Luxembourg’s Reserved Alternative Investment Fund (RAIF) is an investment vehicle that can invest in all types of asset classes. Technically, it qualifies as an alternative investment fund (AIFD), therefore, is not subject to the approval and supervision of the Commission for the Supervision of the Financial Sector (CSSF). With this in mind, a Reserved Alternative Investment Fund (RAIF) must delegate an authorized external Alternative Investment Fund Manager (AIFM).
In case an Alternative Investment Fund Manager (AIFM) is domiciled in the EU, a Reserved Alternative Investment Fund (RAIF) are allowed to market shares, units, and partnership interests using a specific passport to well-informed investors across the EU.
Reserved Alternative Investment Fund (RAIF) Legal Framework
- Reserved Alternative Investment Funds (RAIFs) are subject to the Law of 23 July 2016, also known as the Luxembourg RAIF Law.
- The applicability of Alternative Investment Fund Managers (AIFMs) is also governed by the Law of 23 July 2016.
- Reserved Alternative Investment Funds (RAIFs) investing in short-term assets with cumulative or distinct objectives offering returns in line with prevailing market rates and preserving the value of investment are deemed to adhere to the requirements imposed by the Regulation (EU) 2017/1131 regarding money market funds.
Reserved Alternative Investment Fund (RAIF) Creating and Direct Supervision
- While the Reserved Alternative Investment Fund (RAIF) is not directly supervised by the Commission for the Supervision of the Financial Sector (CSSF), the external Alternative Investment Fund Manager (AIFM) is required to inform the Commission for the Supervision of the Financial Sector (CSSF) about activities and transactions by a Reserved Alternative Investment Fund (RAIF) as per regular reporting requirements.
- A Reserved Alternative Investment Fund (RAIF) is legally established after a notarial certification.
- Requirements for incorporation entails confirmation from an Alternative Investment Fund Manager (AIFM) of a fund’s creation. The information will then be published in the official gazette Memorial.
- The funds constitutional documents do not have to be certified by a notary to be considered valid.
- After successful establishment, a Luxembourg Reserved Alternative Investment Fund (RAIF) is entered into a list held by the Luxembourg Trade and Companies Register.
- A fund’s offering document must confirm on its front page that it is not subject to supervision in Luxembourg.
Alternative Investment Fund Manager (AIFM) Appointment
- It is a requirement for Reserved Alternative Investment Funds (RAIFs) to choose an external Alternative Investment Fund Manager (AIFM). This means that Reserved Alternative Investment Funds (RAIFs) cannot be managed internally.
- An Alternative Investment Fund Manager (AIFM) can be established in Luxembourg or any other EU member state, or even in a non-EU country.
- In the event that a Reserved Alternative Investment Fund (RAIF) is managed by a corporate management entity, it can be appointed as an Alternative Investment Fund Manager (AIFM).
- An Undertaking of Collective Investment for Transferrable Securities (UCITS) management company may also apply for authorization as an Alternative Investment Fund Manager (AIFM) to be able to manage an Undertaking of Collective Investment for Transferrable Securities (UCITS) and Alternative Investment Fund.
Reserved Alternative Investment Fund (RAIF) Legal Forms
A Reserved Alternative Investment Fund (RAIF) may be established as follows:
- Open-ended or close-ended common contract fund (FCP), with no legal personality and managed by a management company.
- Open-ended or close-ended investment company in variable capital (SICAV) or fixed capital (SICAF). The establishments of such entity will require the creation of Articles of Incorporation.
- The common contract fund (FCP) and investment company in variable capital (SICAV) or fixed capital (SICAF) may be established as a single fund or as an umbrella structure with an unlimited number of compartments or sub-funds.
- By rule, a fund and its compartments must have an unlimited number of share or unit classes, depending on the specific needs of investors to whom the funds are distributed.
A Reserved Alternative Investment Fund (RAIF) Eligible Investors
- Investments in a Reserved Alternative Investment Fund (RAIF) is limited to well-informed investors. This pertains to individuals and entities that have the ability to assess their risks.
- Well-informed investors pertain to institutional investors, professional investors, and private investors who have confirmed in writing that they comply to their “well-informed” status.
- A well-informed investor invests a minimum of EUR 125,000 or have been assessed by a credit institution, investment firm which will serve as a confirmation of an investor’s expertise, experience, and knowledge in adequately appraising an investment in the Reserved Alternative Investment Fund (RAIF).
Reserved Alternative Investment Fund (RAIF) Disclosure Requirements and Financial Reporting
- A Reserved Alternative Investment Fund (RAIF) is required to draft a prospectus or offering document, a Packaged Retail and Insurance-Based Investment Products (PRIIP) Key Information Document (KID) for retail investors who can make investments and annual reporting.
- A Reserved Alternative Investment Fund (RAIF) is not obligated to prepare a semi-annual report.
Reserved Alternative Investment Fund (RAIF) Service Providers
- A common fund (FCP) must be managed by a management company.
- An investment company in variable and fixed capital (SICAV/SICAF) may be self-managed or designated to a management company.
- The management company of a common fund (FCP) must draft the management regulations for the common fund.
- Self-managed investment company in variable and fixed capital (SICAV/SICAF) can only manage assets in their own portfolio and many manage assets of third parties.
- Central administration of a Reserved Alternative Investment Fund (RAIF) must be in Luxembourg.
- A Reserved Alternative Investment Fund (RAIF) must delegate a Luxembourg depositary which is primarily responsible for assets safekeeping.
- Eligible depositaries must be established Luxembourg credit institutions. A depositary may also be a Luxembourg established investment firm that has fulfilled specific requirements laid down by the Law of 5 April 1993 on the financial sector, as amended.
- Reserved Alternative Investment Funds (RAIFs) may also collaborate with a professional depositary of assets other than financial instruments.
- Annual reporting must be audited by an authorized independent auditor with appropriate professional experience.
- Typical service providers in the incorporation and management of a Reserved Alternative Investment Fund (RAIF) are lawyers, portfolio managers, administrators, domiciliation agents, distributors, market makers, paying agents, and more.
Reserved Alternative Investment Fund (RAIF) Capital Base
- The nest assets of a Reserved Alternative Investment Fund (RAIF) can be less than EUR 1.25 million. This minimum capital base must be fulfilled within a period of 12 months following the authorization of a Reserved Alternative Investment Fund (RAIF).
- At least 5% of the capital must be paid up upon subscription.
Our global service network at Damalion consists of a skilled team of service providers that allow us to assist investors in the establishment of a Reserved Alternative Investment Fund (RAIF) in Luxembourg. We have the knowledge and skills to assist you with all aspects of company formation in Luxembourg, including Reserved Alternative Investment Funds (RAIFs). Our team is experienced in a wide range of investment vehicle formation, including venture capital, real estate, private equity, and more. Additionally, we can also connect you to our wide network of professional service providers to help you in various activities, such as bank account opening, bookkeeping, accounting services, annual reporting, and more. 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.