What Is the Legal Framework of a RAIF? - #252-241*

As you know, if you followed our previous publications a reserved alternative investment fund (RAIF) is primarily governed by :

1. the amended Luxembourg law of 23 July 2016 on reserved alternative investment fund (the “RAIF Law”) ; as well as,

2. the amended law of 12 July 2013 on alternative investment fund managers (the “AIFM Law”).

Another piece of legislation must be applied especially if the RAIF invests in short-term assets or has distinct objectives offering returns in accordance with money market rates or where the RAIF intends to preserve the value of the investment. The RAIF must then comply with the EU Regulation 2017/1131 on money market funds.

The RAIF shall also comply with other pieces of regulation, at national and EU level (on anti money laundering, the amended markets in financial instruments Directive (the “MIFID II”), market abuse, derivatives, securities and general corporate law etc.).

References: the RAIF Law (as defined above); the AIFM Law (as defined above); the EU Regulation 2017/1131 on money market funds; the amended markets in financial instruments European Directive, the MIFID II; the amended law of 10 August 1915 on commercial companies; What is a RAIF?, June 17, 2020, Bertrand Mariaux.

*Podcast #252:

What Is the Legal Framework of a RAIF? #252-241 Article #252-241 YouTube Video: 241| . . . . . . . .

*YouTube Video 241|: 

What Is the Legal Framework of a RAIF? #252-241 Article #252-241: Podcast #252: https://anchor.fm/bmapodcast/episodes/What-Is-the-Legal-Framework-of-a-RAIF--...

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

Determination of the AIFM - #251-240*

The alternative investment fund manager (“AIFM”) must be determined in accordance with the amended law of 12 July 2013 on alternative investment fund managers (the “AIFM Law”) or pursuant to Directive 2011/61/EU (the “AIFM Directive”).

Each alternative investment fund (“AIF”) established in Luxembourg and managed within the scope of the AIFM Law must have a single AIFM. This AIFM shall then be responsible for ensuring compliance with the provisions of the AIFM Law.

The AIFM shall either be:

1. an external AIFM - the external AIFM may be an AIFM established in:

   • Luxembourg;

   • another Member State; or in

   • a third country duly authorised pursuant to the AIFM Directive; or

2. where the legal form of the AIF permits an internal management and where the AIF’s governing body chooses not to appoint an external AIFM, the AIF itself, which shall then be authorised as AIFM.

References: Article 4(1) of AIFM Law, as defined above (correspondence in the Directive: Article 5(1) of the AIFM Directive - the AIFM Law transposes the AIFM Directive into Luxembourg law); AIFM & RAIF - ii, August 26, 2020, Bertrand Mariaux.

*Podcast #251:

Determination of the AIFM - #251-240* Article #251-240 YouTube Video : 240| . . . . . . . .

*YouTube Video 240|: 

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

AIFM & RAIF - ii - #250-239*

In a reserved alternative investment fund (RAIF), the alternative investment fund manager (AIFM) must be determined according to the amended law of 12 July 2013 on alternative investment fund managers (the AIFM Law) or in accordance with the amended Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers (The AIFM Directive).

The AIFM shall be an external AIFM, also within the meaning of the AIFM Law. And as we already wrote previously, the external AIFM must be authorised (pursuant to the provisions of Chapter I of the AIFM Law) or in accordance with the provisions of Chapter II of the AIFM Directive.

We will get into more details as to the determination of the AIFM pursuant to the AIFM legislation in future articles.

References: Article 4(2) of the law of 23 July 2016 on reserved alternative investment funds as amended; AIFM and RAIF, August 25, 2020, Bertrand Mariaux.

*Podcast #250:

AIFM & RAIF - ii - #250-239* Article #250-239 YouTube Video : 239| . . . . . . . .

*YouTube Video 239|: 

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

AIFM and RAIF - i - #249-238*

As previously stated, reserved alternative investment funds (RAIF) must qualify as alternative investment funds (AIF) under the Law of 12 July 2013 on alternative investment fund managers (the AIFM Law). 

Under applicable provisions, every RAIF must be managed by an alternative investment fund manager (AIFM). The AIFM must either be: 

1. established in Luxembourg and authorised under the AIFM Law (Chapter 2); or

2. established in another European Member State - in accordance with Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers (The AIFM Directive): or

3. established in a third country, authorised under Chapter II of the AIFMD Directive.

References: Law of 23 July 2016 on reserved alternative investment funds as amended (the RAIF Law); Articles 1(1)a and 4(1) of the RAIF Law; AIFM Law as amended and specifically: Articles 2(2)(c) & (d); AIFM Directive; What is a RAIF?, Bertrand Mariaux, June 17, 2020.

*Podcast #249:

AIFM and RAIF - #249-238* Article #249-238 YouTube Video : 238| . . . . . . . .

*YouTube Video 238|: 

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

Who Are the Eligible Investors? (RAIF) - #248-237*

As we previously wrote a reserved alternative investment fund (RAIF) is limited to well informed investors. Well informed investors must be able to assess the risks associated with an investment in a RAIF. The well informed investor must have stated in writing that she/he adheres to the definition of well informed investors (as defined by the law of 23 July 2016 on reserved alternative investment funds as amended, the RAIF Law). The status of well informed investors includes: 

(i) institutional investor(s) or professional investor(s) investing a minimum of 125,000 euros in the RAIF; or

(ii) any other investor(s) who have been assessed by a: 

• credit institution,

• investment firm, or 

• management company;

certifying the investor’s: 

• expertise, 

• experience, and 

• knowledge; 

in adequately appraising an investment in the RAIF.

It is worth noting as well that the RAIF must have the necessary means to ensure compliance with the conditions laid down above. And finally, these conditions are not applicable to the directors and other persons involved in the management of the RAIF.

References: article 1(1)(c) and 2 of the RAIF Law; What is a RAIF?, Bertrand Mariaux, June 17, 2020.

*Podcast #248:

Who Are the Eligible Investors (RAIF)? #248-237* Article #248-237 YouTube Video : 237| . . . . . . . .

*YouTube Video 237|: 

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

European Investment Funds Initiatives - Impact Finance - #247-236*

We have touched on some of the main Impact Finance structures available in Luxembourg. There are also a few European initiatives:

• the European Social Entrepreneurship Fund (“EuSEF”) Regulation; it provides a framework for European social entrepreneurship projects at EU level. EuSEF is a label. It aims at positive social impacts;

• the European Long Term Investment Fund (“ELTIF”) Regulation; this is generally a closed-ended fund designed to channel capital into companies and encourage long-term saving. EU alternative investment funds can apply for the ELTIF label; and

• the European Venture Capital Fund Regulation (“EuVECA”) which is specifically designed for European venture capital projects.

References: Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds; Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (Text with EEA relevance); Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds (Text with EEA relevance); Which Structures Are Mainly Used in Impact Finance?, 21 August 2020, Bertrand Mariaux.

*Podcast #247:

European Investment Funds Structures - Impact Finance #247-236* *Article #247 *Podcast #247 *YouTube Video 236| . . . . . . . .

*YouTube Video 236|:

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment: Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master en droit européen et international - mention économique, 2008), certified Expert in: Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

Which Corporate Formations Are Commonly Used in Impact Investment Funds? - #246-235*

We mentioned earlier that the most commonly used forms of investment funds in impact finance are the undertaking for collective investment in transferable securities (UCITS), the specialised investment funds (SIF - fonds d’investissement spécialisés), the investment company in risk capital (société d’investissement en capital à risque - SICAR), the undertaking for collective investment (UCI) Part II fund and finally the reserved alternative investment fund (RAIF). These investment funds are generally structured and need traditional business formations to operate. Which corporate forms are mostly used? The most commonly used corporate formations for investment funds are: 

• the public limited liability company (société anonyme - SA) - on which we extensively wrote these past few weeks;

• the limited liability company (société à responsabilité limitée - SARL);

• the partnership limited by shares (société en commandite par actions - SCA);

• the limited partnership (société en commandite simple - SCS); we have also covered the main legal aspects of it in past publications; and

• the special limited partnership (société en commandite spéciale - SCSp); - likewise, we have dealt with the main legal aspects of it in past publications.

References: for UCITS and Part II Funds see: Law of 17 December 2010 relating to undertakings for collective investment as amended; for SIF see: Law of 13 February 2007 relating to specialised investment funds as amended; for SICAR see: Law of 15 June 2004 relating to the investment company in risk capital as amended; for RAIF see: Law of 23 July 2016 on reserved alternative investment funds, as amended; What is a RAIF?, 17 June 2020, Bertrand Mariaux; and the following publications deal with the main and general corporate law questions on the some of the aforementioned corporate formations in French: 

• for SA see publications: Qu’est-ce qu’une société anonyme ? 29 July 2020 (from this date), Bertrand Mariaux; to: L’acquisition d’actif des fondateurs (1/10ème du capital) par la SA, 20 August 2020 (to this date), Bertrand Mariaux; 

• for SCS see publications: Qu’est-ce qu’une société en commandite simple (SCS) ? 18 June 2020 (from this date), Bertrand Mariaux; to: Le rachat ou la réduction des parts d’intérêts d’un associé (SCS), 6 juillet 2020 (to this date), Bertrand Mariaux; and finally, 

• for SCSp, please see publications: Qu’est-ce qu’une société en commandite spéciale ?, 7 juillet 2020 (from this date), Bertrand Mariaux; to: La transformation d’une SCSp et la personnalité juridique, 28 juillet 2020 (to this date), Bertrand Mariaux.

*Podcast #246:

Which Corporate Formations Are Commonly Used in Impact Investment Funds? #246-235* *Article #246 *Podcast #246 *YouTube Video 235| . . . . . . . .

*YouTube Video 235|:

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment: Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master en droit européen et international - mention économique, 2008), certified Expert in: Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

Which Structures Are Mainly Used in Impact Finance? - #245-234*

All Luxembourg investment funds vehicles can be used in responsible finance, whether they are regulated retail funds or professional investment funds, with a European marketing passport, multiple compartments umbrella funds (with different investment strategies in each compartment and separate profit and loss accounts). The defining basic factors include: (i) the nature of the investment and (ii) the target investors.

The most popular investment funds vehicles are: 

• the undertaking for collective investment in transferable securities (UCITS - organismes de placement collectif en valeurs mobilières (OPCVM), the standardised EU retail fund - UCITS are highly regulated;

• the specialised investment funds (fonds d’investissement spécialisés) (SIF) - which provides flexibility and fiscal efficiency. The SIF is a multipurpose vehicle which can be used for all asset classes;

• the investment company in risk capital (société d’investissement en capital à risque - SICAR). The SICAR is specifically designed for private equity investment and venture capital;

• the undertaking for collective investment (UCI) Part II. The UCI Part II fund is flexible but more regulated;

• the reserved alternative investment funds (RAIF) - fonds d’investissement alternatifs réservés - fast-time-to-market, it is regulated through the fund manager.

Funds with ESG features usually take the form of a UCITS or a SIF.

References: for UCITS / OPCVM and Part II Funds see: Law of 17 December 2010 relating to undertakings for collective investment as amended; for SIF see: Law of 13 February 2007 relating to specialised investment funds as amended; for SICAR see: Law of 15 June 2004 relating to the investment company in risk capital as amended; for RAIF see: Law of 23 July 2016 on reserved alternative investment funds, as amended; What is a RAIF?, 17 June 2020, Bertrand Mariaux.

*Podcast #245:

Which Structures Are Mainly Used in Responsible Finance? #245-234* *Article #245 *YouTube Video 234| . . . . . . . .

*YouTube Video 234|:

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment: Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master en droit européen et international - mention économique, 2008), certified Expert in: Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

What Is an IFM? - #238-227*

An Investment Fund Manager (IFM, in French: “Gestionnaire de Fonds d’Investissement”) is a term introduced by the Luxembourg financial regulator (the Commission de Surveillance du Secteur Financier, CSSF), in its CSSF Circular 18/698 (the “Circular”). It designates the following entities: 

1. management companies incorporated under Luxembourg law and subject to Chapter 15 of the Law of 17 December 2010 relating to undertakings for collective investment (“2010 Law”) - in the Circular these entities are also referred to as “ManCos” as well as “IFMs”;

2. management companies incorporated under Luxembourg law and subject to Articles 125-1 or 125-2 of Chapter 16 of the 2010 Law; these entities are also referred to as “AIFMs” as well as “IFMs” in the Circular; 

3. Luxembourg branches of IFMs subject to Chapter 17 of the 2010 Law; 

4. investment companies which did not designate a management company within the meaning of Article 27 of the 2010 Law (referred to as “SIAGs” in the Circular); 

5. alternative investment fund managers authorised under Chapter 2 of the Law of 12 July 2013 on alternative investment fund managers (the “2013 Law”); these entities are also referred to as “AIFMs” as well as “IFMs” in the Circular; and 

6. internally managed alternative investment funds within the meaning of point (b) of Article 4(1) of the 2013 Law (the “FIAAGs”).

Reference : CSSF Circular 18/698 on Authorisation and organisation of investment fund managers incorporated under Luxembourg law and specific provisions on the fight against money laundering and terrorist financing applicable to investment fund managers and entities carrying out the activity of registrar agent; the Law of 17 December 2010 relating to undertakings for collective investment as amended and the Law of 12 July 2013 on alternative investment fund managers as amended.

*Podcast #238:

What Is an IFM? Article #238-227| YouTube Video : 227| . . . . . . . .

*YouTube Video 227|:

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment (Swearing-in oath): Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master in European & International Law - major in economics, 2008), certified Expert in Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)

Évaluation - apport en nature - actionnaires détenant plus de 5% - SA - #237-226*

Nous indiquions qu’en cas de circonstances nouvelles, une réévaluation des éléments d’actif (autres que des valeurs mobilières / instruments du marché monétaire au sens de MIFID II) précédemment évalués à la juste valeur et apportés au capital de la société anonyme (SA) peut s’imposer sous certaines conditions (pour les conditions voir : La réévaluation des actifs - juste valeur - apports en nature - SA, 12 août 2020, Bertrand Mariaux).

Mais quid du défaut de réévaluation dans ce cas ? Un ou plusieurs actionnaire(s) détenant au moins 5% du capital souscrit de la SA au jour de la décision d’augmenter le capital peuvent demander une évaluation par un réviseur d’entreprises aux conditions habituelles (à cet égard,  voir : Quid du rapport du réviseur d’entreprises pour les apports en nature (SA) ?, 8 août 2020, Bertrand Mariaux). Cette demande pourra être effectuée jusqu’à la date effective de l’apport à condition de toujours détenir 5% au moins du capital (depuis la prise de décision d’augmenter le capital).

Références : article 420-10 (5), alinéas 2 et 3 de la loi du 10 août 1915 sur les sociétés commerciales telle que modifiée ; Quid du rapport du réviseur d’entreprises pour les apports en nature (SA) ?, 8 août 2020, Bertrand Mariaux

*Podcast #237 :

Évaluation - apport en nature - actionnaires détenant plus de 5% - SA - #237-226* *Article #237 *YouTube Video 226| . . . . . . . .

*YouTube Video 226| :

Bertrand Mariaux, Avocat à la Cour, LL.M. (hons.)

Prestation de serment: Luxembourg (2011), Certificat d’Aptitude à la Profession d’Avocat, École de Formation professionnelle des Barreaux de la Cour d’appel de Paris (2009), Bond University (LL.M. (distinct.), International Legal Practice, 2010), Université Sorbonne Paris Nord & University of Limerick (Master en droit européen et international - mention économique, 2008), certified Expert in: Microfinance (Frankfurt School of Finance & Management, 2015), social entrepreneurship (University of Oxford, 2015 & The Wharton School of Social Policy & Practice, 2014) and social & solidarity economy (International Labour Organization Academy - Social & Solidarity Economy, Organisation Internationale du Travail - Économie Sociale et Solidaire, 2017)