Connecting the dots

Luxembourg’s Reserved AIF (RAIF) has completely changed the Grand Duchy’s alternatives marketplace, from a fund structuring perspective. Over the last three decades it has become the de facto onshore jurisdiction for UCITS funds, but this has started to change in the last few years. 

According to EFAMA, total AUM in AIFs grew by 15.1 per cent year-on-year to reach EUR673 billion at the end of 2017, while UCITS’ assets increased by 11.9 per cent over the same period. 

As PwC points out in its 2018 Barometer Report, assets held by both AIF and UCITS funds in Luxembourg reached EUR4.1 trillion in December 2017; this has since risen to EUR4.27 trillion through August 2018. 

One of the factors behind the growth in AIFs, and specifically RAIFs, is the ease with which they can be launched and the avoidance of dual regulation, as is the case when launching a SIF, for example. 

“UCITS remain popular but we have seen a complete shift in people using RAIFs instead of SIFs and SICARs, which were the typical vehicles used by private equity and hedge fund managers,” confirms Aleksander Jakima, Conducting Officer at Circle Partners, an independent fund administrator with a strong presence in Luxembourg. 

“Now they are using the AIFM’s license to proceed straight to the set-up phase with a RAIF,” continues Jakima. “One is able to launch a RAIF within three to six months so it is far more: efficient and convenient than other vehicles.” 

Both EU and non-EU fund managers are now tending to immediately opt for the RAIF, with Jakima making reference to one client who recently opted for a SICAR but came up against so many problems that they cancelled it. “Although the RAIF is a little more expensive due to costs associated with appointing the external AIFM, it is more straightforward,” he says, in terms of marketing and time to market.

Such is the popularity of the RAIF that it has led to increased management company activity in Luxembourg, as people recognise the potential to act as the appointed AIFM to RAIFs in a sub-fund arrangement. Currently, there are some 228 licensed AIFMs in Luxembourg according to PwC, controlling EUR94 billion in AUM. 

This is working in Circle Partners’ favour, notes Jakima: “We are working with most of Luxembourg’s independent service providers, as well as banks, and we are doing business with a large number of parties: AIFMs, auditors, banks, law firms. We continue to connect the dots and offer clients a compelling solution. The network has expanded tremendously and at the same time Circle continues to grow and hire new staff in Luxembourg. 

“We have a wide network of AIFMs in Luxembourg, we know most of them. For those we don’t know we will do due diligence checks in advance, so that were a client to choose that AIFM we would already have done our background work and we can step right into work together. The more AIFMs we work with, the easier the process of bringing RAIFs to market.”

Jakima confirms that Circle has seen a lot of private debt and trade finance strategies, in particular, choosing to avail of the RAIF, as well as algorithmic trading strategies. 

“Our solution allows us to work with different service providers such that we can partner with investment managers looking for a more boutique approach. With us, all clients are treated equally,” concludes Jakima. n

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