Fund vehicles for Private assets

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Luxembourg environmentFund vehicles for private assets

Introduction
Key figures
Useful links

Reserved Alternative Investment Fund (RAIF)
Specialised Investment Fund (SIF)
SICAR
Unregulated Alternative Investment Fund (AIF)
Securitisation vehicle
European Long-Term Investment Fund (ELTIF)
Part II funds

Introduction

A variety of legal wrappers adapted to investor targets and investment policy

Reserved Alternative Investment Funds (RAIF), Specialised Investment Funds (SIF), investment companies in risk capital (Société d’investissement en capital à risque or SICAR) and Securitisation vehicles
Complemented by flexible company and partnerships laws

Facilitating tailored and flexible product design

Open-ended, semi open-ended and closed-ended private funds may all be structured using a variety of Luxembourg legal vehicles, including Limited Partnership legal structures (common limited partnership or SCS^[1] and special limited partnership or SCSp^[2]) leaving extensive contractual freedom to partners
Luxembourg debt funds can originate, participate, syndicate loans and accommodate all types of debt strategies including investments in secondary debt, mezzanine and distressed loans
Possibility to adopt flexible accounting option principles including International Financial Reporting Standards (IFRS), Luxembourg Generally Accepted Accounting Principles (GAAP), US GAAPs or Limited Partnership Agreements’ bespoke requirements

Key figures^₃

+24% in 2022

+45% in 2022

Totalling EUR 267,8 billion

+20% in 2022

Of regulated private equity funds increased, totalling EUR 164,3 billion

2,330+ RAIFs

established since 2016

Useful links

Fund vehicles for private assets

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 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

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 are an important legal structure for private capital funds, but have experienced declining market share since the introduction of the RAIF regime

SICAR – Law of 15 June 2004 (coordinated version) – CSSF

Investment vehicle designed specifically to suit the needs of private equity and venture capital
Restricted eligibility : investing in capital at risk assets with the intention to ultimately dispose the assets
Flexible investment policy: no portfolio diversification requirement

Stringently regulated and supervised vehicle (requiring ex-ante regulatory approval)
Institutional and professional qualified investors only
SICAR is exempt of subscription tax. It may benefit from double tax treaties as a fully taxable Luxembourg company

Market insight: Value of assets under management is almost 10 times lower than SIFs. Although growth is very limited, SICARs remain used an investment platform for top tier private equity firms

Unregulated Alternative Investment Fund (AIF), in corporate or partnership form

No investment restrictions
Indirect supervision (only if qualified as AIFs)

Institutional and professional investors only
Single legal entity: not possible to create ring-fenced compartments

Market insight: Highly popular, notably since increased tailoring of limited partnership vehicles to the needs of the industry in 2014

Securitisation vehicle – L_220304_securitisation.pdf (cssf.lu)

May be regulated, or unregulated where the securitisation vehicle does not make more than three issuances a year to the public
Offers investors a very flexible regime, a high level of protection and legal certainty

Can be set as corporate entities or funds with no legal personality managed by a management company
Possibility to quickly set up multiple compartments while ring fencing assets/liabilities

Market insight: Efficient intermediary holding vehicle for debt strategies

European Long-Term Investment Fund (ELTIF) – EUR-Lex – 32015R0760 – EN – EUR-Lex (europa.eu)

Must qualify as an alternative investment vehicle under AIFMD
It is usualy set-up as a Part II UCI, a RAIF, or a Luxembourg SIF
Available to both institutional and retail investors. Additional requirements apply to ELTIFs distributed to retail investors

Eligible investments include debt and equity instruments in unlisted companies, real assets, infrastructure, other alternative investment funds and ELTIF under specific conditions
ELTIFs are restricted from the following asset types and strategies
- Investments in short sell assets
- Direct or indirect exposure to commodities
- Securities lending, borrowing, repurchase transactions or any other agreement that has an equivalent economic effect and poses similar risks, if thereby more than 10% of the ELTIF assets are affected
- Financial derivative instruments (except for hedging purposes)
Regulated and supervised vehicle (requiring ex-ante regulatory approval)
ELTIF in Luxembourg are exempted from the annual subscription tax. Certain countries provide favorable tax incentives to invest in ELTIFs

Market insight: This ELTIF product has been very slow to take off due to the complexity of the requirements. Interest has grown in the last two years with a number of tier one asset managers launching ELTIFs, notably due to certain national tax incentives or favorable treatment as an investment underlying a life insurance policy. ELTIF 2.0 has brought significant simplification and make the product more attractive with clarification and flexibility in the eligible assets requirements, removal of barriers for retail investors and additional provisions on liquidity windows mechanisms.

Part II funds – Part II of Law of 17 December 2010 (coordinated version) (being updated) – CSSF

They can be set as a SICAV/F, FCP or Limited Partnership structure
Prior to set up, Law 2010 Part II UCIs require authorisation, Luxembourg management company (if not internally managed), Luxembourg depositary, Luxembourg audit, Luxembourg administrator, registrar and transfer agent
They can benefit from EU/EEA passport if they are managed by an authorised Alternative Investment Fund Manager (AIFM), otherwise they are subject to national private placement regimes.
There is no minimum investment by a shareholder or unitholder

Flexible investment policy: these UCIs can invest in transferable securities, alternative investments (e.g. hedge funds), venture capital, futures contracts and options, and real estate
The NAV must be calculated at least monthly and, if managed by an authorised AIFM, the NAV must be calculated at each issue
Mandatory documentation consists of the prospectus, KID, financial statements (at least audited annual and unaudited semi-annual) and periodic disclosures (for full AIFM regime AIFs)

Market insight: Historical vehicle to provide alternative strategies to a wider pool of investors. After a period of stagnation, interest is increasing again due to retail investors’ growing appetite for alternative assets