Jérôme Wigny, partner of Elvinger Hoss Prussen, explains the new RAIF regime in Luxembourg and how it is different from other fund frameworks.
What is a RAIF?
The RAIF(Reserved Alternative Investment Fund) is a new Luxembourg fund structure that is specifically designed for alternative funds. In order to be eligible for this new regime, an investment vehicle must necessarily qualify as an AIF (Alternative Investment Fund) within the meaning of the AIFMD (Alternative Investment Fund Managers Directive) and be managed by an authorised AIFM (Alternative Investment Fund Manager). A key characteristic of a RAIF is that it is not subject to the supervision of the Luxembourg regulator the CSSF (Commission de Surveillance du Secteur). The RAIF should nevertheless be considered as a regulated vehicle.
The requirement that the RAIF be managed by an AIFM means that it will be subject to the so-called “product rules” of the AIFMD and will thus indirectly be subject to the supervision of the AIFM’s regulator. Another consequence is that the RAIF shall always benefit from the European passport for marketing to professional investors in the EU.
What has prompted its introduction in Luxembourg?
The AIFMD is a managers’ regulation requiring that AIFMs be properly licensed to manage AIFs. The AIFM then becomes the AIF’s watchdog and whether or not the AIF is supervised is irrelevant. The RAIF regime fully complies with this new approach and removes the double system of approval and supervision of the vehicle that is not required by the AIFMD.
What is different about the RAIF from other fund frameworks in Luxembourg?
Most Luxembourg fund structures are subject to CSSF supervision. However, the possibility of establishing a Luxembourg vehicle not being subject to CSSF supervision is not new. Indeed, this option contained in the AIFMD was never excluded by Luxembourg’s laws and regulations. Its use has even been facilitated by the modernisation of our limited partnership regimes (SCS and SCSp). The exponential use of these vehicles has demonstrated the interest of fund promoters for more flexible fund regimes.
What are some of the key elements of the RAIF rules?
The RAIF rules are based on those applicable to SIFs (Specialised Investment Funds). The key difference is the absence of CSSF supervision. The flexibility of SIFs, such as the choice of legal forms, the absence of limitation as regards eligible assets or investment policies, the possibility of having multiple compartments and, as a matter of principle, the tax regime of a taxe d’abonnement at a 0.01% rate (or nil rate in certain cases), have been retained.
Why would an asset manager choose the RAIF?
The RAIF should become a vehicle of choice for managers seeking to combine contractual freedom and short time-to-market together with both the protection of the AIFMD framework, and the marketability of an investment vehicle benefitting from an EU passport. The RAIF, together with the SCS and SCSp, represent a new generation of vehicles: Funds 2.0.
What is the best book you have read this year?
I have read two masterpieces this summer: The Master and Mararita (Bulgakov) and The Leopard (Lampedusa). The latter describes the difficult choice between upholding continuity of old values and breaking tradition to secure continuity. By complementing its toolbox, Luxembourg leaves that choice to managers and investors.
About Jérôme Wigny
Jérôme Wigny became a member of the Luxembourg Bar in 1994 and a partner of Elvinger Hoss Prussen in 2001.He specialises in investment funds (UCITS and AIFs, in particular those pursuing alternative strategies) as well as management companies and alternative investment fund managers (AIFMs).
He is a member of various commissions of the “Luxembourg Association of Investment Funds” (ALFI) and co-chairs the Hedge Fund commission. He is also a member of the investment fund committee of the “Luxembourg Directors’ Institute” (ILA) and of the “Haut Comité de la Place Financière (HCPF), the advisory committee to the Luxembourg Ministry of Finance.
He holds a “licence en droit belge” from the Université Catholique de Louvain-la-Neuve. He is a regular speaker at conferences and seminars, in particular in relation to investment fund-related topics, and is an invited professor at Hautes Etudes Commerciales (HEC), Liège (Belgium).
The views expressed in this material are those of the author as of October 28, 2016 and may or may not be consistent with the views of Brown Brothers Harriman & Co. and its subsidiaries and affiliates (“BBH”), and are intended for informational purposes only.
Neither, Brown Brothers Harriman, its affiliates, nor its financial professionals, render tax or legal advice. Please consult with attorney, accountant, and/or tax advisor for advice concerning you particular circumstances.
BBH is not affiliated with Mr. Wigny or Elvinger Hoss Prussen.