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On track to launch first set of RAIFs

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The introduction of the Reserved Alternative Investment Fund under the Luxembourg Bill of Law N∞6929 (Bill 6929) this year could be a game changer for the jurisdiction. In short, the RAIF is an investment fund product that removes the double layer of regulation. Rather, the regulation focuses on the AIFM and crucially, gives fund sponsors a quicker time to market. 

"I would use two words to describe the RAIF: revolutionary and innovative," says Kavitha Ramachandran, Director of MS Management Services, a Luxembourg-based subsidiary of the Maitland group, a leading global fund administrator. "I say revolutionary because of the move away from direct product regulation and the short turn-around time to have the legislation passed.   

"The time it has taken the funds industry, the CSSF and the legislators to come together and work through this, has been very impressive. Other jurisdictions have tried to do something similar in terms of introducing 'manager-led' products (the NAIF in Malta, the Manager Led Product in Guernsey and the move by Jersey to introduce a similar product) so I think we are seeing a trend of removing that double layer of supervision and investors remaining confident in the product."

Back in December 2015, when the RAIF Bill was sent to Parliament, Maitland set up a business case process to look at the key features of the RAIF, and what it would need to do as an AIFM.

"Our working group made sure that, as an AIFM and administrator, we would be comfortable overseeing a product like this. The AIFM is responsible for making sure that if delegating the portfolio management it is done within the rules of AIFMD and that the delegates can be effectively monitored on an ongoing basis. 

"We've done our homework and we are now in a position to actually start onboarding clients," explains Ramachandran. 

It is vital that Maitland is comfortable with all the documentation provided by the portfolio manager and that everything works, from a risk management perspective, before agreeing to act as the AIFM. 

The AIFM is responsible for reviewing the governing bodies of the fund.  Ramachandran says that Maitland needs to ensure the directors have the requisite experience and expertise to be able to serve on the board of these funds.  

From a legal implementation process, Maitland has an in-house legal practice allowing it to offer an end-to-end service to clients. 

"We can provide clients with introductions to various service providers and we then project manage the whole process of bringing the RAIF to market. We have a dedicated client implementation team whose sole purpose is getting the fund operationally ready. Dealing with one party obviously becomes much easier for the client," says Ramachandran, who thinks the RAIF will appeal, in particular to private equity and real estate managers.

"These managers are used to getting deals completed quickly. The RAIF product is ideally suited to this given that a very short time is required to bring to market and keeping the seed investor engaged," she adds. 

The introduction of the RAIF gives investment managers the flexibility to avail of an an investment fund product that can be brought to market in a short time period and in a well-established jurisdiction which meets investors' criteria and which allows the fund manager to use the AIFMD passport. 

For authorised AIFMs like Maitland, that presents a compelling business opportunity going forward.

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