An Executive Summary of Luxembourg Investment Vehicles · 2019-12-05 · E-mail:...

An Executive Summary of Luxembourg Investment Vehicles

Summary

Confidential – All Rights Reserved

Hance Law Avocats S.A.R.L. - 3A, Sentier de L’espérance, L- 1474 Luxembourg, GD Luxembourg – www.hance-law.com

E-mail: [email protected] – Tel: +352 274 404

1. The notion of an Undertaking for Collective p 1 Investments(“UCI”)

2. Regulated or Coordinated Funds p 2

3. UCITS: the classic example of Regulated Fund p 5

4. AIFs: Are they considered regulated? p 6

5. RAIF: Evolution, not revolution p 9

6. Alternative options: the registered limited p 18partnership and the (completely) unregulated limitedpartnership (SOPARFI) as vehicles for investments

About the author:

Olivier HancePersonal ExperienceMember of the Bar of Luxembourg (in quality of “Lawyer before the High Court of Justice”), Brussels and Paris (Schedule IV of foreign lawyers), Olivier is a specialized fund international lawyer, international business and finance. Olivier Hance is also a proud member of the prestigious following associations: STEP Network, IBA and International Referral.

Education and TrainingOlivier Hance holds a Masters in Law (Catholic University of Leuven, Belgium), a Ph.D.in law (Aix-en-Provence, France) and several MBAs awarded by: Louvain School of Management (Belgium), Antai (Shanghai, China), Fundacao Getulio Vargas (Sao Paulo, Brazil) and Corvinius (Budapest, Hungary).

He has also obtained diplomas and certificates (INSEAD, Solvay, Tulane, HEC Brussels, etc.) in the field: real estate, finance, wealth management, corporate governance.

Academic ActivityFor 20 years, Olivier has taught law and management at several European universities (Namur, Padua, Brussels, Helsinki, Aix-en-Provence …).At the moment, he is Professor ( “Maître de Conférence”) of the Aix-Marseille University.




1

AN EXECUTIVE SUMMARY OF

LUXEMBOURG INVESTMENT VEHICLES

(REGULATED-UNREGULATED-RAIF-REGISTERED

LIMITED PARTNERSHIP)

1. The notion of an Undertaking for CollectiveInvestments(“UCI”)- If we take a look at the EU investment fund directives, there is no

such term as “investment fund”. On the contrary there is the term

Undertaking for Collective Investments (“UCI”) which is a generic

legal term which englobes every form of investment fund and it is

mentioned in both the EU directive 2009/65/EC (the “UCITS or

UCITS IV Directive”) and in the EU directive 2011/61/EU (the

“AIFM Directive”). The UCITS Directive has been transposed in

Luxembourg with the law of 17 December 2010 (the “UCITS Law”),

while the AIFM Directive has been introduced in Luxembourg with

the law of 12 July 2013 (the “AIFM Law”).

- What is an UCI? An UCI usually has the following characteristics:

➢ There is a collective investment of funds (collective portfolio ofassets)

➢ The capital for the collective investment is raised from a numberof investors

➢ The capital is invested in accordance with a defined investmentpolicy for the benefit of those investors, generally in accordancewith the principle of risk spreading

http://www.hance-law.com/





2

Generally, the portfolio of an UCI may consist of transferable

securities and/or other assets. Risk spreading is required to prevent

excessive concentration of investments.

2. Regulated or Coordinated Funds- The term “Regulated Funds”, as the words imply, has to do with the

application of certain regulatory requirements imposed by the law to

funds that intent to be validly considered as Regulated Funds. That

means that the competent financial and regulatory authority (the

“CSSF” in Luxembourg) has to deliver an authorization to the

funds that comply with the specific regulatory requirements and

the Regulated Funds have to continually follow these specific

regulatory requirements i.e. the totality of the rules of the legislative

framework that is applicable to them. For this purpose, the CSSF

supervises the Regulated Funds so as to make sure that they

follow the specific set of rules that are applicable to them.

- The authorization procedure and this continual supervision

guarantees to investors that at least the Regulated Fund in which

they invest their money follow specific rules and it is not another

“Ponzi scheme”. Usually the most regulated the type of the fund (i.e.

UCITS), the more safeguards it offers to its investors. That is the

reason why the funds that are open to the public i.e. UCITS are the

most regulated. In this way, the legislator wants to compensate for

the supposed absence of specialized knowledge in the field of

investments on the part of individual investors by protecting them as

much as possible through the initial authorization and the continual

supervision of the regulation posed on the investment funds destined

to the public.





3

- In exchange for these investor safeguards that the Regulated Funds

provide, they require large amounts with regards to their

authorization and annual supervisory fees from the CSSF, as well

as, with regards to the professionals (management company,

depositary, registrar and transfer agent, administration agent) which

are engaged in the proper functioning of the fund and which also need

to make sure they apply regulatory compliance procedures

compatible with their regulatory framework.

-The term Regulated Funds was initially used to describe the

UCITS funds i.e. Undertakings for Collective Investment in

Transferable Securities (“UCITS”) which are considered as

“mainstream” funds and the first form of Regulated Funds in EU.

-UCITS funds are considered as highly regulated because not only

the funds per se but also their basic actors i.e. the manager of the

funds and the depositary are authorized, regulated and

supervised. On the other hand, AIFs are not authorized but are

regulated and supervised at the level of their AIFM who is

authorized, regulated and supervised and in this way obliged by

the CSSF to apply the AIFM legislative and regulative framework

to the AIFs it manages.

-In this light, there might be a confusion in legal philology as to

what consists a regulated UCI, as there are:

➢ UCIs that require both actor and product authorizations (i.e.both at the level of the Manager and of the UCI itself e.g.UCITS),





4

➢ there are UCIs that are regulated only at the level of theManager who makes sure that they follow the regulation (e.g.AIFs),

➢ there are self-managed UCIs (UCITS and AIF companies whichcomply to certain requirements according to the regime theybelong)

➢ there are completely unregulated UCIs which just follow thecompany law provisions of 1915 Law

➢ there are UCIs which are managed by an AIFM and must inaddition obtain a product authorization from the CSSF (e.g.SIFs) while they have the possibility to opt-in and follow theAIFM Law in addition to their (SIF) law

➢ there are UCIs that require both actor and productauthorizations, but nevertheless they are classified as AIFs(UCIs of the part II of the UCITS Law)

➢ there are unregulated UCIs (e.g. RAIF) that must obligatorily bemanaged by an AIFM i.e. they cannot be self-managed

➢ there is a special regime in the AIFM Law that provides forregistered AIFM whose AuM of the AIFs they manage arebelow a certain threshold. In this way, the registered AIFM isnot obliged to follow the totality of the AIFM Law but only asmall fraction

➢ there are AIFs that require product authorization (e.g. SICAR)according to their own legal regime and they are provided withthe option to follow the AIFM Law

- Maybe this is the reason why in the legal literature the term

Regulated Funds is generally avoided, as in some way or with

regards to certain aspects, any type of fund is regulated by the law

i.e. by the investment funds legislation the compliance with which

is supervised either directly or indirectly by the CSSF. Instead the

term “coordinated” funds is used in order to overcome the hurdle of





5

what is considered as regulated fund in theory and usually concerns

the UCIs that are regulated even in a less strict way.

3. UCITS: the classic example of Regulated Fund-An UCITS is an UCI which has been authorized according to the EU

UCITS Directive (UCITS Law if the UCITS is established in

Luxembourg). This means that for its constitution, for its functioning

et restructuring, it will have to respect the provisions in the UCITS

Directive.

- The competent authority which delivers the product authorization

i.e. the authorization of the fund itself (e.g. the CSSF for the UCITS

established in Luxembourg) will verify that this product corresponds

to all the requirements posed by the transposed UCITS Directive and

other regulatory requirements that form part of the UCITS

legislation.

-The UCITS Directive is of minimum harmonization i.e. the national

legislators of the EU member states when they transposed this

directive in their legal order could go beyond the provisions of the

directive in the sense that they could enact more protective

provisions. Nevertheless, member states upon implementation of the

directive with a national law cannot not contravene the provisions of

the directive which set the essence of the protection for the investors.

- The UCITS Directive poses a certain number of conditions with

regards to the notion of UCITS i.e. to be fulfilled by an UCI so as to be

considered as an UCITS fund:

➢ The UCITS fund must be established in an EU or in an EEA(Norvege, Lichtenstein, Islande) member state.





6

➢ The UCITS has as investment objective the collectiveinvestment in transferable securities or other liquid assets

➢ The funds for the investment must be collected from the public➢ The collective portfolio management must comply to the

principle of the risk diversification➢ It must be an open-ended fund i.e. to give the possibility to

investors to redeem their shares or parts in the fund at anymoment

4. AIFs: Are they considered regulated?After the adoption of the AIFM Directive and its transposition with

the AIFM Law in Luxembourg, the until then so-called unregulated

i.e. alternative investment funds (AIFs) became “regulated” (but

not directly supervised) at the level of the AIFM which manages

them. That means that the AIFM is an authorized, regulated and

supervised entity which has to report with regards to the AIFs that it

manages to the competent supervisory authority (the CSSF for an

AIFM established in Luxembourg).

-According to this article 4(1) of the AIFMD: “AIFs means collective

investment undertakings, including investment compartments thereof,

which:

(i) raise capital from a number of investors, with a view of investing it in

accordance with a defined investment policy for the benefit of those

investors; and

(ii) do not require authorization pursuant to art. 5 of Directive

2009/65/EC;” (i.e. the UCITS Directive)





7

-This is a fluid definition because of the flexibility with which the

EU legislator intended to encompass the notion of AIF. As

standard forms of AIFs can be considered the hedge funds, the private

equity and real estate funds, but also any other type of fund that

either its law expressly denominates it as such (e.g. UCIs of the part

II of the UCITS Law are denominated as AIFs) or not, so long as they

do not require an UCITS product authorization.

-Differentiation with the UCITS Directive:

➢ AIFs are not destined to public or retail investors (but theAIFM Directive gives the possibility to the EU/EEA memberstates to make AIFs available to retail investors under certainconditions- therefore one should take a look into theimplemented act of the AIFM Directive in the relevant EU/EEAmember state where the fund is established or marketed. InLuxembourg, the legislator had not made use of thispossibility and only professional investors are allowed toinvest in an AIF).

▪ Nevertheless, AIFs with a specialized legal regimee.g. SIFs, SICARs (i.e. private equity investmentcompanies) often contain their own definition ofeligible investors who can invest in the fund.These are institutional, professional or well-informed investors who are willing to invest atleast 125.000 euros in the fund.

➢ There is not a specific mention in the principle of riskspreading in the definition but there are some individual rulesaccording to the type of the AIF which are less strict thanthose applied to the UCITS

➢ AIFs are not necessarily open-ended. By the term open-endedit is meant the requirement of the redemption of the parts of the





8

investors at any time on their demand. For example a SICAR which by its nature invests in risk capital investment target has its own rules with regards to the investment period and the capital calls towards the investors and does not provide for the possibility of redemption of its shares before a minimum period of time usually set at 5 years.

➢ AIFs do not necessarily require a “product” authorization =even though it is required from an AIFM to obtain an “actor”authorization, an AIF is considered to be “coordinated” only inthe sense that it is subject to the “product” requirementscontained in the AIFMD that are imposed on it via an AIFM.Exemptions i.e. special forms of AIFs that require productauthorization:

▪ SIFs (Specialized Investment Funds) which havetheir regime according to which they are required toapply for a product authorization and they can opt-in if the AIFM legislation will be applicable to them(law of 13 February 2007). In any case they must bemanaged by an authorized AIFM based inLuxembourg or in EU/EEA.

▪ part II UCIs of the UCITS Luxembourg law whichare also required to apply for a product authorizationand they are managed by a management companyauthorized under chapter 16 of the UCITS Law.

-As with UCITS, an AIF can have the form of either a FCP (Fond

Commun de Placement) i.e. a contractual form of co-ownership, or

a corporate form (SICAV, SICAF). A SICAF is a company

constituted with fixed share capital. A SICAV is a company with

variable capital which means that at each time its share capital is

equal to the net asset value of its portfolio. This is very convenient as





9

an investment company with variable capital is not necessary to

modify its articles of association each time that it wants to issue

new shares for new investors. In case that a fund can take a corporate

form it can even be self-managed in which case there is no need to be

managed by an AIFM. This is a special regime provided only under

the AIFM and the UCITS Laws, so long that the special provisions of

self-managed UCITS and AIFs in the UCITS and AIFM Laws are

respected respectively.

5. RAIF: Evolution, not revolutionThe regime of Reserved Alternative Investment Fund (the “RAIF”)

which came into force with the Luxembourg law of 23 July 2016 (the

“RAIF Law”) provides for certain benefits in comparison to other

investment fund vehicles destined to professional or well-

informed investors.

The Luxembourg legislator gives the possibility to a RAIF without

having to apply for a product authorization to opt for either the

legal characteristics previously enacted for the SIF vehicle, or the

legal characteristics of a SICAR i.e. a company that invests in risk

capital. It should be underlined that both of the above-mentioned

investment fund vehicles (SIF, SICAR) require a previous product

authorization, while the RAIF does not. In this way, all the benefits of

the above-mentioned vehicles can be attained with less costs, more

quickly and easily.

5.1. Common provisions regardless of RAIF adopting the characteristics of a SIF or a SICAR





10

➢ As with the SIF and the SICAR laws, the RAIF is exclusivelyoffered to professional, institutional or well-informed investors.In this regard, the definition of the well-informed investor is thesame as the definitions of the above-mentioned laws. Thismeans that the potential investors must state in writing thatthey adhere to the status of a well-informed investor and at thesame time invest a minimum of 125.000 euros. Alternatively,potential individual investors wanting to invest in a RAIF a sumof less than 125.000 euros must have been the subject of anassessment of their knowledge in the field of investments madeby a credit institution, an investment firm, a managementcompany or by an authorised Alternative Investment FundManager. RAIFs must make sure that they have the necessarymeans (e.g. via the authorized AIFM who manages them) toensure compliance of the potential individual investors with thebelow requirements so as to verify that they are well-informedinvestors. These requirements are not applicable for themembers of the board of the RAIF.

➢ RAIF Law does not impose a specific schedule with regardsto the minimum content of its offering document (althougharticle 41 of the RAIF Law refers to article 21 of AIFM Lawwhich provides a minimum content of information that must bedisclosed to investors)

➢ there is no need for the continuous update of the offeringdocument (an update is only obligatory only with the newissuance of shares or parts to be offered to new investors).

➢ The RAIF Law does not require the preparation and publicationof a semi-annual report (identical provision as with SIFs andSICARs).

➢ When the RAIF takes the form of an investment company(SICAR or a SIF-like vehicle set up as a company), then itsminimum share capital is 1.250.000 euros which can be partly





11

paid up to a minimum of 5% per share on issue, with the possibility of the rest of the amount to be paid up in installments within a period of 12 months from its constitution.

➢ When the RAIF takes the form of a SICAV, the capital of aSICAV is increased or reduced automatically as a result of newsubscriptions and redemptions without any formalities such asthe approval of the general meeting of shareholders or theintervention of a notary to amend the constitutive documents

➢ It can function either as open-ended either as closed-ended➢ There is no requirement for the issue, redemption or repurchase

price to be based on the NAV. RAIFs can therefore issue sharesat a predetermined fixed price or repurchase shares at belowNAV (for example in order to reduce the discount in the case ofa listed close-ended RAIF). In addition, the issue price may becomposed of a portion of par value and a portion of premium

➢ There is no a requirement for a legal reserve➢ Unless otherwise provided for in the constitutive documents,

the assets of the RAIF must be valued at fair value➢ A RAIF may borrow or issue bonds or other debt instruments➢ RAIFs under the form of a SICAV i.e. a company with variable

capital, is not subject to any rules in respect of payment ofinterim dividends other than those mentioned in theirconstitutive documents

➢ When the RAIF opts for the corporate form and takes the formof a limited partnership, the company law of Luxembourg (the“Law of 1915”), which governs the various forms of limitedpartnership, contains only a few mandatory rules and thereforeallows for maximum flexibility and freedom in the organizationof a limited partnership in the model adopted by Anglo-Saxonlaw.

➢ The assets must be valued, and the NAV must be calculated atleast once per year. This is without prejudice to the obligation





12

to determine the NAV of some assets on quarterly basis for the purpose of the submission of the subscription tax.

➢ There can be no distribution in case that the NAV is under theamount of 1.250.000 euros which is the minimum legalshare/interest capital of a RAIF.

5.2. Requirements of setting up a valid RAIF

-The constitutive documents must expressly provide that the

investment vehicle is subject to the provisions of the RAIF Law.

-There is the obligation to appoint an external authorised AIFM. It

is the governing body of the RAIF which must appoint the authorized

AIFM which can be established either in Luxembourg or in another

EU/EEA member state. (The RAIF Law also refers to the possibility

for an AIFM established in a third country to manage the RAIF when

the AIFMD passport regime will have become available to third

countries).

-There is the obligation for the appointment of a depositary.

Depositaries of RAIFs must comply with the depositary regime as

provided in the AIFM Law and in the relevant CSSF Circulars (see

CSSF Circular 18/897 which became applicable on 1 January 2019).

The duties on the part of the depositary include:

▪ obligation to safekeeping the RAIF’s assets;▪ obligation to monitor the RAIF’s cashflow; and▪ specific oversight duties.

The depositary is also liable to the RAIF or its investors for other

losses suffered by them as a result of the depositary’s negligent or

intentional failure to properly fulfil its obligations under the AIFM

Law. Therefore, it provides for certain safeguards for the investors.





13

-The annual accounts of a RAIF must be audited by a Luxembourg

approved statutory auditor.

- The establishment of a RAIF must be formalized by notarial

deed. This does not imply that its constitutive documents could not

be signed under a private seal if they concern a limited partnership for

which the Law of 1915 provide for this possibility. It rather means that

within 5 business days of the constitution of the limited partnership

with a private deed, the last private deed should be recorded in a

notarial deed certifying that the RAIF has been established.

-Formalities in terms of publication:

▪ within a deadline of 15 business days from the date of thenotarial deed a mention that the RAIF has been set up alongwith the indication of its AIFM must be filled in with theRegister of Trade and Companies (RCS);

▪ within a deadline of 20 business days from the date of thenotarial deed the RAIF must be registered on a list held by theRCS which is available on the RCS platform;

▪ An information form must be sent to the CSSF within 10business days after the day on which the AIFM started tomanage the RAIF (this requirement concerns the AIFM).

- The offering memorandum must specify clearly on its covering

page that the RAIF is not subject to supervision by the CSSF.

- The AIFM of a RAIF must provide the additional information

imposed by the AIFM legislation, including any material changes

thereof, to the investors before their investment in the RAIF.

- The Offering Memorandum must specify the securities financing

transactions (SFT) and the total return swaps that the AIFM is





14

allowed to use. The same info should be included in the annual

accounts as well.

- Under the AIFMD, RAIFs are required to disclose additional

information regarding:

▪ the total amount of the remuneration paid by the AIFM to itsstaff for the financial year (split into fixed and variableremuneration),

▪ the number of beneficiaries and▪ any carried interest paid by the RAIF and the aggregate amount

of remuneration, as broken down by senior management and byAIFM staff members whose actions have a material impact onthe risk profile of the RAIF.

▪ In addition, all the information listed under the article 21 ofthe AIFM Law (related to “Disclosure to investors”) must bepresent in the offering memorandum of a RAIF.

5.3. Applicable provisions when the RAIF opts for the

characteristics of a SIF

-It can be constituted as an investment company with varied capital

(SICAV) or as a Fonds Commun de Placement (FCP) i.e. a form of co-

ownership of assets without legal personality, or it can adopt any

other form corporate (e.g. with fixed capital) or not (association,

trust).

-It provides for the contractual freedom and the flexible features

that the Luxembourg legislator had already enacted in the frame of

the SIF Law without the requirement of a product authorization.

Therefore, a RAIF:





15

➢ Enjoys flexibility with regards to the assets in which it caninvest as there are no restrictions. It can even invest in tangibleassets such as art, luxury goods etc.

➢ It does not provide for specific investment rules or restrictions,even though a RAIF is subject to the principle of risk-spreading (the maximum percentage to be invested in asingle asset or in instruments coming from the same issuer is30 per cent). Preparatory works on the RAIF Law clarify thatthe SIF requirements on the matter should be taken intoconsideration.

➢ In case of multiple compartments, the so called “cross-compartment investment” is allowed. This means that acompartment of RAIF can invest in another compartment of thesame RAIF and vice versa. This type of investment should bementioned in the offering document but not necessarily inthe constitutive documents. In this regard, the RAIF Law doesnot prohibit double charging of management fees and of thepossibility to create a master-feeder structure within the sameRAIF.

➢ Is exempt from Luxembourg income and wealth taxes, aswell as the amounts distributed by a RAIF shall not be subjectto a withholding tax. The last amounts are not taxable ifreceived by non-Luxembourg residents.

➢ The amount of their annual subscription tax is as little as0,01% of the NAV of its assets and should be paid quarterly.In this regard, for the calculation of the NAV applied to thesubscription tax, they are not taken into consideration:

▪ the assets invested in other Luxembourg based UCIs,SIFs and RAIFs subject to subscription tax;

▪ certain institutional cash funds;▪ microfinance funds; and▪ pension pooling funds





16

5.4. Applicable provisions when the RAIF opts for the

characteristics of a SICAR

➢ In case of RAIFs wishing to invest in risk capital and opting forthe characteristics of a SICAR form, there must be a mentioninside the constitutive documents that they will investexclusively in risk capital and thus the relevant part of RAIFlaw is applicable so as to provide for certainty as to whichtax regime is applicable

➢ There are no risk diversification rules i.e. the RAIF can invest inone and only investment target. Nevertheless, the notion of riskcapital in relation to the investment targets must be respectedas provided in the law (Law or 15 June 2004 and CSSF circular06/241). This means that the investment target should:▪ represent a risk investment higher than a normal one

(usually securities of non-listed companies that either aresetting up, either are at a stage of development or theyrequire some kind of support); and

▪ The RAIF (acting in this case as an unsupervised SICAR)should play an active role in the development of its targetinvestments.

➢ RAIFs with this regime are subject to general corporationtaxes in Luxembourg at ordinary rates. Nevertheless, anyincome derived from securities that represent risk capitalheld by the RAIF, as well as, any income from the sale,contribution or liquidation are fully tax exempt.





17

➢ Income deriving from assets held, pending their investment inrisk capital (i.e. liquid assets) does not constitute taxableincome provided that such assets are invested in risk capitalassets within 12 months.

➢ The auditor of a RAIF must draw up a report to certify thatduring the relevant accounting period, the RAIF hascomplied with the capital risk investment policy andtransmit this report to the Direct Tax Administration

5.5. Advantages of the RAIF vehicle in general

-RAIF’s main benefit derives from a time-to-market perspective as it

can be constituted faster in comparison with other investment

vehicles since it does not require an authorization from the CSSF

unlike to a SIF or to a SICAR, but it embodies all the other benefits

that the Luxembourg legislator had provided for in a SIF or a SICAR

vehicle. In addition, there is no CSSF approval requirement for its

launch, the changes in its constitutional documents or its

termination.

-Since it is mandatory for a RAIF to be managed by an authorized

AIFM, it benefits from the EU/EEA passport regime granted by

the AIFMD in terms of marketing of its shares or parts in the

EU/EEA member states by following a simplified procedure

following the wishes of its initiator(s).

-The RAIF Law provides for the possibility of its conversion to

other forms of investment fund vehicles (e.g. SIF). This flexibility

benefits the investors as a fund could be set up as RAIF to be in a

position to organize a quick closing with investors who do not

require a product subject to direct supervision, but later it can be

converted to a SIF.


18

6. Alternative options: the registered limitedpartnership and the (completely) unregulatedlimited partnership (SOPARFI) as vehicles forinvestmentsThe difference between the registered limited partnership and the (completely) unregulated limited partnership is that the first one needs to be registered to the CSSF as it qualifies as an Alternative Investment Fund (AIF).

6.1 The registered limited partnership regime

After the implementation of the relevant EU Alternative Investment

Fund Managers (AIFM) directive with the enactment of the AlFM

Luxembourg Law of 2013, every entity that has as a regular activity to

manage any company(ies) which qualify as AIF(s), has to get an

authorization as AIFM from the CSSF. This created a lot of issues, as

up until the enactment of the AIFM Law of 2013, there were a lot of

private investment entities or family offices which had been

constituted for the purpose of investments, but they did not know if

they should ask for authorization or delegate their companies

qualifying as AIFs to an external authorized AIFM. That is why, the

AIFM Law of 2013 provided for some exemptions with regards to the

authorization regime and the management of the funds. One of these

exemptions from getting an authorization has to do with the

“registered” or “below the threshold AIFM” where the entity

managing a company that supposedly qualifies as AIF needs to be

registered and a lighter regime is applicable to it so long that certain

conditions are respected.

In this regard, this exemption applies only when the AuM of the





19

managed AIF(s) by an entity (registered AIFM) do not surpass 100 million in case that leverage is used, or 500 million in case of no

leverage and where the AIF has a close-ended form i.e. the investors

cannot redeem their shares/parts for a period of 5 years.

This regime of registered AIFM is lighter than the normal

authorization regime, as the registered with the CSSF entity does not

have to comply to the totality to the AIFM Law of 2013 along with all

the relevant CSSF regulation applicable to AIFM, but only to provide

certain information to the CSSF annually after the initial registration.

In practice for the creation of this type of investment structure there

are two entities constituted for this purpose i.e. one entity that takes

the role of the manager of the second entity which (last entity) has

the corporate form of a limited partnership where other limited

partners (investors) can subscribe, but they cannot remove the

manager (the first entity) according to the legal form adopted i.e.

société commandité (that is why we used the term registered limited

partnership). This legal form of société commandité (limited

partnership) was conceived by the Luxembourg legislator having in

mind the investment model of limited partnership in the Anglo-Saxon

countries in order to increase the competitiveness of Luxembourg in

the creation of private and private equity funds.

With regards to the creation of this type of structure of a registered

limited partnership, no entity holding an authorization as a

management company or as AIFM is needed, neither in the beginning

nor in general (unless the amount of the AuM of the company

qualifying as AIF surpass for a long period of time the defined

threshold of the art. 3(2) of the Law on the AIFM). For functional

purposes, the appointment of an administration and transfer agent is

used. This service provider deals with the acceptance of subscriptions








20

by the investors, the preparation of the annual accounts, the

calculation of NAV, the redemption of the shares/parts etc.

6.2. The (completely) unregulated limited partnership regime

(SOPARFI)

In this case the entity just follows the company law provisions and

not the investment funds legislation as it does not fall into the AIF

notion. Indeed, there are some entities that are created for investment;

the question is: can they legally operate without holding any

authorization or registration as an AIFM?

Every company would like to have this option as, besides the fact that

it is the less costly option given the current amounts for authorization

and annual fees set by the CSSF, in addition, a company is completely

free to contractually choose the provisions that are going to be

applicable to the investment regime (by having to comply only to the

mandatory company law legislation applicable to it).

The answer lies in their falling into the scope of the notion of AIF as

set out in AIFM Law of 2013 and as further defined by EU and

national regulation. The AIFM Law of 2013 has also some other

exemptions such as family offices (e.g. private trusts where all the

beneficiaries are family members), or small investment entities among

a predefined group of investors. But it is worth mentioning that in

general, if a company wants to address openly new investors (other

than family members and a limited number of persons), then either

the registration as below the threshold AIFM is needed, either the

appointment of an external authorised AIFM or of another

management entity accordingly.





21

There is also the case of self-managed AIF entities according to the

AIFM Law of 2013, but in this case they need to have own funds and

initial share capital of no less than 300.000 euros.

Under this frame of thought, a more refined answer of the above-

mentioned question i.e. if a company can be constituted for the

purpose of investments without following any of the investment fund

legislation regimes i.e. being completely unregulated, lies in the

further definition of “predefined group of investors” along with

combination of some other legal theories.

For example, especially now with the fintech startups there is the

creation of crowd funding web platforms providing financing or

facilitating the investments made by business angels towards newly

created entities. Furthermore, during always there were companies

that made use of the means of crowdfunding for investments. In this

regard, the previous EU prospectus directive of 2003 recognizes this

kind of crowd funding regimes as out of scope of the EU prospectus

directive. In other words, the obligation to issue a prospectus having

the specific content according to the prospectus legislation when an

entity makes an offer to the public for the raising of capital, does not

apply for raising of small amounts of money. In this light, the criterion

of the separation of crowd funding activities and an offer to the public

for subscription i.e. investment in the shares of a company (that in the

last case has to draft a prospectus having certain characteristics as

described in the EU prospectus directive) used to be the amount of

money required by the company who asks for support by investors.

This threshold was set by the EU prospectus directive at 2,5 million

euros i.e. below this amount of gathering capital from the public, a

company can address other investors (besides family members), being





22

completely unregulated and not having to follow the obligation of

drafting a prospectus or following any other investment regime.

After the adoption of the EU Prospectus Regulation of 2017, the last

text gives the possibility to the member states to set this limit, below

of which there is not an obligation for the publication of a prospectus

having the EU standards, which limit varies between 1 million and 8

million euros. In this light, the new Luxembourg Prospectus Law of

2019 (which is applicable in case of public offers of companies made

only in Luxembourg), has set the number of 1 million euros of

investment target under which a crowdfunding is possible without

the obligation to publish a prospectus. In addition, the new

Luxembourg Prospectus Law of 2019 makes reference to a set of

criteria that should provide for further exemptions from the

obligation of publishing a prospectus in case that the target

investment amount on the part of an entity ranges between 1 and 8

million euros. These exemptions are:

(a) an offer of securities addressed solely to qualified investors; and/or

(b) an offer of securities addressed to fewer than 100 natural or legal persons per

Member State, other than qualified investors; and/or

(c) an offer of securities addressed to investors who acquire securities for a total

consideration of at least EUR 50000 per investor, for each separate offer; and/or

(d) an offer of securities whose denomination per unit amounts to at least EUR

50000; and/or

(e) an offer of securities with a total consideration of less than EUR 100000, which

limit shall be calculated over a period of 12 months.”





23

Therefore, the safest answer is that an unregulated limited

partnership can be used safely for investments if the target amount for

investments does not surpass in total 1 million euros or in case that

the investment amount ranges between 1 and 8 million euros falls into

one of the cases mentioned above. Otherwise, if the investment

amount passes through the threshold of 1 million euros and none of

the below mentioned cases are applicable, then, its manager has to

either become a registered AIFM within the CSSF (as a lighter

regime), either to appoint an external authorized AIFM or a

management company, or deciding to adopt (by applying for a CSSF

authorization) and comply with the requirements of any of the

multiple investment fund regimes that exist according to the type of

the investments to be made by the promoter of the company/fund.

If the SOPARFI stays unregulated besides the above justification

requirements, then the AIFM Law of 2013 provides for both

disciplinary/financial and criminal sanctions to the members of the

board of the company, which even though falls into the scope of the

AIFM Law by managing an AIF, does not comply with its provisions.

Of course, this is the situation up until now, as it comes across

according to the current legislation and its interpretation. That means

that with the constantly developing fintech solutions and the

possibilities of crowdfunding platforms, there might be any change in

this regime with regard to either the amount of money permitted to

be raised by an unregulated entity, either the provision for an

authorization process with regard to crowdfunding outside the scope

of the EU Prospectus Regulation and new Luxembourg Prospectus

Law which may or may not affect the SOPARFI companies

established for investment purposes i.e. in order to hold investments

in other entities.


"It's Not Just BusinessIt's About You"

Contact us by phone+352 274 404

Visit our websitewww.hance-law.com

Address3A sentier de l'Espérance L-1474, Luxembourg

Phone+352 274 404

[email protected]

Social

Contact Info

tel:00352274404

tel:00352274404

mailto:[email protected]

https://www.google.com/maps/place/Hance+Law+Avocats/@49.613232,6.1373503,17z/data=!4m12!1m6!3m5!1s0x47954f2ba1b34e6b:0x72a4055cf7d387b4!2sHance+Law+Avocats!8m2!3d49.613232!4d6.139539!3m4!1s0x47954f2ba1b34e6b:0x72a4055cf7d387b4!8m2!3d49.613232!4d6.139539

https://twitter.com/HanceLaw

https://www.facebook.com/HanceLaw/

https://www.linkedin.com/company/hance-law

https://www.youtube.com/channel/UCCWktlGIIHiUnVAumUMRdsg

https://www.hance-law.com/

Date post:	28-Jul-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

An Executive Summary of Luxembourg Investment Vehicles · 2019-12-05 · E-mail:...

Documents