BUSINESS INSIGHTS Luxembourg, April 2018 RAIF Enhancing Luxembourg s Fund Arsenal through Speed and Versatility By offering an additional dynamic fund structure, Luxembourg has reinforced its position as one of the leading global fund centres. The Reserved Alternative Investment Fund (RAIF) has established oneself in the market by demonstrating its strength through flexibility and accelerated time to market. Existing as Europe s premier fund domicile, Luxembourg has responded to the increasingly competitive market for funds and the success of the Alternative Investment Fund Manager Directive (AIFMD) through the launch of the RAIF fund structure. The RAIF is managed by an authorised Alternative Investment Fund Manager (AIFM) and therefore does not require direct supervision by the regulator Commission de Surveillance du Secteur Financier (CSSF), resulting in a rapid set up and launch period, all while offering the structuring flexibility found throughout the Luxembourg fund toolbox. Luxembourg RAIF: Unregulated AIF managed by regulated AIFM Sculpted to provide initiators with a new type of Alternative Investment Fund (AIF), the RAIF couples the legal and tax benefits of traditional Luxembourg fund regimes such as the Specialised Investment Fund (SIF) and Investment Company in Risk Capital (SICAR), while distinguishing itself by being managed exclusively by an authorised AIFM, requiring no product approval by the CSSF. RAIFs can be structured as umbrella vehicles, allowing them to launch ring-fenced subfunds, without the prior approval of the CSSF. The double layer of supervision, directly by the CSSF and indirectly through the AIFM often times causes the Luxembourg SIF and SICAR regimes to be unwieldly and rather slow to market, even being surpassed in some cases by LPs. This can result in increasing frustration among asset managers, forcing them to abandon Luxembourg and opt for offshore domiciles such as the Cayman Islands. 1 The result of this AIFMD adaption is the RAIF vehicle. This absence of product approval and supervision throughout the fund s lifecycle by the CSSF provides the regime with greater speed and flexibility. The regulated AIFM is solely responsible for the set-up of the fund structure and determines the time to market of the RAIF. Ulfar Mölk Head of Portfolio Management Real Assets LRI Group William Turmann Senior Sales Manager LRI Group 1 Access to the AIFM Marketing Passport The structure requires only the bare minimum of formalities, limited to certification by a notary within five days of formation and registration with the Luxembourg Trade and Companies Register. The RAIF however is by no means an unsupervised vehicle as it must appoint an authorised AIFM. A RAIF cannot be self-managed. This in turn ensures that the structure is completely compatible with EU regulations, granting the RAIF access to the marketing passport, giving asset managers, quick and easy access not only to the European market, but offering a truly global reach. 1 The Reserved Alternative Investment Funds Act one year on, hedgeweek 2017
Enhanced Flexibility: Legal and Tax A key advantage of the RAIF structure is its ability to offer solutions based on traditional Luxembourg investment vehicles. The Luxembourg fund toolbox is filled with structures that offer specific legal, tax or structuring advantages for all types of assets. Benefiting from legal flexibility, the RAIF regime can be structured as a common fund (FCP), corporate legal form, partnership limited by shares (SCA) or interests (SCS) in the form of an investment company with variable capital (SICAV). At the same time, the fund structure combines tax features of the SIF and SICAR regimes and therefore can be set-up in a way to match the investors demands. Profit distribution is also not subject to a withholding tax. On fund level, the RAIF, if it opts for SIF taxation, is only required to an annual subscription tax imposed at a rate of 0.01% of its net assets calculated on the last day of each quarter. Management services provided to a RAIF are exempt from Luxembourg VAT. This exemption covers the provision of portfolio management services, investment advisory services and other administrative services. Additionally, depositary services benefit from a reduced VAT rate of 14%. Finally in regard to tax, RAIFs with a legal personality may benefit from the multitude of double tax treaties between Luxembourg and other countries. To conclude, the RAIF offers many legal and tax benefits identical to traditional Luxembourg vehicles while avoiding the regulatory and time-consuming set up attributed to these regimes. Innovative Regulation and Products, Tailored to Fit any Target Group 2 Since its Inception in August 2016, more than 300 RAIFs have been Launched The year 2018 marks the two year anniversary of the introduction of the RAIF regime which was introduced in August 2016. As of 1 March 2018, a total of 310 RAIFs have been launched in Luxembourg. 2 Recently, the regime has been enjoying an increase in demand, with around 20 funds launched every month. 3 These funds comprise a wide range of alternative investment strategies including real estate, private debt, infrastructure, renewable energy in addition to hedge funds. 2 Registre de Commerce et des Sociétés Luxembourg, March 2018 3 RAIF: bringing speed and flexibility to the Luxembourg funds toolkit, SGG 2018
Number of RAIFs Number of RAIFs registered per month during the first year since the introduction of the new law 25 20 15 14 15 20 14 21 18 10 5 0 4 1 6 7 Source: Looking back on the first year of the Luxembourg Reserved Alternative Investment Fund (RAIF) 2017, Intertrust Despite the innovative characteristics of the RAIF and the demand it has generated, the investment vehicle has not cast the traditional SIFs and SICARs irrelevant. The number of SIFs and SICARs launched has remained consistent with an estimated 1,500 SIFs and 280-290 SICARs between 2014 and July 2017. The most common reason to choose a SIF or SICAR over a RAIF despite the timeconsuming regulatory burden is dictated by the type of investors targeted and size of the fund. Fully regulated and supervised investment structures may still be required by certain institutional investors such as pension funds and insurance companies. Furthermore, as a RAIF must be managed by an authorised AIFM, investors may opt for a SIF or SICAR structure if the size of the fund does not require an authorised AIFM. 4 Having existed for more than 10 years, the SIF (2007) and SICAR (2004) are established regimes that have contributed strongly to Luxembourg s position as a top international fund domicile; however, the RAIF aims to replace these prior regimes in the short run. 3 The set-up of a RAIF The average estimated time to set up a RAIF is eight weeks. Weeks one to four focus on an informative exchange between the fund initiator and the departments of the AIFM, generating a fund launch plan and adapting the emissions document to the specific needs of the initiator. While the emissions documents are being prepared for completion through extensive communication between the initiator and individual departments, the first master data of the fund are already being implemented. The initial drafts of legal documents are also prepared at this stage. This set-up requires a well-organised external legal counsel. Weeks five to eight, concentrate on the completion of the emissions document. An AIFMD workshop can be offered to the initiator by the AIFM. This workshop introduces the core principals of the AIFMD and discusses the investment process, examples are provided illustrating which documents are required pre and post transaction. These closing weeks deal with the completion of specific service contracts such as with the AIFM, registry/transfer agency, depository and central administration and finally opening of the account in the name of the fund. 4 Looking back on the first year of the Luxembourg Reserved Alternative Investment Fund (RAIF) 2017, Intertrust
RAIF Marketing Focus Professional Investors (investors investing a minimum of EUR 125,000) Investors who have a recommendation from a credit institution Investment firm/management company RAIF Key Provisions Qualifies as AIF No direct supervision by CSSF Requires an external EU-based AIFM Audit of annual accounts by authorised auditor required Central administration, depositary and registered office must be based in Luxembourg Can invest in all types of assets either directly or via controlled intermediate companies subject to minimum riskspreading requirements Innovation made in Luxembourg Two years after its inception, based on the increasing number of launches, it can be concluded that the RAIF structure is gaining momentum. The RAIF s defining feature of not needing the approval of the CSSF, while still providing the advantages of traditional structures of the SIF/SICARs, has been well received. The regime has not replaced existing fund structures in the Luxembourg fund toolbox as some initiators still require CSSF product approval, however, with time the RAIF is expected to become the dominant AIF structure out of Luxembourg. The regime is already proving itself on an international level as a quarter of RAIFs are being managed outside of Luxembourg. 5 The RAIF has once again demonstrated Luxembourg s expertise as a fund domicile, capturing the advantages of its existing products while greatly reducing initiator hassle, ensuring that Luxembourg will continue to be a leading player in the global funds industry. 4 5 Looking back on the first year of the Luxembourg Reserved Alternative Investment Fund (RAIF) 2017, Intertrust
----------------------------------------------------------------------------------------------------------------------------------- About LRI Group LRI Group is a leading independent investment services company based in Luxembourg. It provides asset managers and investors with nearly three decades of experience in structuring and administration of traditional and alternative investment strategies. Established in 1988, LRI Invest S.A. acts as Super Management Company (Super ManCo) being authorised as Alternative Investment Fund Manager (AIFM) and as UCITS Management Company in Luxembourg. Through LRI Invest Securitisation S.A. it also operates a securitisation platform for a variety of alternative investment underlyings for institutional investors. With LRI Depositary S.A. it also provides depositary services and can act as Register and Transfer Agent for alternative investment funds. LRI Group manages EUR 3 billion in Real Assets especially in Real Estate, Private Equity and Debt and EUR 9 billion in Financial Assets such as Multi Asset Funds, Liquid Alternatives and Funds of funds and has 100 staff. Important information: This medium contains information and assessments. It constitutes neither an investment advice, any investment services nor the invitation to make offers or any declaration of intent. This medium serves for information purposes only. A decision upon the acquisition of a product shall be made by applying the respective prospectus as well as the complete sales documents in consideration of the respective risks as well as tax and legal consulting. The validity of the provided information is limited to the date of preparation of this medium and may change in course of your objectives or in course of other reasons, especially the market development. The source of information is reliable, however we cannot guarantee the validity and the actuality of the provided information. Historical information cannot be understood as a guarantee for future earnings. Predictions concerning future developments only represent forecasts. The brand name of LRI Group includes the legal entities of LRI Invest S.A., LRI Invest Securitisation S.A. and LRI Depositary S.A. The relevant legally responsible entities, which offer products or provide services of LRI Group to clients, are named in the relevant contracts, marketing documents or other product-specific information. The information contained herein was prepared by LRI Group for general information purposes. Its content should not be construed as legal advice, and readers should not act upon the information in this information without consulting counsel. This information is presented without any representation or warranty as to its accuracy, completeness or timeliness.