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Reserved Alternative Investment Fund (RAIF)- Luxembourg Friendly Investment Fund

by | Apr 9, 2022 | Investment funds

Reserved Alternative Investment Fund (RAIF) Investment Friendly Fund in Luxembourg

The Reserved Alternative Investment Fund (RAIF) is a regulated find with no direct supervision from the Commission for the Supervision of the Financial Sector (CSSF). It grants fund managers the excellent opportunity to create a new form of alternative investment fund (AIF).

This brand-new fund structure, enacted in 23 July 2016,  combines the attractive features and structuring flexibility of existing regulated vehicles without prior approval or supervision by the Commission for the Supervision of the Financial Sector (CSSF).

A Reserved Alternative Investment Fund (RAIF) takes the form of a regulatory wrapper around a Luxembourg fund vehicle, which can take the structure of a public limited liability company, partnership limited by shares, limited partnership, or a contractual arrangement.  

Practical information about Reserved Alternative Investment Fund (RAIF) formation

No direct supervision by the Commission for the Supervision of the Financial Sector (CSSF)

  • A Reserved Alternative Investment Fund (RAIF) qualifies as a regulated fund. 
  • Regulatory compliance will be supervised by an alternative investment fund manager (AIFM). 
  • All funds structured as a Reserved Alternative Investment Fund are categorized as alternative investment funds, which means they will be under the Alternative Investment Fund Managers Directive (AIFMD).
  • A Reserved Alternative Investment Fund (RAIF) must appoint an authorized external alternative investment fund manager, established in Luxembourg or in another UE member country. It may also be established in a non-EU country in the presence of an Alternative Investment Fund Manager Directive passport. 
  • Like other alternative investment fund in Luxembourg, a Reserved Alternative Investment Fund must appoint a Luxembourg domiciled depositary, administrator, and auditor.  
  • The role of the Commission for the Supervision of the Financial Sector (CSSF) is only limited to the supervision of the Alternative Investment Fund Manager (AIFM). 
  • The Commission for the Supervision of the Financial Sector (CSSF) will have no direct involvement in running the fund vehicle. Unlike regulated investment funds, tthe Commission for the Supervision of the Financial Sector (CSSF) will not need to approve any marketing or constitutional documents of a Reserved Alternative Investment Fund (RAIF). 
  • It is the duty of the Alternative Investment Fund manager (AIFM) to ensure compliance of the Reserved Alternative Investment Fund (RAIF) with the Alternative Investment Fund Managers Directive (AIFMD). 
  • The streamlined regulatory approach makes Reserved Alternative Investment Funds (RAIFs) quicker and more efficient to establish than regulated fund vehicles. 
  • it will only take a short time to bring a Reserved Alternative Investment Fund (RAIF) to the market. 
  • Ongoing management and operation of a Reserved Alternative Investment Fund is more efficient as opposed to that of a Specialized Investment Fund or Investment Company in Risk Capital (SICAR). 

Compartmentalized Fund

Diversification of Risks

  • A Reserved Alternative Investment Fund is deemed to adhere to certain risk diversification rules. 
  • Diversification rules applicable to a Reserved Alternative Investment Fund is similar to those of Specialized Investment Funds (SIFs) and Investment Company in Risk Capital (SICAR). 
  • A Reserved Alternative Investment Fund (RAIF) is allowed to invest in any asset type, but cannot invest more than 30 percent of its net assets or commitments in a single asset. 
  • Diversification rules are not applicable to compartment-by-compartment basis for Reserved Alternative Investment Funds established as compartmentalized funds. 

Tax Advantages

  • Provided a Reserved Alternative Investment Fund meets the relevant risk diversification requirements, it will have the same tax treatment as regulated vehicles, depending on the asset classes it holds. 
  • A Reserved Alternative Investment Fund is tax exempt except for annual subscription tax of 0.01% of its net assets. 
  • A Reserved Alternative Investment Fund structured as a partnership will be treated as a tax transparent entity for tax purposes. 

Law Regulations

  • A Reserved Alternative Investment Fund (RAIF) will be governed by the relevant provisions under the 1915 Commercial Companies Law and by the Alternative Investment Fund Managers Directive, but otherwise can enjoy full contractual freedom. 

Variable Capital

  • Only Reserved Alternative Investment Funds can be set up with variable capital and may use the label as SICAV (Investment Company in Variable Capital). 
  • A Reserved Alternative Investment Fund (RAIF) set up as an investment company with variable capital can issue and redeem shares without limitations. 
  • Shares of an investment company in variable capital can be issued with no par value and their value automatically fluctuates with the value of an investment company with variable capital. 
  • An unregulated alternative investment fund structured as a limited partnership can achieve the same results through operation of the partnership agreement. 

Offering Document

  • A Reserved Alternative Investment Fund (RAIF) must prepare an offering document, including certain information prescribed by the Reserved Alternative Investment Fund (RAIF) Law and the Alternative Investment Fund Managers Directive (AIFMD). 
  • In case of a multi-compartment Reserved Alternative Investment Fund (RAIF), offering documents can be prepared per compartment, or all compartments may also be covered by one umbrella offering document. 
  • An unregulated alternative investment fund is subject to Alternative Investment Fund Managers Directive (AIFMD) disclosure requirements.

Common Fund 

  • A Reserved Alternative Investment Fund (RAIF) may adopt the common fund legal form widely used by investors looking for a tax transparent vehicle, a common vehicle of choice for most investor jurisdictions. 

Minimum Capital 

  • Reserved Alternative Investment Funds (RAIFs) must have a minimum capital within a pre-determined timeframe. 
  • A Reserved Alternative Investment Fund (RAIF) is required to comply rules applicable to the legal form they have chosen to adopt as per 1915 Commercial Companies Act. 

Subscription Tax

  • Reserved Alternative Investment Funds (RAIFs), except for those that adopted the risk capital legal form, will be subject to annual subscription tax of 0.01% of their net asset values. 

The Reserved Alternative Investment Fund (RAIF) structure is an attractive and highly credible structuring option for fund initiators and investors in Luxembourg. It is the most investor-friendly fund structure, and is geared towards becoming a go-to vehicle for managers that structure their funds to appeal to investors which require certain types of funds. Damalion offers comprehensive consulting solutions to fund initiators and investors in Luxembourg. From company formation to management, our team of business consultants will be lending our expert help every step of the way. We offer the reach and insight from our team of global service network, combined with knowledge and great understanding of the local markets in Luxembourg and other jurisdictions. Reach out to a Damalion expert today to learn more. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.