Luxembourg is about to surprise the international alternative investments arena by discussing and (most probably) launching a new investment vehicle dedicated to a limitless range of investment classes: the Reserved Alternative Investment Fund – RAIF.
Let us try to understand what this new framework is all about and what business practitioners and the legislator aim to achieve.
Substantially, the RAIF is meant to have the same features of a common Luxembourg AIF (e.g. a SIF or a UCI) – though with some key advantages that would help the time-to-market effectiveness significantly.
In fact the RAIF shall not be subject to any authorization or supervision from the CSSF.
The RAIF would not be obliged to be managed by a Luxembourg-based manager. Instead, the manager must be an authorized AIFM, domiciled in one of the European Economic Area Member States. This means all the benefits from the AIFM’s passport shall apply.
Most probably, the ratio legis behind the RAIF is to enhance the effectiveness of the AIFMD that should indeed be directed to regulate the AIFM, rather than the AIF. This approach should comfort those who might be concerned for the investors’ protection: the AIFM is anyhow regulated by EU financial regulators. Luxembourg shows then to be a brave pioneer!
Practically, once established the appropriate authorized management company, the setting up of a RAIF shall be fast (reasonable time of incorporation) and efficient by benefitting from the extensive Luxembourg professional experience in corporate/fund administration services.
A powerful aspect to flag is the RAIF would be capable to operate any fund strategy, as (apparently) no restrictions in terms of eligibility of assets would be envisaged.
As from a tax perspective, the RAIF shall enjoy the same tax treatment applied to a SIF: a 0.01% yearly subscription tax levied on the NAV of the RAIF and a total exemption for income tax and withholding tax on proceeds distribution (either in the form of dividends or interest payments).
Especially when it comes to US investors, this new vehicle is going to easily win against the Irish ICAV. In fact, the RAIF can adopt any legal form. Hence, by establishing the RAIF as a société en commandite par actions, (the “SCA”), it might “check the box” for the treatment as a partnership for US tax purposes – as the Irish ICAV, though with all the above-mentioned additional advantages. All this would be fundamental for investment funds to be distributed to US taxable investors in the context of master-feeder structures.
All positive so far!
However, we want to play the devil’s advocate here and reckon a few issues are still to be addressed.
In the very near future, we might expect (i) full clarity on the above-mentioned high flexibility on eligibility of assets (after all it is supposed to be a Reserved fund); and (ii) a clear word on investors protection, so to shelter reservations from skeptical compliance practitioners.
On 14 December 2015, the Conseil du Gouvernement of Luxembourg has adopted the related draft bill. It is all down to the Parliament now. Upon review, all will run through the usual legislative process.
For the time being, all the significant key-points already highlighted in our latest newsletter are confirmed. There is still room for amendments, of course.
The draft Law should enter into force on the second quarter of 2016.
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