By Stephane Pesch, Ipes
Bill of law 6929 regarding the Reserved Alternative Investment Fund ("RAIF") was introduced in the Luxembourg Parliament on 14 December 2015 and was adopted by the Luxembourg Parliament on 14 July 2016, after the completion of the legislative process. The RAIF law (dated July 23 2016) officially entered into force on 1 August 2016, after the publication in the official gazette.
The RAIF will allow managers to establish regulated AIFs very like the SIF ("Specialised Investment Fund"), without the regulatory licensing and supervision of the CSSF.
The regulation of the RAIF, indirect in this context, will instead happen at the level of the external authorised AIFM, which will have to be appointed in Luxembourg or in another EU Member State.
The RAIF regime will permit managers to avoid multiple layers of supervision ("Product" and "AIFM", as introduced by the AIFM law) and reduce the time to market. No authorisation from the CSSF will be required to launch a RAIF, nor for modifications to a RAIF’s constitutional information or other governing documents.
RAIFs will largely have the same characteristics as SIFs, including the different legal forms (corporate and contractual), the possibility to create multiple sub-funds through an Umbrella structure and an advantageous tax treatment.
RAIFs could, in principle, benefit from VAT exemption on Fund Management services (see the technical annex). From a service provider's perspective, RAIFs will have to appoint, next to the authorised AIFM, a Depositary and a statutory auditor and will require Central Administration services.
As a RAIF is an AIF managed by an authorised AIFM, it will also benefit from the pan-European AIFMD passport for marketing to professional investors in the EU.
Finally, the possibility to convert existing Luxembourg vehicles into RAIFs will be granted. The conversion of regulated structures into RAIFs (main advantage: better time to market, predictability) will require prior approval from the CSSF and the amendment of the Fund’s constitutional documents and issue documents.
The conversion of unregulated structures into RAIFs (main advantage: Umbrella structure) will require the modification of the LPA. The conversion of non-Luxembourg entities into RAIFs will also be possible under certain conditions (re-domiciliation if permitted or contribution in kind, merger).
Thanks to these various characteristics, the RAIF offers a unique vehicle in the European and AIF landscape and many structuring possibilities.
RAIF – technical annex:
- FCP (common placement fund)
SICAV (investment company with variable capital) or SICAF (investment company with fix capital) under the form of a S.A. (public limited liability company), S.à r.l. (private limited liability company), SCS (common limited partnership), SCSp (Special limited partnership)
Well-informed investors only, who are either
- institutional investors
- professional investors
- investors investing at least EUR 125.000,- in the RAIF or alternatively investors certified by a suitably recognised external body and confirming their status of a well-informed investor
Umbrella structures with multiple sub-funds:
Each sub-fund permits:
- a separation of liabilities and risks
- a different investment policy
- to appoint various Investment Managers or Advisers
- different securities, units, partnership accounts
- tailor-made carried-interest arrangements
- various governing and distribution rules
- cross-investments between sub-funds (applicable conditions like in SIFs)
Attractive tax regime:
RAIFs will be subject to a dual tax regime:
1) general tax regime, similar to the one applicable to SIFs (no distinction between legal forms):
- subject to the subscription tax levied on the net assets of 0.01 % p.a.
- exempt from corporate income tax, municipal business tax and net wealth tax
2) special tax regime for RAIFs investing in risk capital, similar to the one applicable to SICARs:
S.A., SCA or S.à r.l., only
- fully taxable (but access to Double Tax Treaties - DTTs), meaning subject to corporate income tax and municipal business tax
- all income and capital gains derived from securities will be exempt
- exempt from net wealth tax except for a minimum net wealth tax
SCS, SCSp, only
- fully tax transparent and therefore not subject to any Luxembourg direct taxes
Whilst no specific rules are included in the Bill, the position taken is to apply the diversification rules applicable to SIFs. So as a general rule and based on the CSSF circular 07/309 on risk-spreading in the context of SIFs, a RAIF must not invest more than 30% of its gross assets in any single asset, unless it invests exclusively in risk capital and opts for the special tax regime (SICAR), allowing it to apply no diversification.
Derogations (30% rule) normally apply for RAIFs investing in:
- securities issued or guaranteed by an OECD Member State or the local authorities, public international bodies
- other collective investment schemes subject to equivalent risk diversification requirements
Establishment of a RAIF and issue document:
The incorporation or establishment of a RAIF will in whatever legal form, require:
- A notary to record it in a notarial deed;
- To file it within 15 business days with the Luxembourg trade and companies register for publication in the RESA (Recueil Electronique des Societes et Associations), the official electronic platform of central publication together with the name of the AIFM;
- To register it within 20 days on a list held with the Luxembourg trade and companies register.
RAIFs will also require an issue document ("prospectus" or "placement memorandum") allowing investors to take an informed decision.
If you would like to discuss this in greater detail please contact me.
You can read the other articles from Ipes' autumn Private Equity update (edition 22) at the following links: