More than EUR 4,7 trillion is now under administration in Luxembourg as a global fund center, the second-biggest investment fund center in assets under management behind the United States and Europe’s largest fund domicile.
This story’s success is primarily based on the worldwide success of UCITS, or Undertakings for Collective Investment in Transferable Securities.
The nation is a member of the European Union and has a AAA credit rating. Luxembourg-based investment funds are more readily disseminated throughout the European Union. They have also acquired worldwide attention for their ease of cross-border distribution due to Luxembourg‘s status as an European Union domicile.
The following are Luxembourg’s primary benefits as a fund domicile:
1. Stability
With its central location in Europe, Luxembourg is ideally situated to use EU pass porting rights to distribute the fund to European and worldwide investors.
2. Leadership on a Global Scale
According to a recent report, Luxembourg is the world’s leading UCITS and cross-border fund distribution center. Luxembourg is home to the asset management industry’s most essential service providers, all of which provide UCITS services. In terms of asset management, the nation is renowned across the globe, and its funds are widely disseminated and well-known.
3. One-stop-shop
Incorporating a UCITS with a European passport, working with industry leaders, going public on a reputable stock market, and returning certain functions to the country where they were initially performed. Regarding the management and distribution of investment money, Luxembourg offers the flexibility to provide a one-stop shop.
Unconventional collective financial instruments
Funds can operate freely throughout the EU with a single authorization from a member state thanks to the UCITS collective investment scheme, built on the foundation of a condensed EU regulation for the European retail market. As one of the first countries to implement the UCITS directive, Luxembourg has emerged as a pioneer in this industry, accounting for over 35% of all UCITS. Today, UCITS are the most widely dispersed investment fund in the world, accounting for more than 62% of funds distributed cross-border.
What is a UCITS’s Investing Policy?
Investments in listed shares, bonds, index components, and assimilated assets are permissible for UCITS, but they must adhere to a rigid set of regulations. Financial derivative products, cash, and specialized money market instruments fall under this umbrella. The purchase of precious metals or certificates reflecting them and short sales and borrowings that aren’t disclosed are strictly prohibited.
What Organization is in Charge of the U.S. Tax-Exempt Investment Trusts (UCITS)?
A Luxembourg-based management company (ManCo) or a ManCo based in another EU member state may oversee UCITS. In contrast to an FCP, which must be managed by a ManCo, SICAVs and SICAFs may be self-managed or delegated to a ManCo. It’s important to know what the UCITS’ main benefits are.
The following are the UCITS’ primary benefits:
- As an investment company with variable capital (SICAV) or as an investment company with fixed capital, the UCITS may be founded (SICAF). With no legal personality, a UCITS may alternatively be set up as a contractual fund or fonds commun de placement (FCP).
- You may create an umbrella fund with many compartments and sub-funds that are made of separated compartments, as a single UCITS or apart from it. The compartments may also contain an infinite number of shares or classes of units, depending on the requirements of the shareholders.
- If the UCITS’s registered office is in another European Union Member State, you must transfer the assets to a custodian bank with a Luxembourg branch or registered office in Luxembourg.
- It is required that the UCITS be approved by the Luxembourg financial regulatory authority (CSSF) before commencing its activities and that it remains subject to their oversight and protection. Investors benefit from this extra level of management.
Which suppliers are needed for UCITS?
All of the following service providers are required to be hired by the UCITS:
- A custodian or depository bank in Luxemburg
- A CSSF-approved central administration
If a Luxembourg-based ManCo is chosen, the central administrator will be situated in Luxembourg.
- Portfolio managers (investment advisors), administrators,
- transfer agents,
- distributors, and
- payment agents
- a CSSF-approved authorized independent auditor are some of the other service providers.
Is the EU PASSPORT available to UCITS for fund distribution?
UCITS have a European passport, which means that once approved by the CSSF in Luxembourg, they may be issued to investors in all other EU Member States based on a defined application process. This is because of its worldwide reputation as a European retail fund; UCITS has become the world’s most widely dispersed fund type.
Where in Luxemburg does it take the most time to set up a UCITS?
The intricacy of the fund’s structure and its investment policies determine the amount of time it takes to set up a UCITS. Typically, creating a UCITS might take three to four months.
How much does it cost to set up a UCITS, and how long does it take?
According to the service providers and investment policies, the cost of setting up an EU UCITS might vary widely.
For each SICAR application, the CSSF will charge a one-time fee for the evaluation of the application. Currently, the examination cost is:
- 4,000 Euros for a conventional UCITS.
- Eight thousand euros for UCITS umbrella funds.
In addition, each SICAR must pay the CSSF an annual lump sum:
- The cost of the standard UCITS is 4,000 euros.
- EUR 8,000 for the umbrella UCITS for one to five sub-funds.
- For the umbrella UCITS for six to twenty sub-funds, the fee is EUR 15,000
- For the umbrella UCITS for 21-50 sub-funds, the cost is EUR 24,000
- Under the umbrella of UCITS for more than 50 sub-funds, EUR 35,000
To get an idea of the costs, you don’t have to start from scratch and may hire an existing UCITS sub-fund instead.
Damalion articulates its internal competencies with its local network made of accredited professionals. We facilitate the choice of the right investment funds to achieve your objectives in a very independent way. If you plan to launch your Luxembourg UCITS, please contact your Damalion expert now.
