How To Set Up An Alternative Investment Fund In Luxembourg

Luxembourg is the go-to destination in EMEA in the investment funds space, and when it comes to setting up a fund, there are some key factors to consider.

The foundations for Luxembourg's strong reputation as a leading investment funds destination were laid in the early 1990s, when an industry formed around UCITS (undertaking for collective investment in transferable Securities) funds such as shares and bonds.

Additional regulations were added over the years, and in the following decades vehicles designed to appeal to private equity and capital investment managers were established, such as SICAR (société d'investissement en capital à risque), SIF (special investment funds) and most recently the RAIF (reserved alternative investment fund).

The flexibility of the vehicles with their different legal forms is a key attraction, as is Luxembourg's tax efficient nature and regulatory elements for setting up, managing and administrating funds. The country is today a major centre to domicile PERE (private equity and real estate) types of funds, where the strategy is not local but cross-border across Europe and beyond.

Jersey, Guernsey and the United Kingdom are also well-known jurisdictions in the funds space. When it comes to choosing the right location for a fund, where investors are based can be a key factor. However Luxembourg's flexibility and very Anglo-Saxon approach, which closely resembles the limited partnership, sees it attract a high number of investment managers and investors from the US and UK.

Choosing the right fund

An investment manager with an idea of their desired PERE investment programme will choose the type and legal form of Luxembourg fund that will attract investors for the particular investment strategies he or she wants to have. There are some key factors that come into play.

The size of the fund Nationality and tax residency of the investors Nature and complexity of the investment strategy. There are many different legal forms to consider such as SICAV (corporate entities) and FCP (partnerships). All funds could be incorporated as a single fund or an umbrella fund where investors may invest in one or several compartments.

The key advantage of Luxembourg here is that the ecosystem to support investment managers (managers, depositary, administrators etc.) is very well organised, with a number of Luxemburg-based providers and professionals that can help the fund or investment manager to structure and administer.

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