Many UK managers are currently questioning the implication of Brexit to the fundraising and management of Luxembourg based funds. In particular, many query whether they may still today launch a new Luxembourg fund and act as their AIFM. Is it possible and worth it? The answer is yes, for now.
WHERE ARE WE NOW?
As of this date, 4 December 2020:
(i) UK AIFMs are benefitting from passporting until the end of this month, at least. As a rule, UK AIFMs managing existing Luxembourg funds, after Brexit occurs, (i) should in principle continue to manage existing Luxembourg funds subject to certain conditions and (ii) existing delegation agreements should remain legal based on the confirmation of the No-deal Brexit Memoranda with the FCA of 17 July 2020 by ESMA and EU regulators.
(ii) We believe that a grandfathering period will be granted to UK managers in order to allow time to adjust to the new regulatory environment. Luxembourg funds which are launching now and are managed by a UK-based AIFM responsible for marketing could continue to fundraise with the UK-based AIFM for the duration of the grandfathering period, which could reasonably be expected to be 12 months, although we understand that some market players believe that a 24-month period would be appropriate in the circumstances. UK AIFMs acting now for a fundraise can still start the process of registering with the FCA as soon as possible as there is still time to be registered before Brexit or the end of the grandfathering period.
(iii) We would expect the CSSF to make public communications, as was previously done by the Luxembourg regulator, shortly, and in any case before the end of the year, in order to clarify the steps that must be taken by UK managers post-Brexit (for instance, what steps, if any, should be taken in order to continue to manage the Luxembourg fund they currently manage as AIFM).
WHAT WILL HAPPEN NEXT?
The Brexit transition period ends at 11pm (GMT) on 31 December 2020. From this point, the UK will be, in all respect, a non-EU jurisdiction.
When it comes to preparing for business as an outsider of the European Union, UK managers will be considered as non-EU managers. Information on options currently available to non-EU managers launching Luxembourg funds can be found here.
This information should be reviewed if and when the CSSF and the FCA finalise the terms of a memorandum of understanding that would give UK managers the benefit of certain exemptions (e.g., by putting UK-based managers on an equal footing to US fund managers), which we understand is currently being negotiated.