Getting a PEF license in the Grand Duchy of Luxembourg is primarily required for:
- a RAIF.
- a SICAR;
- a SIF.
There aren't any particular rules or regulations regulating establishment of a SOPARFI in the Grand Duchy of Luxembourg. That said, if they start offering securities to the general public & thus meet the qualification criteria for an AIF, they may have to ensure compliance with certain regulatory requirements.
Luxembourg: Establishment of a PEF
Establishing a SICAR or SIF in Luxembourg requires getting the CSSF’s authorization. In an application, fund managers/directors & service providers must provide evidence of having sufficient expertise. Should there be any dismissals or appointments of the funds’ senior managers, they are to be reported to the CSSF. Directors of SIFs & SICARs must also submit a resume proving their impeccable reputation, absence of any convictions & non-involvement in insolvency procedures.
It’s also possible to obtain an investment license from the CSSF if applicants prove that their subsidiaries’ main operations are performed in the Grand Duchy of Luxembourg.
To obtain a SIF manager license in the Grand Duchy of Luxembourg or register a VC company in the Grand Duchy of Luxembourg, potential applicants must meet requirements for information disclosure. Once they get the license, they must also submit annual financial reports to their funds’ investors & the CSSF. Pursuant to the information included in those reports, investors should make informed decisions about planned investments & assess risks that are associated with them. Within 6 months of the end of a fiscal period, fund managers must submit an annual tax return. There’s also a requirement for annual financial reports accounts to be checked by independent auditors based & licensed in the Grand Duchy of Luxembourg-.
Creating SOPARFIs in Luxembourg requires adherence to the AIFMD Act. Since AIFs & their subdivisions meet qualification criteria for CIVs, establishing them doesn’t require obtaining any permission.
Obtaining an AIFM license in the Grand Duchy Luxembourg is necessary if AIFs meet the thresholds for managed assets. A threshold for managed assets, including leveraged ones, is normally set at one hundred million euros. However, it may be higher & st at five hundred million euros if a managed assets’ portfolio comprises unleveraged AIFs & includes no rights of redemption which may be exercised within 60 months since an initial investment AIFs is made. Applying for an AIFM license may be done either within AIFs themselves (if their legal form allows their managers to manage them internally) or by hiring 3rd party managers (in the Grand Duchy of Luxembourg or elsewhere in Europe) before an AIFM license is extended.
If SICARs & SIFs meet qualification criteria for AIFs & comply with thresholds for managed assets, their managers must get an AIF manager license in the Grand Duchy of Luxembourg. Please note that SICARs & SIFs can be set up as:
- entities managed by AIFMs to which the requirements of the AIFMD Act are applicable;
- entities managed by AIFMs to which the requirements of the AIFMD Act aren’t applicable.
Individuals interested in establishing RAIFs in the Grand Duchy ofLuxembourg should keep in mind that its establishment doesn’t require obtaining any permission. Because they’re deemed AIFs, these fands must ensure adherence to the AIFM Act
AIFs’ financial reports must be submitted once a year & within a 6-month period after the conclusion of a fiscal year. They must also provide investors & regulators with information pertaining to their funds’ operation. If investors or the CSSF make a request to see financial reports, they must be provided to them without any delay. Information contained in the reports must relate to the funds’ goals & strategy, investments & risks associated thereto, issue & sale of shares of AIFs in the Grand Duchy of Luxembourg. Other information that fund managers are to provide includes:
- fairness of investors’ treatment;
- methodology of pricing & procedures for assessment;
- investors’ preferential terms;
- repayment mechanisms, management of risks, commissions & expenditure that investors bear.
Managers based in Luxembourg are to provide regular reports regarding instruments & markets their funds get traded in. AIFMs must also provide some additional information, such as:
- percentage of assets for which funds must make additional arrangements because of their non-liquidity;
- new mechanisms for management of liquid assets;
- systems enabling management of risks;
- categories into which funds' assets are divided;
- results of stress tests.
Luxembourg: Registering Investment Advisors
Directors/managers of unregulated investment companies mustn’t comply with any special requirements. However, obtaining a SICAR license in the Grand Duchy of Luxembourg requires getting a CSSF permission. Please note that RAIFs & SIFs set up as FCPs must also comply with this requirement. SIF, RAIF & SICAR managers can delegate their investor functions to citizens of other countries. Outsourcing services doesn’t require obtaining prior approval; however, SICARs & SIFs’ managers are to inform regulators of their intention to delegate functions related to the management of investment activities.
Because funding for IFs is normally provided by investors from other countries, Luxembourg’s banking institutions rarely provide funding for their establishment. PEFs are, therefore, more influenced by EU & foreign regulations (e.g. Basel III that places heavier demands on capital provided by banks).
Looking to establish a PEF in the Grand Duchy of Luxembourg? Need advice on PEF regulation in the Grand Duchy of Luxembourg? Please consider contacting IQ Decision UK.