RAIF: Unregulated Funds Coming Soon To Luxembourg

At its meeting on November 27 the Luxembourg government formally approved draft legislation creating a new type of fund vehicle, the restricted alternative investment fund (fonds d'investissement alternatif reservé). The most important characteristic of the RAIF (or FIAR, its French acronym) is that it is not subject to regulation by the Financial Sector Supervisory Authority (CSSF), although it must have an authorised manager. Further details of the fund and its requirements will become clear once the parliamentary bill has been published.

In a statement, the government says it is designed to benefit from the structuring flexibility of non-UCITS collective investment vehicles, specialised investment funds (SIFs) and risk capital investment companies (SICARs). However, the system of dual supervision of managers and funds applicable to these vehicles, which adds costs and places restrictions on the management of the funds, may not be necessary or desired by institutional and professional investors.

What kind of investors may place money in RAIFs?

The RAIF is restricted to sophisticated, institutional and professional investors, and are subject to a minimum investment of €125,000.

What advantages does the RAIF offer?

The RAIF is based on the alternative investment fund regime established by the European Union's Alternative Investment Fund Managers Directive and its application in Luxembourg to specialised investment funds. However, it is designed to speed up time to market through the absence of a requirement for authorisation or ongoing supervision by the CSSF. This means that future changes to the fund's constitutional, information or other documents, will not require regulatory approval.

Must a RAIF have a manager established and regulated in Luxembourg?

No. There is no requirement for a Luxembourg-based manager, but it must have an alternative investment fund manager authorised under the AIFMD and domiciled in a European Economic Area member state in order to benefit from the AIFM's marketing passport.

Are there restrictions on the kind of strategy a RAIF may follow?

With the reservation that the terms of the legislation have not yet been published, it appears that the manager of the RAIF may follow any kind of investment strategy, with no restrictions regarding eligible assets. RAIFs whose investment policy is restricted to risk capital investments will not be required to follow risk-spreading rules.

What kind of tax treatment will RAIFs...