Luxembourg has continued to improve its strong status as an International Center of excellence for a large variety of investment funds. The legal and regulatory framework is continually being improved to give the best tools for investment managers to structure their investments and protect investors’ interests. And when we are talking about the best tools for investment managers, Alternative Investment Funds falls into this category.
Alternative Investment Fund (“AIF”) and Alternative Investment Fund Manager (“AIFM”)
An AIF is a collective investment vehicle, including investment compartments thereof, which raises capital from a number of investors, with the end goal of investing it in accordance with a defined investment policy for the advantage of those investors.
The quick emergence of alternative strategies has led to a new class of funds: Alternative Investment Funds, or AIFs. AIFs refer to all investment funds that are not covered by the EU Directive on UCITS (Undertakings for Collective in Transferable Securities) and rather fall under the Alternative Investment Fund Manager Directive (AIFMD). This includes hedge funds, funds of hedge funds, venture capital, private equity funds, and real estate funds.
AIFs need to assign an AIFM. AIFM (An Alternative Investment Fund Manager) is any legal person whose formal business is managing one or more alternative investment funds (AIFs). An AIF can be internally regulated or alternatively, they can authorize an external AIFM. AIFMs are regulated in compliance with the Luxembourg law of 12 July 2013 on alternative investment fund managers, as amended (the “AIFM Law”).
Though the AIFM Law concentrates on the fund’s manager, the fund itself is regulated by the appropriate product laws. The AIFM can be either registered; (I) de minimis or (ii) authorized (full scope).
De minimis AIFMs manage AIFs whose portfolio of assets does not surpass a limit of:
- EUR 100 million (counting leveraged assets) or
- EUR 500million (unleveraged) and with no redemption rights exercisable during a period of 5 years following the date of initial investment of the AIF.
De minimis AIFMs are subject to specific reporting requirements, but they do not profit from passporting and European marketing privileges unless they opt into the full scope regime of the AIFM Law.
Authorized AIFMs are dependent upon the full scope of the AIFM Law and profit from management and marketing passporting rights.
Investment Funds in Luxembourg
Luxembourg gives a variety of different types of investment fund vehicles to provide any solution clients may need. The level of regulation that a fund is exposed to differs, depending on various factors, including the type of fund that is established as well as the corporate vehicle that is assigned for the purposes of establishing the fund.
The Luxembourg funds market has evolved exponentially over the past decade and with over 15,000 investment funds, it is now the second largest fund-domicile jurisdiction on the planet after the USA.
Luxembourg has historically been fast to grip any opportunity to improve competitiveness through rapid and smart legislation, being the first to enforce both the European Directive on UCITS and AIFMD into national law.
And as this trend for regulation continues, the number of hedge fund managers who will choose Luxembourg for their investments is likely to increase.
To start your own investment fund in Luxembourg, please contact your Damalion expert now. We articulate different competences at cost effective price for the success of your investment fund.
