Fund vehicles for Traditional assets

Introduction

Diverse structuring options in the leading UCITS domicile

  • Open-ended Undertakings for Collective Investment in Transferrable Securities (UCITS)  can be set up as investment companies with variable capital (Société d’investissement à Capital Variable or SICAV ) or common funds (Fonds Commun de Placement or FCP)
  • Structured as a single fund with or without multiple share classes, an umbrella fund with multiple sub-funds or master-feeder structures
  • Other fund regimes may be used for traditional strategies (Specialised Investment Funds, Part II Undertakings for Collective Investment or Reserved Alternative Investment Funds) with certain distribution restrictions

Within a flexible and supportive environment

  • Flexible use for equity funds, bond funds, mixed funds, multiple-asset class funds, money market funds or exchange-traded funds (ETFs)
  • No minimum number of shareholders or unitholders
  • Luxembourg UCITS can benefit from a product passport enabling them to be marketed to investors in the European Economic Area
  • No withholding tax on dividends paid by Luxembourg funds
  • Possibility to list shares or units on stock exchange

A leading domicile for sustainable funds

  • The Sustainable Finance Disclosure Regulation (SFDR) and the European Taxonomy (Regulation (EU) 2020/852) requirements are applicable to Luxembourg UCITS. UCITS must include certain sustainability related information in their precontractual documents, websites and periodic reports. The extent of information to be disclosed is proportionate to the fund classification under SFDR.
  • The Luxembourg Undertakings for Collective Investment (UCI) law foresees a reduction of the annual subscription tax if they invest a minimum of the proportion of their net assets in taxonomy-aligned activities. In order to be eligible for a reduced rate (from 0.01% to 0.04% instead of 0.05%), the portion of taxonomy-aligned assets needs to be certified by an independent auditor and an attestation must be transmitted to the tax administration.
  • The Luxembourg Stock Exchange has the first dedicated platform for sustainable securities in the world, the Luxembourg Green Exchange (LGX) which already displays funds classified under Articles 8 and 9 of SFDR
  • LuxFLAG, the pioneering finance-labelling agency, labels around 200 financial products from asset managers in over 16 countries

Key figures1

2nd

largest investment fund centre in the world after the US

5,028 billion €

of net assets

330+

authorised

34% of funds

Luxembourg is the European leader in responsible investment fund assets, accounting for 34% of funds and 35% of all assets under management in European responsible investment funds2

Fund vehicles for traditional assets

  • 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
  • A prospectus, Key Information Document (KID), financial statements (at least audited annually and unaudited semi-annually) and periodic disclosures are mandatory
  • It can be marketed to all investors benefitting from EE/EEA passport and has no minimum investment by a shareholder or unitholder
  • The Net Asset Value (NAV) must be calculated at least twice a month
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Market insight: In 2022, UCITS represent 81% of the total net assets of Luxembourg regulated funds. While most tier 1 fund managers are already managing Luxembourg UCITS, some have recently made Luxembourg their main hub. Second tier sponsors continue to enter the market as well

  • 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 share 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)
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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

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
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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

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
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Market insight: Highly popular vehicle since inception as of 2023 Q2, 2,330 RAIFs established since 2016 due to its flexibility and speed to market

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Georg Lasch
Head of Offshore Sales, Region Luxembourg, Ireland and Channel Islands, Securities Services

[1] Data available at https://www.cssf.lu/en/statistics/.

[2] Source: https://www.luxembourgforfinance.com/wp-content/uploads/2019/12/Sustainable-finance-brochure.pdf