CSSF Confirms AIFs' Ability To Grant Loans In Updated AIFM Law FAQ

On June 9, 2016 the CSSF issued the latest update of its Frequently Asked Questions document on the Luxembourg law of July 12, 2013 implementing the AIFMD and the European Commission's Level 2 regulation on implementation of the directive, last revised on August 10, 2015.

The new version provides clarity about the ability of Luxembourg-domiciled alternative funds to conduct loan origination, participation and acquisition, an important issue given the role of Luxembourg as a leading centre for funds conducting or investing in loans.

The FAQ document, which has now run to 10 versions over the past two-and-a-half years, is intended to highlight aspects of the AIFMD rules from a Luxembourg perspective, for the benefit primarily of alternative investment funds and AIFMD-authorised managers established in Luxembourg. It complements Q&A documents on the AIFMD and its subsidiary legislation published by ESMA and by the European Commission.

The FAQs cover issues including the scope of the AIFM law, the authorisation and registration regimes applicable to alternative managers, delegation requirements, entry into force of the law and duration of transitional provisions, the scope of authorised managers' activities, depositary requirements, the application of the AIFMD passport to Luxembourg managers and funds as well as to foreign managers marketing in Luxembourg, reporting, valuation, transaction costs, managers' capital requirements, marketing and reverse solicitation, notification of investment in non-listed companies, and co-operation agreements signed by the CSSF with non-EU regulators.

Loan business permitted in principle

The new version clarifies that loan origination, participation and acquisition are in principle permissible activities for Luxembourg-domiciled alternative investment funds under the AIFM Law as well as specific product laws and regulations governing the various fund vehicles designated for AIFs. The granting of loans is also explicitly permitted under certain conditions in the EU regulations governing European Long Term Investment Funds (ELTIF), European Social Entrepreneurship Funds and European Venture Capital Funds.

However, the CSSF says various factors should be considered by an alternative investment fund or its AIFM, before and during any loan origination transactions, and the regulator will consider these aspects on a case-by-case basis as part of its process of authorisation and ongoing supervision of the AIFM and...