate income tax Subscription Tax: Subject to yearly subscription tax of 1bp on net asset value but 0 bp if investment in (i) another fund subject to subscription tax or (ii) in a money market or (iii) microfinance fund or (iv) pension fund pooling vehicle Corporate Tax: Save for SCS (tax transparent), full liability to corporate income tax Exclusion from taxable profits of any income (dividends, capital gains, ) realised on securities or funds drawn for investment (within 12 months) Subscription tax: No Corporate Tax: Subject to regular corporate and municipal business tax Subscription tax: No Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 25

Tax regime. RAIF SIF-AIF SICAR-AIF SOPARFI-AIF NWT: Not subject to NWT (SIF tax regime) Exception: If investing only in risk capital, NWT exempt save the flat minimum NWT liability (as from 1 January 2016 Law of 18 December 2015) (SICAR tax regime) DTT: If subject to SIF tax regime, in principle no double tax treaties elibility (subject to a few exceptions) If subject to SICAR tax regime, in principle double tax treaties eligibility What is the level of taxation? NWT: Not subject to NWT VAT: VAT exemption on management services WHT: No withholding tax on distributions DTT: In principle no double tax treaties elibility (subject to a few exceptions) NWT: NWT exempt save the flat minimum NWT liability (as from 1 January 2016 Law of 18 December 2015) DTT: In principle double tax treaties eligibility NWT: Subject to NWT of 0.5% on Net Asset Value (minimum NWT always due) WHT: 15% WHT on dividends DTT: Eligible to double taxtreaty Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 26

Contacts Please liaise with your usual Linklaters contacts Luxembourg Reserved Alternative Investment Fund (RAIF) The best of two worlds? July 2016 27

Linklaters LLP Luxembourg 35, Avenue John F. Kennedy L-1855 Luxembourg Tel: +352 2608 01 Fax: +352 2608 8888 linklaters.lu Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on www.linklaters.com. This document contains confidential and proprietary information. It is provided on condition that its contents are kept confidential and are not disclosed to any third party without the prior written consent of Linklaters. Please refer to www.linklaters.com/regulation for important information on our regulatory position. Disclaimer: This brochure is intending to provide an overview of the main features of a Reserved Alternative Investment Fund ( RAIF ) compared to a Specialised Investment Fund ( SIF ), an Investment Company in Risk Capital ( SICAR ) and a Soparfi. It is not intended to be comprehensive nor does it constitute any legal advice.