Specialised investment funds (SIFs) may currently invest in virtually any type of asset class, including illiquid assets and assets that are hard to value.
Only “well-informed investors” as defined under the SIF Law (Well-Informed Investors) may currently invest in SIFs. A Well-Informed Investor is:
The Bill aims to limit investments in SIFs that invest in “exotic” (i.e., non typical) asset classes to Professional Investors, and invites the CSSF to establish by way of regulation a list of such asset classes. A comment in the Bill gives wine, diamonds, insurance contracts, economic rights to football players, art and animals as examples of “exotic” asset classes.
Although a Professional Investor is always a Well-Informed Investor, the converse is not necessarily the case as some Well-Informed Investors do not qualify as Professional Investors. For example, according to the CSSF's administrative practice, professionals who manage significant assets but are not subject to specific legislation on financial services could nevertheless qualify as institutional investors, and hence be eligible to invest in a SIF. However, such institutional investors are not encompassed within the definition of Professional Investor and could therefore not invest in a SIF that invests in “exotic” asset classes.
In practice, this means that existing SIFs which invest in “exotic” asset classes would need to ensure that only Professional Investors hold shares/units/interests in such a SIF. Should that not be the case, the SIF would be required to redeem the shares/units/interests held by non-Professional Investors.
The Bill permits the CSSF to grant a derogation to a SIF that invests in "exotic" asset classes and which, according to its constitutive documents, admits Well-Informed Investors that are not Professional Investors. However, the Bill does not contain any specific transitional provisions for SIFs that would not be granted a derogation, and consequently must undertake the steps necessary to comply with this new requirement.
The Bill introduces several changes to the SICAR Law, aimed primarily at aligning it with the SIF Law and recent changes to the company law (including with respect to partnership forms). The proposed amendments largely correspond to CSSF regulatory practice, and include:
A transition period will be provided with respect to the requirement for a SICAR to establish a risk management system and the requirements in relation to delegations, enabling SICARs to comply with such requirements by 31 December 2016.
Undertakings for collective investment under part II of the UCI Law (Part II UCIs) are alternative investment funds that can be marketed to any type of investors in Luxembourg and, where permitted by applicable laws, in other jurisdictions. Part II of the UCI Law currently requires units of a Part II UCI to be issued at net asset value per unit, increased (to the extent relevant) by expenses and commissions. The Bill contemplates allowing the constitutional documents of a Part II UCI to set different rules to determine the issuance price per unit (for example, issuance at a fixed price). Part II UCIs investing in private equity or following an opportunistic real estate strategy would therefore be permitted to issue units at a fixed price, and to contractually determine the equalisation mechanism when issuing units to subsequent investors.
1) The RAIF is an alternative investment fund that is not required to be authorised by the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF). For further information, please refer to Dechert update: Luxembourg Publishes Bill of Law on Reserved Alternative Investment Funds
2) Directive 2014/65/EU on markets in financial instruments, as amended.
3) Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.
4) Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities.