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RAIF – Lux Unregulated AIF

Ezechiel Havrenne


Index

1. Background: Lux recognised position / time-to-market

need

2. Basic Luxembourg fund concepts

3. RAIF structures


1A. Lux Recognised position


1A. Lux Recognised Position

- Size of investment fund industry:

- Luxembourg is the 2nd largest fund jurisdiction after the USA

- AuM of Luxembourg funds over EUR 3.5 trillion

- Market shares of fund initiators by country of origin: #1 USA (over 20%);

#2 UK (17%); #3 Germany (15%); and #4 Switzerland (14%)

- Cross-border distribution:

- Luxembourg is the leading centre for cross-border distribution of

investment funds with 67% of the European market

- Luxembourg-domiciled investment funds are distributed in more than 70

countries throughout the world. They are recognised everywhere,

including in Asia, Latin America and the Middle East.


1B. Lux Recognised Position – RAIFs- Available tools pre RAIF law:

* SCS/SCSp

* SIFs

* SICARs

* UCI Part II

- Problem: time-to-market + umbrella + tax efficiency put

together

- Solution: RAIF

* Quick time-to-market

* EU marketing passport

* Well-informed investors + professional investors

* Flexible investment policy and restrictions

* Umbrella with ring-fencing

* Tax efficient


1C. RAIFs must be managed by an

authorised AIFM - AIFMD passport

Shares/partnership interests of my RAIF can be marketed to

professional investors in the EEA through the AIFM passport

because my RAIF must be managed by an authorised AIFM

irrespective of reaching the de minimi thresholds of EUR 100 or

500 million


Index

1. Background: Lux recognised position / time-to-market need


3. RAIF structures


2.Basic Luxembourg umbrella AIF

concepts

NautaDutilh’s “M&M Candy” analogy…


2.A. The constitutive elements…

Assets? Compartments? Partnership -

SICAV?

Wrappers?

SIF

RAIF

SICAR

SCSp

SCS

SCA


2.B. Partnerships?

- Which one to chose?

* Depends mainly on tax considerations at the level of

- Your investors (e.g. Belgian Institutional Investors often prefer investing in an

SCSp because of tax considerations (double deduction))

- Your investments (depending on the asset and the jurisdiction direct or indirect

investments will be considered)

* Depends also on level of anonymity sought and limited investor

involvement

SCS

SCA

SCSp


2.C. Compartments?

- Can a regular SCA/SCS/SCSp, a SIF, a SICAR or a RAIF have

one or more compartments?

- Corporate governance advantage and BEPS considerations

- Are compartments ring-fenced?

- How quickly can we set one up?


2.D. Wrappers?

- Which one to chose?

* RAIF:

- RAIF is unregulated and therefore… no approval delay – great time-to-

market product!

- Can be set-up with one or more compartments

* SIF and SICAR:

- Lightly regulated and supervised by the CSSF

- Time-to-market pointers

- Possibility to start with a RAIF and end-up with a SIF or SICAR after

conversion if needed

RAIFSIF

SICAR


2.E. Wrappers – general

considerations

- Main points:

* Eligible investors

- institutional / professional investors; and

- “other well-informed investors” (EUR 125k min or assessment)

* Diversification for SIFs and RAIFs of the SIF type

- No asset may in principle represent more than 30% of SIF/RAIF of the SIF type

portfolio after ramp-up period (usually up to 4 years after final closing); and

- Look-through approach

* Eligible asset requirement for SICARs and RAIFs of the SICAR type

* Compartments

- Possible + ring-fencing

* SICAV

- Variable capital – i.e. no notary public for capital increase/decrease

RAIFSIF

SICAR


Index

1. Background: Lux recognised position / time-to-market need


3. RAIF structures


3. Lux AIFs investing in private equity - Legal and

regulatory aspects

Available Structures:

* Subject to a special regime: Regulated and Unregulated AIFs

- Part II Funds (UCI/UCITS Law) - REGULATED

• FCP and SICAV (SA being the only form available)

- SIFs (SIF Law) - REGULATED

• FCP and SICAV (SCA, SCS and SCSp)

- SICARs (SICAR Law) - REGULATED

• SICAV (SCA, SCS and SCSp)

- RAIFs (RAIF Law) - UNREGULATED

• FCP and SICAV (SCA, SCS and SCSp)

• Can work like a SIF or a SICAR

NB: umbrella structure only possible in AIFs subject to a special regime

* Not subject to a special regime: Unregulated AIFs only

- SCS and SCSp (can be made to work like SICAVs)

- SCA (more structuring needed as cannot work like a SICAV)


3A. RAIFs of the SIF type – Legal and regulatory aspects

FCP / SICAV?: most likely SICAV. Why?

• non-UCITS FCP not popular anymore in Germany

• easy to replicate SCA and SCS/SCSp

Investments:

• no more than 30% of the NAV in any single asset (but

ramp-up and down) (see next slide on look-through)

Borrowing limits: no particular limit imposed by RAIF

law

Investors:

• Well-Informed Investors (“WII”)

Minimum investment = in principle EUR 125,000 but

assessment possible by AIFM/bank

• Professional investors (“PI”)

Main documents:

• PPM

• Articles/LPA/Management Regulations

• Annual report: AIFMD rules + specific rules

Closed or open-ended

Great time-to-market product as it is not subject to

prior CSSF approval

Lux

PIWII

RAIF

(SIF type)

SPV(s)

Portfolio

Company(ies)


3B. RAIFs of the SIF type – Legal and regulatory aspects

Look-through notion:

• a RAIF of the SIF type invests in a target through a wholly-owned SPV or

an SVP it controls;

• two or more funds (one of which being a RAIF of the SIF type) hold shares

in the same SPV and together control it inasmuch as the GP of the RAIF of

the SIF type and of the other funds is the same for all (further exceptions

have been granted in this field on a case-by-case basis); or

• a RAIF of the SIF type invests in one or more target UCIs subject to risk-

spreading requirements at least comparable to those applicable to RAIFs of

the SIF type.


3C. RAIFs of the SICAR type – Legal and regulatory aspects

FCP / SICAV?: most likely SICAV. Why?

• non-UCITS FCP not popular anymore in

Germany

• easy to replicate SCA and SCS/SCSp

Investments: same restrictions as SIF or

SICAR (as the case may be)

Borrowing limits: no

Investors:

• Well-Informed Investors (“WII”)

Minimum investment = in principle EUR

125,000 but bank assessment possible

• Professional investors (“PI”)

Main documents:

• Prospectus

• Articles/LPA/Management Regulations

• Annual report: AIFMD rules + specific rules

Closed or open-ended

Great time-to-market product as it is not

subject to prior CSSF approval

WII

RAIF

(SICAR type)

SPV(s)

Portfolio

Company(ies)

Lux

PI


3D. RAIFs of the SIF type – Tax aspects

Quid RAIF umbrella with one SIF type

compartment and one SICAR type

compartment?

• Not possible to opt for the tax treatment

applicable to RAIFs of SICAR type

Exemption from:

• Corporate income and municipal business tax

• Net wealth tax

Distributions exempt from withholding tax

No taxation on capital gains on shares

realized by non-resident investors

Annual Subscription tax: 0.01% on net asset

(exemptions assessed on a per-compartment

basis)

Limited access to double tax treaties (about

36 applicable to RAIFs of the SIF type)

No access to EU tax directives

VAT: exemption on management and advisory

services provided to the RAIF of the SIF type

WII

RAIF

(SIF type)

SPV(s)

Portfolio

Company(ies)

Lux

PI


3E. RAIFs of the SICAR type – Tax aspects

Tax transparent entity (SCS/SCSp):

• Transparent, hence not subject to corporate and

municipal business tax (CIT and MBT);

• Not treaty-entitled;

• Transparency as a rule allowing investors to

benefit from tax credits for withholding taxes

incurred in the source country;

• As a rule also deemed transparent from the

perspective of the source country.

Tax opaque entity (SCA):

• Subject to CIT/MBT but 100% exempt from

income from/gains realized on securities and

warehoused cash on deposit;

• Exemption from net wealth tax (NWT), except for

a minimum tax of EUR 3,210;

• No dividend or interest WHT;

• No tax on capital gains on shares realized by

non-resident investors;

• As a rule, access to double tax treaties and EU

tax directives (not universally recognized).

VAT: exemption on management and advisory

services provided to SICAR• Supervision and control by depositary VAT

taxable (14%).

WII

RAIF

(SICAR type)

SPV(s)

Portfolio

Company(ies)

Lux

PI


Questions?

21


Ezechiel HavrenneNautaDutilh Avocats Luxembourg S.à r.l.

Partner

Investment Funds

T: +352 26 12 29 74 09

F: +352 26 12 29 90

M: +352 621 56 74 09

E: [email protected]

mailto:[email protected]

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