Luxembourg’s AIFM Directive Transposition Law Awaits Scrutiny By Parliament

The draft legislation transposing the European Union's Alternative Investment Fund Managers Directive into Luxembourg law was submitted to the grand duchy's Chamber of Deputies by finance minister Luc Frieden on August 24.

Although the deadline for member states to adopt the directive into their national law is July 22, 2013, Luxembourg plans to become one of the first EU countries to implement the AIFMD, and the government in the coming weeks.

The Luxembourg legislation not only incorporates the directive but introduces into national law a new regime to be known as the société en commandite special, or special limited partnership, which we discuss in a separate client note.

Bill of law no. 6471 also contains various 'housekeeping' measures revising and updating Luxembourg's investment fund regulation as a whole, especially the 2010 statute adopting the Ucits IV directive into national law, and entails amendments to a total of 14 other pieces of legislation, including the laws governing Specialised Investment Funds (SIFs) and Risk Capital Investment Companies (Sicars).

In accordance with the directive, which was agreed by the EU Council and Parliament in November 10 and formally adopted the following year, the Luxembourg legislation provides for the registration of all managers of alternative investment funds - comprising hedge funds, private equity and real estate vehicles and any other types of fund that do not fall under the Ucits regime - apart from those excluded by the directive, exempted by the fact that they fall below the directive's thresholds for assets under management, or that benefit from grandfathering arrangements.

Managers registered under the legislation must comply with its requirements - supplemented by the European Commission's forthcoming 'Level 2' regulation and guidelines drawn up by the European Securities and Markets Authority, Esma - regarding operating conditions, organisational rules and transparency.

Once the directive comes into effect next July, registration is required before any new EU-based manager can begin management of alternative funds; existing managers have a transitional period of one year within which to apply for authorisation.

From July 22, 2013, Luxembourg-based managers of EU-domiciled funds will be free to market them under an AIFMD 'passport' to professional investors in any other EU member state, subject to notification requirements. Although this has not yet been explicitly addressed, past practice suggests that authorised managers will be also able to market their funds to EU countries that have failed to transpose the directive into their national law by the deadline.

Luxembourg-based managers of non-EU-domiciled funds, or managers of Luxembourg funds based outside the EU, may be able to benefit from the passport as well, but not before July 2015, and only once the Commission, on advice from Esma, has passed delegated legislation to that effect.

In the meantime, funds that are not domiciled or are not managed within the EU may continue to seek distribution through national private placement arrangements, where these exist, although...