Reserved alternative investment funds (RAIF)

An (r)evolution in Luxembourg’s alternative investment fund industry is afoot with the passing today by the Luxembourg Parliament of the new law on reserved alternative investment funds (the “RAIF”).

Changes in the Luxembourg fund industry have been abundant in the past few months. Taking into account industry calls for more timing certainty for fund launches in Europe’s most important fund domicile, the Luxembourg legislator has stripped its well-known SIF and SICAR regimes from their direct prudential oversight by wrapping them together into a single manager regulated framework, reserved for authorised alternative investment fund managers (“AIFMs”) in Luxembourg, within the EU and potentially in third-countries, if and when applicable.  

The combination of the well-known and tested SIF and SICAR fund regimes with the much needed speed to marketing (certainty) are the key features of this significant legislative action.

As a result, a RAIF may be launched in accordance with the AIFM Directive marketing rules and will neither be subject to the prior authorisation of nor ongoing (direct) prudential oversight by theCommission de Surveillance du Secteur Financier. 

Instead, given that the RAIF is reserved for authorised AIFMs, prudential oversight is in fact exercised indirectly through the AIFM. The RAIF is therefore putting an end to the often criticized planning uncertainty, while preserving the well-known and tested product features. 

The RAIF thus benefits from flexibility in terms of legal structuring, as well as from all the advantages known to the SIF and SICAR regimes, such as the umbrella structure, the toolbox assembly approach and the “well-informed” investor concept. Legal structuring flexibility, investor protection and tax neutrality are the pillars of the Luxembourg investment funds order. Needless to say, the RAIF is built on those very pillars.   

European and international private equity, real estate, hedge and debt fund managers alike will certainly recognise the immediate benefits of what is expected to become the new European AIF norm.