Of course, Luxembourg is hardly a new player on the field. The country has long been one of the world’s top jurisdictions for funds, particularly in the alternative investment space.
The country’s regulator, the Commission de Surveillance du Secteur Financier (‘CSSF’) has worked hard to develop a highly attractive regulatory framework and is designed to protect investors but provides the flexibility that allows fund managers to market their funds extensively. Luxembourg’s position within the EU has meant it has avoided the relative perils of Brexit.
Luxembourg’s fund vehicles offer several viable alternatives for the types of structure traditionally used by Asian investment managers.
Luxembourg as a location for AIFs
Luxembourg has its roots firmly in UCITS funds, but as its fund industry has grown, it has become a top location and global leader for alternative investment vehicles. These include Special Limited Partnerships (‘SLP’) and Reserved Alternative Investment Funds, (‘RAIF’).
Luxembourg also has an attractive Private Fund regime and Family Office regime.
The options and advantages of different vehicles
Where the CSSF effectively oversees AIFs, RAIF vehicles offer a little more flexibility. RAIFs are indirectly regulated by the CSSF, meaning they can quickly go to market, but the structure requires an Alternative Investment Fund Manager (‘AIFM’) appointed in Luxembourg. The AIFM is supervised by the CSSF, which allows the Asian Investment Manager to focus on marketing and investments without the burden of dealing directly with the regulator. The ‘hybrid’ approach (where there is supervision which appeases investors, but the investment manager isn’t dealing directly with the regulator) can be attractive for many Asian fund managers.
The CSSF fully supervises alternative AIFs (typically SICAR or SIF structures). However, it’s important to note that the CSSF’s approach is light supervision, allowing for different investment strategies, rather than significantly reducing the scope of investments or risk. These AIFs can be marketed throughout the EU without requiring further authorisation by local regulators, on the condition that CSSF authorisation has been sought and granted. Some AIF vehicles will choose to appoint an AIFM, but it is not a prerequisite in the same way it is with a RAIF.
‘We see Luxembourg as an extremely attractive location for Asian Investment Managers who are looking to support clients invest into China. Luxembourg offers several advantages. Its excellent fund regimes, relative flexibility, and robust regulatory landscape that protects investors, paired with its solid reputation, make it a highly appealing location. We expect to see considerable interest going forward,’ says Kelvin Sng, Head of Funds, ZEDRA Singapore.