RAIF Is Right For You: Fast, Flexible And Practical

In a challenging and uncertain environment, where the UK's referendum vote to leave the European Union is yet another storm to face for fund managers and investors, the introduction of the Reserved Alternative Investment Fund (the RAIF) truly is a landmark in the development of the Luxembourg investment fund landscape. With the advent of the RAIF, Luxembourg proves it is, here again, willing to anticipate and address fund promoters' and investors' needs.

The Luxembourg Parliament voted on 14 July 2016 the law creating the RAIF (the RAIF Law). The RAIF is meant to close the gap between highly regulated investment vehicles and unregulated AIFs. Unlike the Luxembourg Undertakings for Collective Investment (UCIs), Specialised Investment Funds (SIFs) or investment companies in risk capital (SICARs), the RAIF is not subject to prior approval and direct supervision by the financial sector supervisory authority (CSSF). Indirectly supervised through its manager, it nevertheless benefits from the same structuring flexibility and tax regime as the SIFs or SICARs, not available to unregulated AIFs.

Background

Prior to the implementation of the 2013 Alternative Investment Fund Managers Directive (the AIFM Directive) by the law of 12 July 2013 (the AIFM Law), the Luxembourg alternative investment fund landscape was made up of UCIs, SICARs and SIFs subject to the prior authorisation and on-going supervision of the CSSF by virtue of the special laws that created them (the Fund Laws).

The AIFM Directive's aim was to regulate fund managers. However, AIFs which they manage have also been caught up in the regulatory net, whether they are set up under the Fund Laws or the amended law of 10 August 1915 on commercial companies (the 1915 Law). AIFs must appoint a depositary bank, an auditor and must comply with specific reporting and investor information rules (the Product Rules).

While this double surveillance regime provides increased protection to certain investors, it is harder to justify for institutional, professional or otherwise sophisticated investors. These investors expressed an appetite for a more cost efficient, rapidly available and versatile vehicle. And the Luxembourg legislator responded.

RAIF is the best of both worlds

The RAIF was introduced in order to overcome the shortcomings of the current system. Cutting timeto- market, costs and duplication of regulatory oversight, the RAIF also addresses fund promoters' needs and guarantees the protection...