An innovation in Luxembourg’s alternative fund structure range came to market in 2016: the Reserved Alternative Investment Fund (RAIF). This investment fund structure expedites time-to-market, meaning asset managers can set-up their fund project in a shorter timeframe.
Efficient time-to-market
Prior to the RAIF, all Luxembourg investment fund vehicles were subject to authorisation and supervision of the Commission de Surveillance du Secteur Financier (CSSF). Built on the Alternative Investment Fund Managers Directive (AIFMD), the law of 23 July 2016 on Reserved Alternative Investment Funds (RAIF law) introduced a new type of alternative investment fund – the RAIF – that is not subject to approval or supervision of the CSSF.
“The major benefit over other vehicle options is time-to-market,” says Jean-Florent Richard (pictured), Head of Fund Engineering Services, BNP Paribas Securities Services, Luxembourg Branch. “RAIFs can also take advantage of the structuring flexibilities of both the successful limited partnership and SIF regimes, which makes these fund structures a welcome development.”
Enabling greater flexibility
RAIFs offer a fast and more flexible alternative without the double layer of authorisation and supervision (i.e. at both the fund product level and the manager level). They meet investor demands for onshore, particularly EU, fund structures.
RAIFs can be structured as umbrella vehicles – a new innovation for non-regulated funds in Luxembourg. This allows RAIFs to launch ring-fenced sub-funds/compartments.
The regime also provides flexibility in terms of eligible assets, with RAIFs allowed to pursue any fund strategy and invest in any asset class. A RAIF or individual sub-fund cannot invest more than 30% of its gross assets (or of the aggregate value of its investors’ commitments) in any single asset, although there are some exemptions to this general rule.
AIFMD marketing passport
RAIFs need to appoint an external, authorised AIFM (which can be domiciled in Luxembourg or any other EU Member State). As such, the RAIFs are indirectly subject to the AIFMD regime, and able to take advantage of the AIFM’s marketing passport to market across the EU.
“Similarly, the AIFMD’s investor protection standards apply to RAIFs. This includes having to appoint an authorised external AIFM, appointing an independent depositary that is subject to the AIFMD liability regime, using a CSSF-approved third-party auditor and publishing audited annual reports,” notes Richard.
The new RAIF initiative is an innovative extension to Luxembourg’s existing range of alternative investment fund vehicles. With its flexible, non-regulated fund structure, robust investor protection and rapid time-to-market potential, RAIFs provide a welcome response to investor demands.
“The beauty of this particular investment vehicle is that despite the fact that it is Luxembourg-domiciled you can nevertheless market it to various countries in the EU and it could attract underlying investors from other regions,” says Jeffrey Campbell, Business Development Manager, BNP Paribas Securities Services, Switzerland. “We are currently witnessing increasing interest from asset managers in the RAIF. This vehicle appeals to a wide range of fund managers who are considering launching a new type of investment fund to attract more investors.”
To establish RAIF structures in an efficient manner and benefit from the optimal time-to-market intended by the regime, asset managers will require a reputable and experienced partner. “As a leading European custodian and service provider, BNP Paribas Securities Services is ideally placed to support asset managers in this regard,” adds Campbell.
Jean-Florent Richard joined BNP Paribas Securities Services, Luxembourg branch, to head the Fund Engineering Services department in 2015. He has extensive experience as a fund lawyer, assisting fund initiators in structuring and setting up Luxembourg UCITS and alternative investment funds.
Jeffrey Campbell joined BNP Paribas Securities Services in May 2010 and is based in Zurich. In his role as Global Relationship Manager, he is responsible for business development activities with Swiss-based asset managers and banks within the securities and funds servicing sectors.
