How to set up an Alternative Investment fund in Luxembourg
Article 3 minute read

How to set up an Alternative Investment fund in Luxembourg

18 September 2018

Luxembourg is the go-to destination in EMEA in the investment funds space, and when it comes to setting up a fund, there are some key factors to consider.

The foundations for Luxembourg’s strong reputation as a leading investment funds destination were laid in the early 1990s, when an industry formed around UCITS (undertaking for collective investment in transferable Securities) funds such as shares and bonds. 

Additional regulations were added over the years, and in the following decades vehicles designed to appeal to private equity and capital investment managers were established, such as SICAR (société d'investissement en capital à risque), SIF (special investment funds) and most recently the RAIF (reserved alternative investment fund).

The flexibility of the vehicles with their different legal forms is a key attraction, as is Luxembourg’s tax efficient nature and regulatory elements for setting up, managing and administrating funds. The country is today a major centre to domicile PERE (private equity and real estate) types of funds, where the strategy is not local but cross-border across Europe and beyond.

Jersey, Guernsey and the United Kingdom are also well-known jurisdictions in the funds space. When it comes to choosing the right location for a fund, where investors are based can be a key factor. However Luxembourg’s flexibility and very Anglo-Saxon approach, which closely resembles the limited partnership, sees it attract a high number of investment managers and investors from the US and UK.

Choosing the right fund 

An investment manager with an idea of their desired PERE investment programme will choose the type and legal form of Luxembourg fund that will attract investors for the particular investment strategies he or she wants to have. There are some key factors that come into play.

  • The size of the fund
  • Nationality and tax residency of the investors
  • Nature and complexity of the investment strategy.

There are many different legal forms to consider such as SICAV (corporate entities) and FCP (partnerships). All funds could be incorporated as a single fund or an umbrella fund where investors may invest in one or several compartments.

The key advantage of Luxembourg here is that the ecosystem to support investment managers (managers, depositary, administrators etc.) is very well organised, with a number of Luxemburg-based providers and professionals that can help the fund or investment manager to structure and administer.

Administrator essentials

When setting up a fund and choosing an administrator, there are two elements you need to get right.

1. Processes and procedures due diligence in line with local requirements and your needs.

The funds industry is very highly regulated, and you want to make sure you are working with a partner that operates to all relevant laws and requirements and crucially - won’t make mistakes. Your partner will interact with the investors of the fund, so it’s also very important to check the quality of their people, processes and systems so you can be confident they’re the perfect fit.

2. Swift, secure and easy access to data.

You and your investors also need very rapid access to activity-related documents and data, and those relating to the funds’ underlying entities. A portal is the optimal solution here, and your administrator should have the facility available.

And this is where TMF Luxembourg can help as your fund administrators. Our expert team takes care of the accounting of the fund and fund entities, which includes the calculation of the NAV (net asset value), the share register (including KYC services), the corporate secretarial and management.

TMF Luxembourg also provides depositary services – in accordance with the AIFM directive.
The advantage for our clients is in that we have a global network of 7,000 professionals in more than 80 countries, so we’re able to service all companies owned by the fund, even where they are in multiple jurisdictions. Commonly referred to as the ‘Christmas tree effect’ or ‘vertically integrated’ model, we are unique to other service providers in the market who don’t have our global reach, or broad scope of services.

Talk to us

TMF Luxembourg works with structures across the full investment spectrum, from PERE funds to trade financing, debt and fund-of-fund structures.

We provide a complete and independent service to fund managers. Contact us to find out how we can help with the setup of your Luxembourg fund.

Discover how our services help our clients and partners to reach their full investment potential.

Written by

Bruno Bagnouls

Former Managing Director TMF Luxembourg and Global Head of Private Equity and Real Estate
Bruno

Insights and updates delivered to your inbox.

Sign up now