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Luxembourg Reserved Alternative Investment Fund (RAIF) -The best of two worlds?
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 1
What is a RAIF?
a Luxembourg alternative investment fund (‘AIF’)a Luxembourg alternative investment fund (‘AIF’)
managed and supervised by an external authorised Alternative Investment Fund Manager (‘AIFM’)managed and supervised by an external authorised Alternative Investment Fund Manager (‘AIFM’)
subject to AIFMD requirementssubject to AIFMD requirements
but not subject to CSSF (product) supervisionbut not subject to CSSF (product) supervision
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 2
Why should I use a RAIF?
A “SIF” without CSSF supervisionA “SIF” without CSSF supervision
Quick time to market
An additional vehicle for Luxembourg investment platforms
High flexibility
Benefit from investment funds features other unregulated don’t haveBenefit from investment funds features other unregulated don’t have
Beneficial tax regime and tax featuresBeneficial tax regime and tax features
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 3
How does the RAIF fit into the Luxembourg toolbox?
CSSF product supervision
StructuringFlexibility
UCIPart II
SIF
traditional assets + certain alternative
asset classes
UCITS III eligible assets venture capital/
private equity
UCITSPart I
SICAR
all asset classes most asset
classes (with restrictions)
RAIFLP
* securitisation vehicle
sec*
sec*
all asset classes
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 4
Is it the right fit for my product?
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 5
Key advantages of RAIFs.
Time to market
Risk diversification requirements more flexible
Umbrella vehicles possible
Contractual type vehicles allowed (FCP)
Attractive tax regime
Variable capital possible, no restrictions on distributions, no legal reserve
Designation as « fund » based on clear legal definition
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 6
Structuring thoughts.
Indirect supervision by AIFM, directors, depositary, auditors
Investor requirements
Authorised (not registered) AIFM required
CSSF approved depositary and auditors
Declaration of incorporation before notary, registration on RCS list, notification to CSSF
Annual report according to scheme in annex to law
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 7
Structuring ideas.
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 8
RAIF master-feeder set-up.
Feeder RAIF
Master SICAV-SIF
Institutional investors
Privateinvestors
• Light regulatoryregime
• Quick to market
• Quick adaptations to regulatorychanges at investor level
• CSSF supervision
• higher investorprotection
> Feeder for institutionalinvestors: less investorprotection required
> Master for private investors: full regulatory supervision and investor comfort
> Economies of scale in investing
> Easier day-to-day investorhandling since homogeneousinvestor groups
> Separate equal
> Treatment assessment at master and feeder level
> Separate general meetings
> No need for private investors’ consent in case of adaptations at feeder level (example: SolvencyII)
> No subscription tax at feeder level
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 9
Parallel funds.
> Access for US managers to European market
> Marketing passport
> Upon AIFMD 3rd country extension: same AIFM for US and EU fund conceivableAIFM
Investment Manager
RAIFUS investors
e.g. Delaware
Joint investment by the Investment
Manager
Delegation
EU investors
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 10
Phased approach.
Time lapse
> Accelerate time to market
> Seize time criticalinvestment opportunities
> Investment of seed money to build investment portfolio before allowing investors(avoiding J-curve)
> Setting-up fund for restricted circle of investors(e.g. club deal or sponsor investor), broadeningmarketing at later stage
Building investmentportfolio
Performinginvestment portfolio
External investorsSponsor investor / restricted circle
Upgrade to SIFRAIF
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 11
RAIF – Master Luxco Investment Platform
> Structural segregation of Investors and Investments
> Creation / enhancingLuxembourg substance of Master Luxco
> Several tax advantages as compared to a traditionalMaster Luxco Soparfi
Master
Luxco
RAIF
AIFM EU
PooledInvestors 1
PooledInvestors 2
PooledInvestors 3
Investment 1 Investment 2 Investment 3
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 12
Key features of RAIFs.
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 13
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
Which legal forms may be adopted?
> contractual form: common fund (fonds commun de placement – FCP)
> partnerships: common limited partnership (société en commandite simple – SCSor CLP); special limited partnership (société en commanditespéciale – SCSp or SLP); partnership limited by shares (société encommandite par actions – SCA)
> corporate entities: public limited company (société anonyme – SA), private limited company (société à responsabilité limitée - S.à r.l.), cooperative organised as a public limited company (société coopérativeorganisée comme une SA SCOSA)
> contractual form: NA
> partnerships: common limitedpartnership (société encommandite simple – SCS or CLP); special limitedpartnership (société en commandite spéciale – SCSpor SLP), partnership limited by shares (société en commandite par actions –SCA)
> corporate entities: public limited company (société anonyme – SA), private limitedcompany (société à responsabilité limitée - S.àr.l.), cooperative organised as a public limited company(société coopérative organisée comme une SA SCOSA)
> contractual form: NA
> partnerships: NA
> corporate entities: public limitedcompany (société anonyme –SA), private limited company(société à responsabilité limitée -S.à r.l.), cooperative organised as a public limited company (société coopérative organisée comme une SA SCOSA)
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 14
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
Umbrella form/use of compartments available?
YES NO
What management structure may be adopted?
Management bodies:
Board of directors, manager(s) or general partner – dependent on corporate form
No nationality/residency requirement for directors (subject to tax substance requirements)
Promoter/Investment advisor:
NA
Promoter/Investment advisor:
No formal approval by the CSSF of the initiator/promoter but often informal inquiry about initiator
Promoter/Investment advisor:
N/A
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 15
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What types of securities may be issued?
Depending on the legal form which has been chosen (shares, units, interests) Shares/bonds
Redemption:
Redemptions only if and as provided in the management regulations/articles of incorporation (at investor and/or company request)
Capital calls / Distributions:
Capital calls from and distributions to investors are subject solely to the rules provided in the constitutive documents
No limitation on issue price
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 16
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What investment policy may be adopted?
Permissible asset classes:
No restriction on asset class unless, in case of RAIF, SICARequivalent tax regime sought
Permissible asset classes:
Investment in risk capital, by direct or indirect investment in undertakings to be launched,
developed or listed
Broad concept of ‘risk capital’
Permissible asset classes:
No restriction on asset class
Risk spreading:
Risk diversification required
No minimum spread but responsibility of management
body
If no risk spreading required, the RAIF restricts its
investment policy in its constitutive documents to investments in risk capital
then (like SICAR)
Risk spreading:
Risk diversification required
In principle, no more than 30% of the assets or commitments tosubscribe securities of the same type issued by the same issuer
(Cf. CSSF Circular 07/309)
Risk spreading:
No risk diversification required
Risk spreading:
No risk diversification required
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 17
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
Who qualifies as an eligible investor?
well-informed investors only:
> institutional investors
> professional investors
> any other investors
(i) which elect to be treated as well-informed investors and (ii) invest at least €125,000 or
(iii) have a recommendation from a credit institution orany other professional of the financial sector or a management company
Such conditions are not applicable to the management team
No restriction in principle
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 18
Key features.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What are the capital requirements?
Corporate minimum requirements:
Depending on the legal form which has been chosen
Fixed/variable capital:
May opt for variable share capital
Fixed capital
Form of contribution:
Contribution in kind and/or in cash permissible
Capital commitments may be contractually agreed
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 19
Governance requirements.
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 20
Governance requirements.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
By which entities can RAIF/SIF/SICAR be managed?
Management company required?
for FCP only NA NA
AIFM requirement:
Yes
external authorised AIFMrequired (except for supra
national institutions*)
Yes
internal (where the legal form of the fund permits an internal management) or
external authorised/registered AIFM (depending on the AuM it manages)
Location of the AIFM:
> In Luxembourg
> In the EU
> Outside the EU**
* e.g. ECB, EIF, IMF
** subject to the application of article 66 of the AIFMD
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 21
Governance requirements.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What service providers are required?
Depositary:
Luxembourg credit institution or Luxembourg branch of a credit institution having its registered office in the EU
Luxembourg presence:
Registered office and central administration in Luxembourg
Auditor:
Independent approved Luxembourg auditor
What are the transparency requirements?
Offering document:
Yes
Specific warning to investorsregarding the absence of
CSSF supervision
Offering document:
Yes
Offering document:
NA
Reports?
Annual reports to investors (subject to AIFMD requirements)
No report to CSSF Monthly reporting to CSSF Semi-annual reporting to CSSF* No report to CSSF
* Monthly as from 30 June 2016, Cf. Circular 15/627
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 22
Supervision.
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 23
Supervision.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
Is there any supervision ?
No CSSF supervision
AIFM supervision
Depositary supervision
Auditor supervision
CSSF supervision
AIFM supervision
Depositary supervision
Auditor supervision
No CSSF supervision
AIFM supervision
Depositary supervision
Auditor supervision
Official List:
Launch without regulatory approval process
No registration on an official list held by the CSSF
RAIF to be registered within 10 days as from itscreation on a specific list held by the Register of
Commerce*
Mere AIFM notification to the CSSF (Circular15/612), onward information to ESMA
Publication in the RESA*
Official List:
CSSF instruction and prior approval
Registration on an official list held by the CSSF
Official List:
Launch without regulatory approval process
No registration on an official list held by the CSSF
Mere AIFM notification to the CSSF (Circular 15/612),
onward information to ESMA
Constitutional documents:
No CSSF approval of constitutional documents required
Notary deed: depending on the chosen corporateform
The constitution of a RAIF shall be subject to a formal ex-post declaration before notary
Changes to constitutional documents withoutregulatory approval
Constitutional documents:
Approval by the CSSF of the constitutional documents (prospectus and articles/ManRegs) and service agreements
Notary deed: depending on the chosen corporate form
Changes to constitutional documents subject to CSSF approval
Constitutional documents:
No CSSF approval of constitutional documents
(articles) and service agreements
Notary deed for articles
* Recueil Electronique des Sociétés et Associations, to be further detailed in a Grand Ducal Regulation
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 24
Tax regime.
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 25
Tax regime.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What is the level of taxation?
Capital duty:
Fixed capital duty of €75 upon incorporation and subsequent articles changes
Corporate Tax:Not subject to corporate income tax
(SIF tax regime)
Exception:
If investing only in risk capital, full liability to corporate income tax but exclusion from taxable profits of any
income (dividends, capital gains, …) realised on securities or funds drawn
for investment (within 12 months) (SICAR tax regime)
Corporate Tax:Not subject to corporate
income tax
Corporate Tax:Save for SCS (tax transparent), full
liability to corporate income tax
Exclusion from taxable profits of any
income (dividends, capital gains, …) realised on securities or funds drawn
for investment (within 12 months)
Corporate Tax:
Subject to regular corporate and municipal business tax
Subscription Tax:Subject to yearly subscription tax of
1bp on net asset value but 0 bp if investment in (i) another fund subject
to subscription tax or (ii) in a money market or (iii) microfinance fund or (iv) pension fund pooling vehicle (SIF tax
regime)
Exception:
If investing only in risk capital, no subscription tax (SICAR tax regime)
Subscription Tax:Subject to yearly subscription
tax of 1bp on net asset value but 0 bp if investment in (i)
another fund subject to subscription tax or (ii) in a
money market or (iii)
microfinance fund or (iv) pension fund pooling vehicle
Subscription tax:No
Subscription tax:No
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 26
Tax regime.
RAIF SIF-AIF SICAR-AIF SOPARFI-AIF
What is the level of taxation?
NWT:Not subject to NWT (SIF tax
regime)
Exception:If investing only in risk capital, NWT
exempt save the flat minimum
NWT liability (as from 1 January2016 – Law of 18 December 2015)
(SICAR tax regime)
NWT:Not subject to NWT
NWT:NWT exempt save the flat
minimum NWT liability (as from 1 January 2016 – Law of 18
December 2015)
NWT:Subject to NWT of 0.5% on Net
Asset Value (minimum NWT always due)
VAT:VAT exemption on management services
WHT:No withholding tax on distributions
WHT:
15% WHT on dividends
DTT:
If subject to SIF tax regime, in
principle no double tax treaties elibility (subject to a few exceptions)
If subject to SICAR tax regime, in principle double tax treaties eligibility
DTT:
In principle no double tax treaties
elibility (subject to a few exceptions)
DTT:
In principle double tax treaties
eligibility
DTT:
Eligible to double tax treaty
Luxembourg Reserved Alternative Investment Fund (RAIF) – The best of two worlds? │ July 2016 27
Contacts
Please liaise with your usual Linklaters contacts
Linklaters LLP Luxembourg
35, Avenue John F. KennedyL-1855 LuxembourgTel: +352 2608 01Fax: +352 2608 8888linklaters.lu
Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on www.linklaters.com. This document contains confidential and proprietary information. It is providedon condition that its contents are kept confidential and are not disclosed to any third party without the prior written consent of Linklaters. Please refer to www.linklaters.com/regulation for important information on our regulatory position.
Disclaimer: This brochure is intending to provide an overview of the main features of a Reserved Alternative Investment Fund (‘RAIF’) compared to a Specialised Investment Fund (‘SIF’), an Investment Company in Risk Capital (‘SICAR’) and a Soparfi. It isnot intended to be comprehensive nor does it constitute any legal advice.