What has the RAIF brought Luxembourg?
Opinion 3 minute read

What has the RAIF brought Luxembourg?

30 August 2018

The Reserved Alternative Investment Fund was dubbed a ‘game changer’ in the European funds world when it entered the market two years ago. But how much has it really shaken the landscape?

The Reserved Alternative Investment Fund (RAIF) vehicle was set to change Luxembourg’s Alternative Investment Fund (AIF) landscape when it was introduced in July 2016 due to its flexibility and ability to be deployed quickly; this thanks to only being regulated through an Alternative Investment Fund Manager (AIFM).

Features

The RAIF has a lot of similarities to Luxembourg’s established and very successful Specialised Investment Fund (SIF) and Société d’investissement en capital à risqué (SICAR) structures, however there are some key elements that make it stand out.

  • Faster setup.
  • Low incorporation costs.
  • Managed by an external Alternative Investment Fund Manager (AIFM) which can be domiciled in Luxembourg or in any other Member State of the EU.
  • Its fund structure protects investors and offers transparency.
  • Unlike the SIF and SICAR, it is not subject to the approval or direct supervision of the Commission de Surveillance du Secteur Financier (CSSF), falling instead under the Alternative Investment Fund Managers Directive (AIFMD).

As the first supplier to launch services that support the RAIF, we have had a front row seat to the effect this vehicle has had on the Luxembourg market in the past two years.

Adoption

If you look at the numbers from ALFI, the monthly growth rate of the RAIF since launch has been considerable. We now have 463 RAIFs (at 10 July 2018). However, 608 SIF funds were established within the first 20 months of its February 2007 launch.

So by this measure, the RAIF has not been as successful as the SIF, which was expected to become the secondary vehicle as investors converted their products into the new fund that provided for a speedier launch, more flexibility and a swifter closing time, without the wait for regulatory approval.

While the RAIF uptake rate is certainly strong, there may be some factors making investors stick with what they know.

Added cost: typically with a RAIF, more lawyers are involved at the time of launch, and there is a fee to be paid on an annual basis.

Regulatory flexibility: while this makes the RAIF very attractive, for some investors, direct regulatory supervision is actually a must-have, particularly if they themselves are regulated.

Capital requirement: Minimum capital of €1,250,000 is required within 12 months of authorisation.

Making the right choice

The decision to go with a RAIF over a SIF, SICAR or unregulated vehicle all depends on who the fund manager is targeting to invest in its fund. Institutional investors, pension funds and insurance companies will want to invest in regulated and supervised funds. Next to what investors the manager is targeting, the regulatory framework the fund falls under is also a factor when choosing between a RAIF, SIF or SICAR.

When the fund’s size is such that it doesn’t necessarily have to fall under AIFM rules, fund managers may opt to set up a SIF or SICAR.

All in all we have seen a good uptake in the number of RAIFs set-up since launch, and one can draw the conclusion that the addition of this structure to the Luxembourg funds menu has been successful. The RAIF is not likely to replace the other available structures, since there are different situations and needs that validate the use of different structures available to fund managers in Luxembourg. Fund managers now have an additional flavour to choose from, and having a wider variety of choice is always a good thing.

Talk to us

TMF Group has been involved with RAIFs since the structure became available in Luxembourg. If you would like to know more about this structure, the other structures we support, our services in Luxembourg or TMF Group’s solutions for the Private Equity and Real Estate industry, please contact us.

Find out more about how our services help our clients realise their full investment potential.

Written by

Ramon van Heusden

Head of Client Services

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