The Reserved Alternative Investment Fund - A New Luxembourg Regime For AIFs

INTRODUCTION

The Law on Reserved Alternative Investment Funds dated 23 July 2016 ("RAIF Law")1, introducing a new type of Luxembourg investment vehicle named "Reserved Alternative Investment Fund" (in short "RAIF"), entered into force on 1 August 2016.

The RAIF is regulated under the AIFMD2 and benefits from the corresponding EU passport but is not supervised by the Commission de Surveillance du Secteur Financier ("CSSF"), making it an attractive vehicle from a time-to-market perspective.

The AIFMD, a managers' directive and a change of Paradigm

The AIFMD requires that authorised alternative investment fund managers ("AIFMs") ensure that the alternative investment funds ("AIFs") they manage comply with the AIFMD product rules3, irrespective of whether or not the relevant AIF is subject to a product regulation.

When an AIF is a regulated and supervised product, compliance with product rules is consequently ensured at two levels: at the level of the AIF itself and at the level of its AIFM. Similarly, the AIF is subject to a double supervision system, by its supervisory authority and that of its AIFM, which could be based in a different country.

This double system of approval and supervision is not required by the AIFMD. It entails increased protection, which is not necessarily deemed justified by a series of professional and sophisticated investors performing their own review of the AIF's structure and documentation.

The RAIF

The introduction of the RAIF regime seeks to widen the range of investment vehicles available in Luxembourg, offering a new option to the initiators of Luxembourg AIF projects.

The creation, launch, documentation, activities and termination of the RAIF are not subject to the approval of or any supervision by the CSSF, but still enjoy all the structuring flexibility from which (CSSF approved and supervised) Luxembourg funds benefit.

In order to be eligible for this new regime, the RAIF has to be an AIF managed by an authorised AIFM, both within the meaning of the AIFMD. The AIFM may be established in Luxembourg, in another Member State of the European Union ("EU Member State") or even, once the AIFMD passport is available to third countries, in a third country in accordance with the provisions of the AIFMD.

Due to the necessity for the RAIF to be managed by an authorised AIFM, it is indirectly supervised through the prudential supervision exercised by the competent authority of its AIFM. For the same reason, the RAIF benefits from the European passport granted by the AIFMD for marketing to professional investors in the EU.

The other features of this new Luxembourg investment vehicle are substantially identical to those of the specialised investment fund ("SIF")4 and the RAIF Law has therefore been drafted drawing heavily from the text of the SIF Law5.

The main differences between the RAIF Law and the SIF Law result from the fact that all references to the role and mission of the CSSF found in the SIF Law have been excluded from the RAIF Law. However, certain mechanisms have been introduced to ensure compliance with the law, particularly by the AIF's management body.

The RAIF should become a vehicle of choice for managers and investors looking to combine contractual freedom and short time-to-market together with both the protection of the AIFMD framework and the RAIF Law, and the marketability of an investment vehicle benefiting from an EU passport.

The purpose of this Memorandum is to describe the main features of the RAIF regime.

CHAPTER I: GENERAL PROVISIONS

1. Scope

   The RAIF regime is applicable to Luxembourg AIFs (i) managed by an authorised AIFM, (ii) that invest in accordance with the principle of risk-spreading6, (iii) whose securities or partnership interests are reserved for well-informed investors, and (iv) whose constitutive documents7 provide that they are subject to the provisions of the RAIF Law.

   1.1 AIF managed by an authorised AIFM

   RAIFs represent a specific category of AIFs that must be managed by an authorised AIFM. Therefore, unlike a SIF, a RAIF cannot be a non-AIF or be managed by an exempt AIFM8.

   1.2 Not supervised by the CSSF

   An essential difference between the RAIF and the SIF is that the latter is...