Fund of Funds in Luxembourg
Luxembourg is a global centre for investment funds, the second largest fund jurisdiction in the world, after the United States. It is the largest centre for funds in Europe, with over Euro 4.5 trillion in cumulative assets under management in supervised funds alone.
Why setup an investment fund in Luxembourg?
The country is:
- A founding member of the EU.
- Politically stable.
- Financially stable.
- Access to over 500 million EU residents.
- Reliable investment regulations.
- Over 4,200 supervised investment vehicles with around 14,500 sub-funds.
- A competitive framework for passporting of funds within the EU.
- Luxembourg funds are sold in more than 70 countries and is the leading jurisdiction for fund distribution.
- A responsive and globally recognized financial regulator.
- A wide range of supervised and non-supervised investment funds.
- UCITS and AIFs.
- Umbrella funds.
- Non-supervised funds.
- Depending on the need of investors, Luxembourg offers tax exempt, tax neutral or taxable investment vehicles,
- Some exemptions for VAT payments;
- Funds may access Double Taxation Avoidance Treaty benefits or establish SPVs that would have access.
Luxembourg funds and the GCC:
Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.
Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.
Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.
Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.
United Arab Emirates – 64% of foreign funds are Luxembourg funds:
Saudi Arabia – 50%
Kuwait – 75%
Bahrain – 75%
Oman – 99%
Qatar – 98%
What is a fund of funds?
A fund of funds, or FoF, is a fund that invests into other funds. The FoF does not invest directly in underlying assets such as securities, bonds or real estate. Instead, it invests into portfolios of other funds. In some jurisdictions, FoFs are also referred to as as multi-manager funds.
FoFs can be focused on various sectors, such as hedge strategies, private equity, bonds and fixed income, and real estate, to state a few.
What are the advantages of setting up multi-manager funds?
Multi-manager funds offer the advantage of a diversified pool of investments that is managed by different fund managers.
In many cases, retail investors do not have access to funds that have high subscription costs and lack distribution channels. FoFs can provide such investors access to these funds.
An additional benefit is the risk spread. Investing in portfolios of different fund managers provides the investors an additional layer of security. Also, the FoF can be structured in a way that leads to the diversification of sectors and geographies, thus reducing the overall risk exposure.
Why set up a multi-manager fund in Luxembourg?
Luxembourg is a leading jurisdiction for investment funds and the second largest investment fund centre in the world after the United States. It is the largest fund jurisdiction in the European Union, with more than Euro five trillion of assets under management.
As of December 2020, over 2100 multi-manager funds were domiciled in Luxembourg, managing over Euro 250 billion in assets.
What are the key advantages of setting up a Fund of funds in Luxembourg?
The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, hedge funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.
Distribution options are the next major advantage. A Luxembourg fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.
What structures are available for forming multi-manager funds in Luxembourg?
Well, there are a few, as below.
- UCITS: (Undertaking for Collective Investment in Transferable Securities). UCITS are the most distributed investment fund product globally. They are well-regulated by the CSSF, since they can be offered to retail investors.
UCITS are subject to strict diversification rules, and can only invest in certain asset classes, such as listed securities, bonds, index components and assimilated assets.
They benefit from the EU Passport and can be distributed through the European Union.
- Specialised Investment Fund (SIF):These are very flexible fund structures, and available to qualified investors only. SIFs are supervised by the CSSF, require a lower level of diversification, and can be set up as umbrella funds as well.
SIFs can also opt for the EU Passport, after meeting certain conditions.
- PART II Fund: This is also a supervised fund that can be sold to the public, but that does not benefit from the UCITS passport, as it does not comply with the UCITS rules or the investment policies. There are around 230 FoFs set up as Part II Funds, managing Euro 30 billion.
Part II Funds are supervised by the CSSF, can invest into all asset classes, is subject to risk-spreading requirements, and can qualify for the AIFMD passport, provided the conditions are met.
- RAIF, or Reserved Alternative Investment Fund. RAIFs: were introduced in 2016 and have been very successful.
They are faster to setup, and flexible enough, and they can be transformed into SIF or SICAR, if required.
In fact, they are structurally similar to the Luxembourg SIF and SICAR, but are not directly supervised by the CSSF. Instead, a RAIF has to appoint an AIFM, which in turn is regulated by the CSSF. This allows the RAIF to benefit from the AIFMD passport and be marketed throughout the European Union.
How fast can a multi-manager fund be set up?
The time to setup depends on whether the Luxembourg fund or compartment is a supervised or non-supervised fund. A non-supervised fund can be set up within 2 weeks, while a supervised structure can take around two months, depending on the complexity of the structure and the time it takes to get approved by the Luxembourg regulator.
We provide turnkey services for Luxembourg structures:
From initial consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the legal framework in Luxembourg and submit an application that is comprehensive, complete and compliant.
Our services include assistance in:
1. Reviewing the business model and advice on the applicable regulatory framework;
2. Preparation of all the required documentation, including Private Placement Memorandums and agreements;
3. Provision of compliance and bookkeeping services; and
4. Finalisation of registered space and bank account opening.
5. In fact, we can do all this without you having to visit Luxembourg!
Get in touch! to get more information on Fund of Funds in Luxembourg
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