Luxembourg approves new fund vehicle

The Luxembourg Parliament has approved the long-awaited RAIF, which may allow managers to launch funds more quickly.

Luxembourg’s Reserved Alternative Investment Fund (RAIF) law has been approved by Parliament.

The law will come into force three days after publication in Luxembourg’s Official Gazette Mémorial, according to a statement from the Association of the Luxembourg Fund Industry (ALFI).

Despite similarities to the Luxembourg specialized investment funds (SIFs) and SICARs, a key difference 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.

“The new structure complements Luxembourg’s attractive range of investment fund products and we believe this demonstrates the understanding the Luxembourg legislator has of the needs of the fund industry in order to best serve the interests of investors,” Denise Voss, chairman of ALFI said in a statement.

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.

“The launch of the RAIF is a very welcome development for the alternatives industry, and represents an important milestone in terms of the ‘bedding in’ of the new AIFMD regime,” said Kavitha Ramachandran, senior manager of business development at fund administrator Maitland in a statement. “It reflects the spirit of the AIFMD, could prove a boost to activity in Europe, and we are not surprised to see other jurisdictions following suit.”

Luxembourg first enacted legislation for the RAIF law in December last year, as reported by pfm. In recent months other fund domiciles, such as Malta, Guernsey and Jersey, have also been racing to provide fund managers with EU marketing options.

As the UK risks losing its EU marketing passport after Brexit, fund managers may consider other jurisdictions, such as Luxembourg, to domicile new funds. “While the implications of Brexit for the UK’s status with the AIFMD are still totally uncertain, should it have a negative effect, the RAIF could put Luxembourg in an excellent position to acquire market share at the UK’s expense,” added Ramachandran.