Back to Basics | The reserved alternative investment fund ("RAIF")

Published in May 2021

What is RAIF?

The RAIF regime which was introduced by the Luxembourg legislator in 2016 is not subject to supervision by the Luxembourg supervisory authority (the CSSF) and is reserved for the structuring of alternative investment funds (AIFs) that appoint a duly authorised alternative investment fund manager (AIFM), irrespective of whether such AIFM is established in Luxembourg or in any other EU Member State.

Why is it used?

The RAIF was introduced to meet the needs of sophisticated investors for which the double layer of supervision (“product supervision” and “management supervision”) seemed excessive with the aim to align the Luxembourg fund regime with the regulatory focus that moved from “product supervision” to “management supervision” further to the implementation of the AIFM Directive.

The RAIF does not need to obtain any regulatory approval and may therefore gain in efficiency in terms of time-to-market. The RAIF is regulated through its management and in this context benefits from the AIFM’s marketing passport for distribution to professional investors in the European Economic Area.

The RAIF therefore benefits from a swift establishment process and offers high flexibility in terms of investment strategies as it can be used for a broad variety of investment strategies in accordance with the strategies of its AIFM (e.g. real estate, private equity, venture capital, hedge funds, fund of hedge funds, commodities, infrastructure, etc.). The RAIF further offers flexible corporate / operating rules as well as a large range of legal and corporate forms that may take into account tax drivers. The RAIF may be also structured as an open-ended or close-ended fund.

How is it set-up?

• The RAIF may be set-up as a partnership, a corporate company or an FCP further to the establishment or incorporation process of such entity (e.g. execution of a LPA, management regulations or incorporation of the company in front of a Luxembourg notary);
• The RAIF must have an offering document in place at the time of its establishment / incorporation which includes the information necessary for investors to be able to make an informed assessment of the investment and related risks;
• The service agreements of the mandatory RAIF’s service providers (as set out below) must be effective as of the date of its establishment / incorporation;
• The relevant registration formalities must be complied with further to the RAIF’s establishment / incorporation (such as a recording of a notarial deed, the registration of the RAIF with the Luxembourg trade and companies register and the RAIF’s list held with such register) as well as the accomplishment of the relevant passporting notifications from the AIFM for the purpose to manage and market the RAIF.

Key Features

Eligible investors

The RAIF will be reserved for well-informed investors, i.e.,

• institutional investors;
• professional investors within the meaning of MiFID; and
• any investor who meets the following conditions:
  • he/she/it has stated in writing that he/she/it adheres to the status of well-informed investor and
  • either
    • he/she/it invests a minimum of EUR 125,000 in the RAIF, or
    • he/she/it benefits from an assessment made by a credit institution, an investment firm or a UCITS management company or an authorised AIFM certifying their expertise, experience and knowledge to adequately appraise the contemplated investment in the RAIF.

Legal regime and corporate form

In a nutshell, the RAIF may either take the regime of:

• A fonds commun de placement (FCP), i.e. a common contractual fund. The FCP has no legal personality and must be managed by a Luxembourg management company (which may also be an AIFM based in Luxembourg under certain conditions);
• A société d’investissement à capital variable (SICAV), i.e. an investment company with variable capital, in the form of a corporate entity (e.g. SA, SCA, Sàrl) or of a partnership with or without legal personality (SCS or SCSp).

Umbrella

The RAIF may avail the umbrella structure with different ring-fenced sub-funds, each sub-fund corresponding to a distinct part of the assets and liabilities.

Minimum capital amount

The net assets of a RAIF may not be less than EUR 1,250,000. This minimum must be reached within a period of twelve months following its establishment / incorporation.

Governance

• ManagementAny authorised AIFM established in Luxembourg or another EU Member State must manage the RAIF. 1 Except for the so-called “supra-national exemption” under which no authorised AIFM is required. Portfolio management delegation is allowed subject to compliance with the applicable requirements of the AIFM Directive.
• Central administrationThe central administration of the RAIF must be based in Luxembourg. The administration function may be delegated by the RAIF or its AIFM to a Luxembourg service provider who would perform the administration, registrar and transfer agent functions.  
• DepositaryThe RAIF must appoint a depositary in Luxembourg in accordance with the AIFM Directive requirements. 
• Statutory auditorThe RAIF must issue an annual report that is audited by a Luxembourg authorised independent auditor with appropriate professional experience. Annual reports must comply with the RAIF regime and AIFM Directive requirements.  

Risk diversification requirements

The RAIF is not subject to investment restrictions in terms of eligibility of assets (subject to the license of its AIFM) but it must comply with risk diversification rules.

As a general rule, the RAIF must not invest more than 30% of its gross assets (or of the aggregate value of its investors’ commitments) in any single asset, provided that this restriction does not apply to:

• securities issued or guaranteed by an OECD Member State or its regional or local authorities or by EU, regional or global supranational institutions and bodies;
• target funds which are subject to equivalent risk-spreading requirements; and
• investments in infrastructure assets which benefit from a relaxed risk diversification requirement.

RAIFs may benefit from an initial ramp-up period to comply with the above risk-spreading rules.

RAIFs investing exclusively in risk capital are not subject to risk diversification requirements.

Tax regime

General tax regime

VAT

Management services rendered to the RAIF are generally subject to VAT exemptions in Luxembourg.