Proposed Luxembourg Legislation Introduces Changes Affecting SIFs, SICARs And Part II UCIs

The Luxembourg government has placed before parliament on January 18 draft legislation amending provisions relating to specialised investments funds (SIFs), risk capital investment companies (SICARs) and non-UCITS funds issued under Part II of the grand duchy's collective investment fund legislation. The proposals would notably restrict SIF funds and sub-funds that invest in so-called exotic assets to professional investors, a tighter definition than that for eligibility for SIF investments in general.

Under the SIF law of February 13, 2007, specialised investment funds may invest in virtually any type of asset class, including illiquid and other assets that are hard to value. Investment is restricted to three categories of 'well-informed investor', including professional investors as defined by appendix II to the EU's MiFID II directive and institutional investors. Under existing administrative practice of Luxembourg's Financial Sector Supervisory Authority, the latter may include professionals who manage significant volumes of assets but are not subject to specific financial services legislation.

In addition, other investors are eligible to invest that qualify neither as institutions nor professional investors, but that declare in writing their well-informed status, invest a minimum of €125,000 in the SIF, or are certified by a bank or fund management company as possessing the expertise, experience and knowledge to be able to appraise investment in the SIF adequately.

The proposed changes to the eligible investment rules for SIFs would restrict to professional investors alone the ability to invest in SIFs or compartments that hold non-traditional assets, including wine, diamonds, insurance contracts, economic rights to sports professionals, art and animals.

As a standard rule, such SIFs must ensure that their investors all qualify as professional investors and any existing vehicles must of need be redeem the shares, units or interests of other types of investor. The legislation would authorise the CSSF to grant derogations to SIFs that invest in exotic assets and whose constitutional documents allow investment by non-professional investors, but there are no transitional arrangements foreseen for Funds that do not benefit from such an exemption.

The legislation also includes amendments to the SICAR law of June 15, 2004 to bring it into line with the SIF legislation as well as with changes to company law, especially the introduction of...