Fund vehicles for Liquid alternatives

Introduction

A variety of fund regimes with different levels of product regulation

Specialised Investment Funds (SIF), Reserved Alternative Investment Funds (RAIF), Undertakings for Collective Investment in Transferrable Securities (UCITS) or part II Undertakings for Collective Investment (UCI)
Complemented with flexible company and partnerships laws

Allowing for tailored and flexible product design

Possibility to structure fund as single funds with or without multiple share classes, umbrella funds with multiple sub-funds, master-feeder structures
Depending on the investment strategy and investor type, hedge funds can be structured with tailored liquidity terms
Uses a variety of Luxembourg legal vehicles including Limited Partnership legal structures (common limited partnership or SCS¹ and special limited partnership or SCSp²), offering extensive contractual freedom to partners
Alternative investment funds under the form of an SCSp can adopt flexible accounting option principles: International Financial Reporting Standards (IFRS), Luxembourg Generally Accepted Accounting Principles (GAAP), US GAAPs or other accounting standards considered as equivalent to IFRS by the EU Commission.

2^nd

largest fund domicile globally

1^st

domicile for alternative UCITS

70 countries

Luxembourg-domiciled
funds distributed in 70 countries⁴

6,500+

SCSp created since 2013

Specialised Investment Fund (SIF), in corporate or partnership form (Law of 13 February 2007) – Law of 13 February 2007 (coordinated version) – CSSF

Can be structured as an investment company with variable capital (SICAV), an investment company with fixed capital (Société d’Investissement à Capital Fixe or SICAF) or a common fund (FCP)
SIFs require prior to set-up authorisation, a Luxembourg management company (if not internally managed), a Luxembourg depositary, a Luxembourg auditor, a Luxembourg administrator, a registrar and a transfer agent
They must be marketed only to well-informed investors. They can benefit from an EU/EEA passport if managed by an authorised AIFM. Otherwise, they are subject to national private placement regimes
The minimum investment by a shareholder or unitholder is EUR 100,000 or less if the investor’s expertise, experience and knowledge can be certified by certain regulated financial entities

A SIF cannot invest more than 30% of its assets, or its commitments to subscribe, to securities of the same nature issued by the same issuer
A prospectus or offering document, KID, financial statements (at least audited annually) and periodic disclosures (for full AIFM regime AIFs) are mandatory
If a SIF is managed by an authorised AIFM, the NAV must be calculated at each issue or subscription or redemption or cancellation of shares or units and at least once a year; in any case, the NAV is required for reporting purposes

Market insight: SIFs a popular fund regime for hedge funds, but have experienced declining market share since the introduction
of the RAIF regime

Reserved Alternative Investment Fund (RAIF) – L_230716_RAIF_eng.pdf (cssf.lu)

Can be structured as an investment company with variable capital (SICAV), an investment company with fixed capital (SICAF) or an investment company in risk capital (Société d’investissement en capital à risque or SICAR), as well as a limited partnership or a common fund
RAIFs require an authorised external AIFM (established in Luxembourg, another EU Member State or in a third country), a Luxembourg depositary, a Luxembourg auditor, a Luxembourg administrator, a registrar and a transfer agent
No fund authorisation is required,enabling efficient time-to-market
They can be exclusively marketed to well-informed investors and can benefit from the distribution passport of the AIFM

Minimum subscription amount of EUR 100,000 or less if the investor’s expertise, experience and knowledge can be certified by certain regulated financial entities
Flexible investment policy: the RAIF is either subject to SIF diversification rules (see above) or SICAR asset eligibility requirement in case it opts in for the SICAR special tax regime
The mandatory documentation consists of an offering document, KID, financial statements (at least audited annually) and periodic disclosures (for full AIFM regime AIFs)
The NAV must be calculated on the occasion of each issue or subscription or redemption or cancellation of shares or units and at least once a year; or in any case, the NAV is required for reporting purposes

Market insight: Highly popular vehicle since inception due to its flexibility and speed to market

UCITS – Law of 17 December 2010 (coordinated version) (being updated) – CSSF

UCITS are subject to authorisation by the CSSF. Minimum capital of EUR 1,250,000 must be reached within six months from the date of authorisation. The minimum capital of a self-managed UCITS SICAV is EUR 300,000 when authorised by the CSSF
A UCITS must appoint a management company (if not self-managed), a Luxembourg depositary, a Luxembourg auditor and an administrator, registrar and transfer agent which must be located in Luxembourg if the management company is in Luxembourg
UCITS may invest in transferable securities such as equities, bonds, money market instruments, investment funds and certain derivatives and in techniques and instruments related to transferable securities
Risk framework limiting the use of leverage

Within the constraints of the product rules, it is possible to implement short equity strategy trading liquid stocks, strategies trading futures contracts (commodity trading advisor, global macro) or other strategies trading mainly derivatives (total return swap, interest rate swap)
A prospectus, KID, financial statements (at least audited annually and unaudited semi-annually) and periodic disclosures are mandatory
It can be marketed to all investors, benefits from EU/EEA passport and has no minimum investment by a shareholder or unitholder
The NAV must be calculated at least twice a month

Market insight: 50% of the alternative UCITS sub-funds are domiciled in Luxembourg