November 27th saw the Luxembourg Government adopt a new draft law to create the Reserved Alternative Investment Fund, abbreviated to “RAIF”, aiming to maintain the competitiveness of the financial services sector for alternative investments. It can only be managed by fully authorised AIFMs, and is a response to the wishes of many asset managers by providing an alternative investment fund that will not be subject to the approval and/or supervision of the Luxembourg regulatory authority and will benefit from structuring flexibility which means it can be set-up in a few days.
The Luxembourg Council of Government approved a draft bill for its proposed Reserved Alternative Investment Fund (RAIF) in November 2015. The Bill still has to gain approval from the Luxembourg parliament but is scheduled for the first half of 2016. The main characteristic of the RAIF is that it is not subject to authorisation or supervision by the Commission de Surveillance du Secteur Financier (CSSF) resulting in a comparatively faster time to market. Most likely in reaction to the frustration of many managers over the time it takes to gain approval in Luxembourg. The RAIF has most of the main features of a regular Luxembourg AIF, such as a Specialised Investment Fund (SIF) but has lower regulatory costs.
The fund manager must be an authorised AIFM and must be domiciled in one of EEA member states. RAIFs will therefore access to the AIFMD passport. This new product reveals a move towards manager-oriented regulation, and away from the existing dual regulatory approach of regulating both the manager and the product.
Another benefit of the RAIF is that there are no restrictions on asset eligibility. Any fund strategy can be utilised. It will be exempt from corporate income tax, municipal business tax and net worth tax. There will not be withholding taxes on distributions or any tax on speculative capital gains for investors. A 1 bps subscription tax will be applied levied on the NAV of the RAIF.
The RAIF is also projected to broaden the range of the different options for structuring of various alternative funds such as real estate, private equity and hedge funds. It can take on different legal forms (e.g. corporate, contractual, or partnership) without being limited on eligible assets or investment policies. This is brought about through the sharing of the structuring flexibility applied to some other types of Luxembourg funds such as the Société d’investissement en capital à risque (SICAR).
Luxembourgers expect the RAIF to be well subscribed, especially with US fund managers as it should be suitable for treatment as a partnership for US tax purposes. Such a flexible investment vehicle will undoubtedly contribute to the success of Luxembourg as Europe’s alternative investment centre.
The new product is scheduled to enter into force in the first half of 2016, subject to parliamentary approval. Finscoms makes sure to keep clients abreast of all that is coming down the pipeline.
Ken Carmody [email protected]