RAIF: a game changer for the Luxembourg AIF landscape

Get thinking about opportunities a new Luxembourg fund vehicle may bring

Why take note?

Already equipped with unrivalled cross-border fund distribution expertise, Luxembourg is about to add another tool to its fund vehicle toolbox to facilitate even greater flexibility and efficiency. Once established, Reserved Alternative Investment Funds (RAIF) are expected to offer:
  • Lower cost access to well-informed EU investors
  • Faster speed to market
  • Flexibility within a regulated structure

Background

The Alternative Investment Fund Managers Directive (AIFMD) has been a roaring success since implementation, but it can take some time to acquire the necessary regulatory approvals before pan-European marketing and distribution can begin. The double layer of supervision (product and manager levels) can seem excessive, in particular for funds targeting well-informed investors. The new RAIF vehicle has been designed to resolve this concern. RAIF structures will not be authorised or supervised by the Luxembourg regulator (the CSSF), instead they will be supervised indirectly by their authorised and regulated AIFM.

How Reserved Alternative Investment Funds will work?

RAIFs will benefit from cross border access to Europe’s professional investors via their AIFM’s marketing “passport” that is granted by the AIFMD. The new structure and rules are largely based on Luxembourg’s successful SIF and SICAR regimes. For example, the definition of “well-informed investors” will mirror that used in these regulations. While the final terms of the legislation of law have not yet been published, current indications suggest that there will be no limit on assets or investment policies eligible to be used in a RAIF. Risk diversification principles will apply for everything except capital risk investments. In most cases the 0.01% subscription tax will be levied on total net assets.

How does it compare to other fund vehicles?

The RAIF is designed to enable the replication of existing strategies from familiar vehicles such as the Cayman and Channel Islands or Irish equivalents. At the moment, fund sponsors wishing to launch an unregulated investment vehicle that benefits from an EU passport are obliged to use a company structure rather than a fund. Most commonly this is a limited company or a limited partnership structure. While this works satisfactorily for many private equity and real estate strategies, it is often less suitable for hedge funds. The RAIF also accommodates the notion of compartments within an umbrella fund structure, allowing more flexibility for the product manufacturer to run multiple strategies while retaining investor protection in each ring-fenced compartment. In comparison to the Irish ICAV, the new vehicle will have the advantage of not requiring approval from the CSSF either at launch or on an ongoing basis.

How can FundRock help you?

Central to the concept of the RAIF is the governance provided by a licenced AIFM. As the leading independent Management Company in Luxembourg, FundRock is perfectly positioned to answer all your RAIF related questions and provide the services required to ensure the smooth launching and operation of your RAIF vehicle.

Does this sound of interest to you?

Contact us to be the first to be informed about our RAIF product offering once the bill has been passed