Umbrella Fund in LuxembourgUpdated on Saturday 16th October 2021
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The umbrella fund in Luxembourg defines a type of structure that allows the registration of multiple sub-funds operating as a part of the same investment fund. The umbrella fund can also be known under the name of compartment fund. The umbrella fund can take the form of several types of vehicles that are prescribed by the national law and it can provide a set of advantages.
If you are considering opening an investment fund in Luxembourg as an umbrella fund, you must know from the start that you will have the right of developing different investment strategies for each of the sub-fund. In this article, our team of financial representatives have prepared a short description on the main aspects investors should know about this structure.
What is an umbrella fund in Luxembourg?
This fund structure operates as a collective investment scheme, where the investors are allowed to set up few or more sub-funds (or compartments). All the sub-funds will operate under the same legal entity, but each compartment can carry its own investment strategy. More importantly, each sub-fund can be represented by different investors.
Investors who want to open a Luxembourg fund registered as an umbrella fund have to be aware that in this particular case, although there is a single entity from a legal point of view, each of the compartment is entitled to own its assets and therefore, have its own liabilities. Besides these, the compartments can have their own unique characteristics.
Please mind that the umbrella fund in Luxembourg can be registered under several types of funds. However, a very common option selected by investors is the RAIF in Luxembourg. The RAIF can take the form of the following – the common contractual fund (FCP) and the open-ended investment company (SICAV) or the closed-ended investment company (SICAF). If you need information on the advantages of the three structures, our team of financial advisors can help you.
What are the key features of a RAIF in Luxembourg?
If you have decided to open an investment fund in Luxembourg registered as an umbrella RAIF, you must first be aware of some of the basic characteristics of this type of fund (on matters concerning capital, incorporation and other aspects that are usually of interest in this case). In the list below, you can discover few of such important matters:
- any RAIF, including the umbrella fund in Luxembourg, must respect the rules of law prescribed by the Luxembourg Law of 23 July 2016;
- RAIFs which will invest in short-term assets must also comply with the Regulation (EU) 2017/1131;
- this type of fund must have assets with a value of at least EUR 1,25 million;
- the capital does not have to be subscribed in full upon the registration of the fund – investors must present at least 5% during the incorporation formalities, and the rest can be raised after the fund becomes fully operational, according to the Association of the Luxembourg Fund Industry (ALFI);
- if the fund must comply with supervising requirements, it can be set up in a period of approximately 2 weeks.
What are the advantages of an umbrella fund in Luxembourg?
The umbrella fund can provide a set of advantages. First, it offers the possibility of having a very diversified portfolio of investments, which ca provide a high return on investment, provided that the policies are well tailored and that the investment projections are made by professionals who have an in-depth knowledge of the financial markets.
Regardless of the number of sub-funds that will be created for a Luxembourg fund that allows the registration of compartments, each sub-fund can have its features, that will be carefully displayed in the fund’s issuing document. Such features will have to be detailed for each fund, as these will prescribe the legal framework under which the sub-fund can develop its operations.
Thus, for each of the compartments of the umbrella fund in Luxembourg, the investors can create different policies for the following: the investment strategy of the compartment, the investment manager, the rules regarding the redemption of the securities and interest, rules for various investment terms, the fee system, the investors who can be accepted as a part of a sub-fund and others.
It is also worth mentioning that the investors of a compartment can switch places with the investors of other sub-funds, but this is allowed in certain conditions. If you need more details on other advantages that you can have when opening a fund in Luxembourg as an umbrella fund, you can contact our team of financial specialists, who can also present the tax advantages investors can obtain in this particular case.