Open different types of investment funds in Luxembourg
Open different types of investment funds in Luxembourg
Updated on Tuesday 20th April 2021
Luxembourg is the leading investment fund centre in Europe. The city has been developing its regulatory framework, laws and market strategies to provide one of the best climates for investments and market expansion. Many foreign investors who want to open a collective investment fund or an alternative investment fund choose Luxembourg due to its leading position in Europe. At an international level, Luxembourg is the second market for incorporating a fund, after the United States of America.
Why open an investment fund in Luxembourg?
The Grand Duchy of Luxembourg is a small European country compared to its larger and influential neighbours: France, Germany and Belgium. It has a high concentration of expats, foreign employees and foreign investors. The multinational climate is also aided by the three national languages to which English is added as a commonly used language in the business sector.
Luxembourg is an important financial centre with a highly developed regime for investment funds. The undertakings for collective investments are authorized and supervised by the Commission for the Supervision of the Financial Sector (CSSF). It is also important to know that the financial sector is the most representative for the Luxembourg’s Gross Domestic Product (GDP), as it contributes at the local economy with a quarter of the total GDP. The businessmen interested in investing in Luxembourg can receive assistance on this matter fromour team of financial experts.
Which are the main investment funds in Luxembourg?
The main types of investment funds in Luxembourg are:
sub-funds of Luxembourg investments funds – they are set up as umbrella funds, that have as a main advantage the fact that the investors can run multiple investment strategies at the same time;
undertakings for collective investments (UCI) – regulated under the Law of December 17th, 2010, known as the UCI Law;
UCITS (undertakings for collective investment in transferable securities) – Luxembourg is the first country that implemented the UCITS legislation;
alternative investment funds (AIFs), which can be further set up as hedge funds, real estate investment funds, private equity funds and others.
We invite businessmen to read a few interesting and useful details about thetypes of investment funds that can be opened in Luxembourg:
What are the main legal forms for undertakings for collective investments in Luxembourg?
Foreign investors in Luxembourg can set up their funds in the form of three legal structures with various characteristics when registering a vehicle as undertakings for collective investments. In this case, the investors may choose from the following types of investments funds in Luxembourg, as presented below:
the common investment fund (FCP), a type of fund that does not have a legal personality;
the investment company with variable capital (SICAV), where investors control the capital;
the investment company with fixed capital (SICAF), which can be registered under three business forms, including the public limited company.
These three types of funds can also be managed by the investor, if he/she chooses to do so. If not, he/she may appoint a fund management company that will take over the necessary requirements for the management of the fund and tax compliance in Luxembourg. Funds can be managed on a stand-alone basis or they can form the so-called umbrella fund (a multiple compartment fund).
What are the advantages of umbrella funds in Luxembourg?
The umbrella fund (or multiple compartments fund) is available for a wide range of vehicles that can be registered in Luxembourg, such as RAIFs, FCPs, SICAVs or SICARs. The umbrella fund defines that, under a single legal entity set up for a fund, the investors will be able to register more compartments that can act as independent structures, with different investment strategies and different distribution markets.
For example, the umbrella fund is available for SIF structures as well, and, in specific conditions, a compartment of the fund can invest in other compartments of the same vehicle. Another advantage is that the compartments can be set up as open-ended or closed-ended and they may issue an unlimited number of classes of shares.
In the case of a SICAR umbrella fund, it is also important to know that, regardless of the number of compartments set up within a fund and regardless of the investment strategy, the umbrella funds have to fall under the same tax regime and more details on this matter can be provided by our financial representatives.
One of the main benefits of investing through an umbrella fund is given by the fact that the vehicle’s costs can be reduced. For example, the investors are allowed to relocate assets from a compartment to another, which will offer better tax advantages if the funds belong to the same vehicle.
What other types of funds are available in Luxembourg?
Two other types of funds, the specialized investment funds (SIF) and the investment company in risk capital (SICAR) are also available, although they are generally set up by highly experienced investors. A SIF in Luxembourg can invest in a wide range of financial instruments, such as private equity, real estate, securities or bonds.
The presentation below provides more details referring to the investment funds available in Luxembourg:
What are the main registration requirements for SICAR in Luxembourg?
TheSICAR in Luxembourgis generally incorporated as a public limited company by qualified investors. The assets of the SICAR have to be distributed to a custodian, which is represented by a financial institution that is a Luxembourg resident. Furthermore, this type of investment fund has to be supervised by the Luxembourg Financial Market Authority (CSSF). The institution will issue a license, that will authorize the fund to operate on the local market. The main characteristics of the SICAR in Luxembourg are the following:
the fund has to be registered in Luxembourg and its central management has to be set up in this country;
it is necessary to deposit a share capital established at EUR 1 million;
the fund benefits from a simplified procedure on the issuance of new shares;
the investment fund may also list on the stock market, but this can depend on the business form under which the vehicle is registered in Luxembourg.
What is the minimum share capital for a SICAV/SICAF in Luxembourg?
The SICAV and the SICAF in Luxembourghave the same registration requirements in terms of the company’s minimum share capital. In this case, the investors who want to set up a SICAV or a SICAF in Luxembourg will need to deposit a minimum of EUR 1.25 million in a period of six months since CSSF provided its consent for the registration of the fund. This regulation is applicable if the fund is registered as an UCITS fund. If the fund is set up as a SIF, the investors will need to provide the same minimum share capital, but they may deposit it in a period of 12 months.
How can our representative assist in setting up a Luxembourg investment fund?
Our experts in Luxembourg can help entrepreneurs set up an investment company or a common fund. The SICAV and the SICAF are often chosen by investors who can control the amount of capital they invest, but these legal structures need to be first set up as legal entities in Luxembourg (public limited company or other forms).
Common investment funds (FCPs) will need to be managed by a Luxembourg management company. While not mandatory, SICAFs and SICAVs can also be managed this way. Our specialists can help out with any management issues. The choice between different investment vehicles in Luxembourg is usually based on the taxes they must pay, the operational and managerial issues the fund will create and even marketing considerations for some of the investors.
Risk management is an important process for any UCITS in Luxembourg. It can be provided by a number of professionals with qualifications in the financial industry. The board of the managing company of the fund will oversee the risk management process. In terms of risk management, the law distinguishes between sophisticated UCITS and non-sophisticated UCITS.
What are the main regulations for setting up a RAIF in Luxembourg?
Recently, the local authorities have approved the legislation referring to a new investment tool, designated to facilitate the access on the investment market of professional investors. The reserved alternative investment fund (RAIF) was first deposited at the local Parliament on 14th of December 2015, under the Alternative Fund Managers Directive (AIFMD).
The legislation stipulates that the RAIF is an alternative investment fund which should start its activity without a prior approval from the Financial Sector Supervisory Commission. The fund should also have access at the marketing passport, but it is necessary to know that the RAIF can only be incorporated by professional investors. A RAIF can be set up as a fixed capital - SICAF or variable capital – SICAV.
What are the main provisions of the AIFMD law in Luxembourg?
AIFMD legal framework was established in Luxembourg under the Law of 12 July 2013 on alternative investment fund managers. CSSF is the main institution in Luxembourg regarding the supervision of the AIFMs, who are legal entities that are in charge with the management of alternative investment funds.
The AIFMD law is applicable to all AIFMs managing AIFs registered in Luxembourg or in another state (regardless if the domicile country is a member state of the European Union or not); AIFMs in Luxembourg have a set of legal obligations, as presented below:
register with the CSSF and register the AIFs that they will manage at the time of registration with the CSSF;
offer in-depth information regarding the investment strategies that they will apply;
provide constant information to the CSSF regarding theinstruments they trade, as well as the exposures they face;
inform CSSF in the situation in which they no longer meet the threshold stipulated for the assets under management they hold.
What are the main services offered by our experts in Luxembourg?
Although the management of the investment fund can be delegated to a specialized investment company, the investors must know the specific laws and regulations concerning the set-up and functioning of an investment vehicle. Our consultants in Luxembourg can provide assistance for fund administration and fund management as well as legal compliance for any chosen investment vehicle.
Luxembourg maintains its position as a financial centre by constantly updating and changing its regulatory framework. As a centre for a large variety of investment funds, the country is also adopting new policies to regulate the market and protect the investor’s best interests.
Our experts in Luxembourg can offer their services in order to open an investment fund in Luxembourg or start any other type of company. Our consultants have extensive knowledge not only of the financial regulations, but also of other aspects of civil, commercial and company law in Luxembourg. Investors are invited to contact our team of financial specialists for in-depth assistance regarding the registration of a fund in Luxembourg.
Flexible market and top investment specialists in Luxembourg
Its legislation for investments is created in such a way that local and foreign investors benefit from a high level of protection and, more importantly, the country’s financial regulator is very reliable and has a high level of flexibility. Those who want to open an investment fund in Luxembourg should also take into consideration that the local market benefits from the expertise of a high number of investment fund experts.
Our team of financial consultantscan provide advice on the main reasons for investing in this country; investors can address any inquiry related to the investment industry in Luxembourg to our specialists, who have an in-depth experience and knowledge related to the types of funds that are available here and on main rules of law addressed to this sector.
Solid investment legislation in Luxembourg
Businessmen interested in how to open a Luxembourg fundwill need to become familiarized with the legislation that regulates the type of vehicle they want to register in this country. The legislation on this matter is divided into several pillars, which regulate each category of funds, as follows:
legislation on undertakings for collective investments in transferable securities (UCITS);
legislation concerning the registration of alternative investment funds, which can be set up as hedge funds, real estate funds and others;
the country also applies the Alternative Investment Fund Manager (AIFM) Directive, which directly regulates the activities developed by the managers of the local investment funds and which also ensures a high level of investor protection;
legislation onspecialized investment funds (SIFs), which is divided into two main categories – for SIF in Luxembourg, set up as AIFs, or SIFs operating under the AIFMD.
Luxembourg’s credentials for investment purposes
The country has been maintaining its position as one of the leading financial centers of the world since the 1980s. At the moment, Luxembourg is the second leading jurisdiction for investment purposes, after the United States of America, and the first financial center in Europe. Its development is closely linked with the fact that the local institutions maintain a close relation and constantly update their policies. Our team of financial agentscan assist investors with in-depth information concerning the legislative framework addressed to foreign businessmen.
The country is now the home of international financial businesses, operating in a wide range of financial activities, such as banking institutions, insurance companies, investment funds and persons specialized in providing financial services. Persons interested in wealth management in Luxembourg should also know that the country is one of the main destinations for asset management services, delivered to both natural persons with a high net worth value, or to legal bodies investing on the local market.
The different types of investment funds in Luxembourg
Luxembourg offers a wide variety of investment funds, but several types of vehicles are considered to be the main types of funds used for investments. The SIF in Luxembourg is a common type of vehicle due to the fact that it can be used for investments in all categories of assets.
The SICAR in Luxembourgis used for special categories of investment purposes, such as private equity and venture capital. Luxembourg also offers a new type of fund, the reserved alternative investment fund (RAIF), which does not need a prior approval from the local regulators when starting its investments here.
A top market for green investments
One of the newest trends when opening an investment fund in Luxembourg refers to investments performed in the field of renewable sources of energy and for sustainable investment projects. In this sense, it is important to know that Luxembourg was one of the first markets to promote this type of investment and one of the main countries which created a legal framework for green projects.
For detailed information on how to start a hedge fund anywhere in the world, we invite you to visit FundWorld, a financial online publication on investment funds which offers guidance on the regulatory framework applicable to a specific top investment destination, as well as on the main types of funds that can be set up in a preferred jurisdiction. If you are interested in opening another type of company in Luxembourg, you can contact our local specialists.
Setting up an investment fund in Luxembourg can be difficult since it involves such complex procedures. The team from StartLuxembourgFund.com is very qualified and benefits from extensive expertise in this area.