Establishing An Investment Fund In Luxembourg - Nomilux

By Author: Siddhumenega
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Establishing an Investment Fund in Luxembourg:

A globally leading fund centre:

Luxembourg is the globally leading fund centre in the world for cross-border funds, Luxembourg is the second largest investment fund centre in the world after the United States and the largest fund domicile in Europe with currently more than EUR 4,7 trillion of assets under management.

The country is a politically and financially stable EU country with a AAA-Rating. As an EU domicile, investment funds established in Luxembourg can be more easily distributed within the EU and have gained furthermore global recognition for the ease of cross-border distribution.

The key advantages of Luxembourg as a fund domicile are:

1. Stability:

Luxembourg is a stable and recognized fund centre in the heart of Europe, ideally positioned to use the EU passporting rights to distribute the fund across the EU and to global markets.

2. Global Leadership:

Luxembourg is the global leader for cross-border fund distribution. All relevant service providers in the asset management industry have a presence and offer services ...
... in Luxembourg. The country is known around the world for its capabilities in asset management and its funds are distributed and known around the world.

3. One Stop Solution:

Setting up a fund with an EU passport, using leading service providers, listing it on a recognized stock exchange, setting up SPVs to benefit from double tax treaties and outsourcing certain functions back to other countries. Luxembourg has the flexibility to offer a one stop solution for operating and distributing investment funds, as well as deploying the funds in an efficient and structured manner

Why set up an investment fund?

The exact definition of an investment fund varies according to country and it is often referred to as either a collective investment vehicle, collective investment scheme, an undertaking for collective investment (UCI) or simply investment fund.

Investment funds are the collective investment of savings, which invest in assets and may operate according to the principle of risk spreading. Investment funds may raise capital from the public, when capital is raised from a group of investors that go beyond a small circle of persons or may raise capital in a private placement from a selected group of investors. Issuing vehicles, holding companies or special purpose vehicles (SPVs) are often not considered investment
funds, although they might fulfill the above criteria.

Setting up an investment fund may have a variety of advantages:

1. Access different pools of investors.

2. More advantageous tax treatment: Funds are often tax exempt

3. Additional comfort to investors: Regulatory oversight, custody of assets, regulated service providers

4. Ease of distribution, e.g. UCITS or AIFM passport

Which investment fund should I establish?

There is a toolbox of different fund types and solutions to be used in Luxembourg. Depending on your needs and the needs of your investors, you can choose the most suitable fund type. These are some of the key questions.

Depending on your answers to the key questions, we can establish the most suitable fund vehicle and discuss the cost, time frame and the service providers required to set up the fund.

Which investment fund vehicles exist in Luxembourg?

UCITS (Undertaking for Collective Investment in Transferable Securities) is the leading globally distributed investment fund product. UCITS is a highly regulated retail product, supervised by the CSSF (the Luxembourg supervisory authority of the financial sector) that may invest in listed securities, bonds, index components and assimilated assets. It is subject to strict rules in investment and diversification and can be set-up as an umbrella structure. UCITS benefit from a European passport, meaning that once authorised by the CSSF in Luxembourg, they can be distributed to the public in all other EU Member States, on the basis of a formalized procedure. Due to its global reputation as a European retail fund, many countries around the world recognize the UCITS standard, making this the globally leading fund type distributed around the world.

PART II FUND is a supervised fund that can also be sold to the public, but that does not benefit from the UCITS passport, as it is not compliant with the UCITS rules or the investment policy. This fund type might be able to qualify for the AIFMD passport, provided that certain conditions are met.

1.SIF (Specialised Investment Fund) is a more flexible investment fund that is available for all asset classes and investment
strategies. It is a supervised corporate vehicle, reserved for
well-informed and professional investors. A low level of diversification is required, and the SIF can also be set up as an umbrella fund. The SIF may also qualify for the AIFMD passport,
provided the conditions are met

2. SICAR (Investment Company in Risk Capital) is also a supervised investment vehicle, which has the principal purpose of investing in risk-bearing assets. The SICAR is not subject to any diversification rules but is restricted to well-informed and professional investors. The SICAR may also qualify for the AIFMD passport, provided the conditions are met.

3. RAIF (Reserved Alternative Investment Fund) was introduced in 2016 and has been a highly successful fund type. It is structurally similar to the SIF or SICAR regime but is not subject to direct supervision by the CSSF. The RAIF can also be set up as an umbrella structure. The RAIF however has to appoint an AIFM (Alternative Investment Manager) in Luxembourg, which itself is regulated by the CSSF, but can therefore benefit from the AIFMD passport

4. Limited Partnership (SCS/SCSp) is a highly flexible fund structure that is not supervised and is similar to the partnership structures in Common Law jurisdictions. The limited partnership agreement (LPA) is the main document organizing the functioning of the partnership, which gives the fund the contractual flexibility to organize the structure of the fund. This fund type is not restricted to any asset type and not subject to any risk diversification rules

5. Securitisation Vehicles (SV) are investment vehicles that can be set up as an alternative investment vehicle to the fund vehicles mentioned above. The SV is flexible in nature and can either be set up as a corporate entity or a securitization fund. The SV can be set up as an umbrella structure with multiple compartments and is required to issue securities (bonds, notes, etc.) in relation to an underlying risk (receivables, credit risk or any other form of risk). In principle the SV is not supervised, provided that the SV does not issue on a continuous basis to the public

How long does it take to set up a fund in Luxembourg?

The length of establishment depends on whether the fund is a supervised or unsupervised fund vehicle. Whilst a non-supervised investment vehicle can be set up within 2 weeks, a supervised vehicle can be established within 2-4 months, depending on the complexity of the fund structure and its investment policy.

How much does it cost to establish a fund?

As Luxembourg offers a toolbox of different solutions, this greatly varies between the solution chosen and the service providers used to service the fund. Setting up a fund which is not supervised, is less costly than a supervised fund targeted for retail clients.

Apart from setting up your own fund, you can also rent a sub-fund of an existing umbrella structure (whether UCITS, SIF or RAIF), giving you a good overview of the cost structure.

Check For Update: https://www.nomi-lux.com/blog/establishing-an-investment-fund-in-luxembourg/

I'M Siddhumenega from Bangalore, India. Working as a Content Writer