Luxembourg eases AIFMD fund rules

Luxembourg enacted legislation creating for a new Reserved Alternative Investment Fund (RAIF) law which is expected to be adopted in the second quarter of 2016.

Despite similarities to the Luxembourg specialized investment funds (SIFs) and SICARs, a key difference, and potential benefit, is that the RAIF can be set up and launched in less time because it does not need approval from Luxembourg’s financial regulator, the CSSF.

Currently, Luxembourg requires both a private equity firm subject to the Alternative Investment Fund Managers Directive (AIFMD) and each fund it supervises to be authorized and supervised by the CSSF, which can be a long process depending on the complexity of the fund documentation.

However, the RAIF is the first type of investment that will benefit from indirect supervision, as supervision instead will be placed on the management firm, which is still subject to the directive.

In order to limit risk, the RAIF must be managed by an authorized external AIFM, which can be domiciled in Luxembourg or in any other EU member state. And as long as it is fully in line with the AIFMD requirements, the AIFM is able to use the marketing passport to market shares or units of RAIFs cross-border, which can only be sold to well-informed investors.

Luxembourg is keen to position itself as a domicile of choice for fund managers and was one of the first EU countries, alongside Jersey, to implement the AIFMD in 2013.

The reduced red tape could be most beneficial to alternative asset classes such as private equity and real estate because it reduces the need for a dual registration process, enabling funds to be launched more rapidly.

“The RAIF legislation will enable Luxembourg and foreign AIFMs to benefit from a more flexible fund vehicle,” explained Claude Niedner, partner at the law firm Arendt & Medernach and chairman of an alternative investments committee sponsored by Luxembourg's private equity trade body the ALFI.