Characteristics
Legal structures
The SIF may be structured as a:
A SICAV or SICAF can be set up using different legal forms. It can be set up as a public limited company (SA), a partnership limited by shares (SCA), a private limited liability company (SARL), a cooperative in the form of a public limited company (SCoSA), a limited partnership (SCS) or a special limited partnership (SCSp).
These different entities may create sub-funds each with a different investment policy. The rights of investors and of creditors concerning a sub-fund or which have arisen in connection with the creation, operation or liquidation of a sub-fund are limited to the assets of that sub-fund (i.e. Protected Cell Concept), unless a clause included in the constitutional documents provide otherwise.
Eligible investors
A fund created under the SIF law may be sold to "well-informed investors". According to the SIF law a well-informed investor is:
- An institutional investor;
- A professional investor;
- Any other investors who confirmed in writing that they are "well-informed investors" and either invest a minimum of €125,000 in the SIF or have an appraisal by a credit institution, an investment firm or a management company.
Diversification
The Luxembourg regulator (CSSF) issued a circular letter 07/309 on the 3 August 2007 containing guidelines of the principle of risk spreading and investment restrictions for SIF vehicles:
- In principle, a SIF may not invest more than 30% of its assets or commitments in securities of the same type issued by the same issuer. However, this restriction does not apply to investments in securities issued or guaranteed by an OECD Member State or its local authorities, supranational institutions or organizations Furthermore, it is not applicable to target UCIs, which are subject to risk diversification principles that are at least comparable to those relevant to SIFs.
- Short sales may not, result in the SIF holding a short position in securities of the same type from the same issuer representing more than 30% of its assets.
- When using financial derivative instruments, the SIF must ensure through an appropriate diversification policy of the underlying assets a similar level of risk spreading. Similarly, the counterparty risk in an OTC transaction must, when applicable, be limited having regard to the quality and qualification of the counterparty.
Investment restrictions and leverage
The SIF regime offers a broad scope of eligible assets. There are no specified investment restrictions or leverage rules by the SIF Law. It is simply stated that a SIF should apply the principle of risk diversification. Therefore, assets may include equity bonds, derivatives, structured products, real estate and shareholdings in privately held companies.
The CSSF may provide exemptions from these restrictions on a case-by-case basis. However, the CSSF may also request that additional restrictions are adhered to, in cases of funds with specific investment policies.
Minimum fund size and dividends
The SIF law sets a minimum fund size of €1.25 million which must be reached within 12 months after inception.
Issued shares of a SICAV must be fully subscribed, but only 5% of the amount of the subscription must be paid up in cash or by other means of contribution.
There are no specific restrictions on the payment of dividends. Nevertheless, such payments may not result in the size of the SIF falling below the minimum level of €1.25 million.
Valuation of the assets
Unless otherwise provided for in the issuing document, the valuation of the assets must be based on fair value, determined in accordance with the procedures laid down in the management regulations (FCP) or articles of incorporation (SICAV-SICAF).
Duties and taxes
The CSSF filing duty is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF. The CSSF annual fee is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF.
An annual subscription tax of 0,01% on the net asset value (NAV) has to be paid to the Luxembourg government ('taxe d'abonnement').
Appointing a SIF-AIF
A SIF that is qualified as an alternative investment fund according to the AIFM law must be managed by an authorized alternative investment fund manager (AIFM)which may either be established in Luxembourg, in a Member State of the EU, or in a third country.
Following the AIFM Law, a SIF-AIF can be managed in two different ways:
- it can be managed externally through the calling of a separate AIFM responsible for managing the SIF AIF. In this case it is the governing body of the SIF AIF which is empowered to call an authorized AIFM;
- it can be managed internally. In this case the SIF AIF will be considered as the AIFM itself and it will be required to comply with all of the AIFM Law obligations which apply to an AIFM and submit a request for authorization under the AIFM Law.
Depositary Functions
Depositaries of SIF AIFs must comply with the new depositary regime as provided for by the AIFM Law.
This new depositary regime imposes specific duties, being the following:
- the obligation to protect the SIF AIFs assets;
- the obligation to monitor the SIF AIFs cash flow;
- as well as specific oversight duties.
In addition, the liability regime has been reviewed and strengthened by the AIFM Law. The depositary is strictly liable in the case of a loss of financial instruments it held in custody and it must, without delay, return financial instruments of an identical type or of corresponding amount to the SIF AIF or the AIFM acting for the SIF AIF. Avoiding the consequences of this liability regime is very limited.
Any other losses caused by the depositary's negligent or intentional failure to properly fulfill its obligation under the AIFM Law lie under the depositary's liability.
Valuation Function
The valuation function (valuation of assets and calculation of NAV) has to be performed either by the AIFM itself or by an external company that will act under the responsibility of the AIFM and that is subject to a mandatory professional registration recognized by law. The NAV (net asset value) must be calculated at least once a year.
Content of annual Report
SIF AIFs have to disclose additional information in their annual reports compared to SIFs, being:
- the total amount of remuneration it paid to its staff for the financial year;
- the number of beneficiaries;
- any carried interest paid by the SIF AIF.
- the aggregate amount of remuneration, as broken down by senior management and by AIFM staff members whose actions have a material impact on the risk profile of the SIF AIF.
Risk Management
A SIF qualifying as an AIF must establish a risk management function separated hierarchically from that of the operating units. An adequate risk management system must be implemented in order to identify, measure, manage and monitor appropriately all investment risks arisen through the SIF AIF investment strategy.
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as short selling, leverage, and derivatives. Financial regulators generally restrict hedge fund marketing to institutional investors, high net worth individuals, and accredited investors.
Open-end fund is a collective investment scheme that can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself, rather than from the existing shareholders. The term contrasts with a closed-end fund, which typically issues at the outset all the shares that it will issue, with such shares usually thereafter being tradable among investors.
A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe and open-ended investment company (OEIC) in the UK.
An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor, and the consequences of being classified as such, vary between countries. Generally, accredited investors include high-net-worth individuals, banks, financial institutions, and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds, and angel investments.
Argenta is a bank based in Belgium that also operates in the Netherlands and Luxembourg. The Argenta headquarters are in Antwerp.
A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.
A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on the trust, it may invest in securities such as shares, bonds, gilts, and also properties, mortgage and cash equivalents. Those investing in the trust own "units" whose price is called the "net asset value" (NAV). The number of these units is not fixed and when more is invested in a unit trust, more units are created.
An open-ended investment company or investment company with variable capital is a type of open-ended collective investment formed as a corporation under the Open-Ended Investment Company Regulations 2001 in the United Kingdom. The terms "OEIC" and "ICVC" are used interchangeably with different investment managers favouring one over the other. In the UK OEICs are the preferred legal form for new open-ended investment over the older unit trust.
A SICAV is a collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France, and the Czech Republic. SICAV is an acronym in French for société d'investissement à capital variable, which can be translated as 'investment company with variable capital'.
The Undertakings for Collective Investment in Transferable Securities Directive (UCITS) 2009/65/EC is a consolidated EU directive that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. EU member states are entitled to have additional regulatory requirements for the benefit of investors.
A société à responsabilité limitée is a form of private company that exists mainly in French-speaking countries, such as France, Luxembourg, Monaco, Algeria, Morocco, Tunisia, Madagascar, Lebanon, Switzerland, and Belgium. The primary purpose of a SARL is to conduct commercial activity.
An alternative investment, also known as an alternative asset or alternative investment fund (AIF), is an investment in any asset class excluding stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such as precious metals, collectibles and some financial assets such as real estate, commodities, private equity, distressed securities, hedge funds, exchange funds, carbon credits, venture capital, film production, financial derivatives, cryptocurrencies, non-fungible tokens, and Tax Receivable Agreements. Investments in real estate, forestry and shipping are also often termed "alternative" despite the ancient use of such real assets to enhance and preserve wealth. Alternative investments are to be contrasted with traditional investments.
Alternative Investment Fund Managers Directive 2011 is a legal act of the European Union on the financial regulation of hedge funds, private equity, real estate funds, and other "Alternative Investment Fund Managers" (AIFMs) in the European Union. The Directive requires all covered AIFMs to obtain authorisation, and make various disclosures as a condition of operation. It followed the global financial crisis. Before, the alternative investment industry had not been regulated at EU level.
An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to:
The accounting profession in Luxembourg is structured around Ordre des Experts-Comptables (OEC) which serves as the main accounting body in the country. Luxembourg accounting standards are inspired from neighbouring France and Belgium. Similar to France, Luxembourg has set up a Commissions des Normes Comptables (CNC) which serves as an advisor to the Ministry for Justice in respect of accounting related matters, e.g. waivers for presenting consolidated accounts.
European company law is a part of European Union law, which concerns the formation, operation and insolvency of companies in the European Union. The EU creates minimum standards for companies throughout the EU, and has its own corporate forms. All member states continue to operate separate companies acts, which are amended from time to time to comply with EU Directives and Regulations. There is, however, also the option of businesses to incorporate as a Societas Europaea (SE), which allows a company to operate across all member states.
A Special Limited Partnership or SLP is the Luxembourg version of the similar British Limited Partnership.
Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle or ICAV is the most popular of the five Irish QIAIF structures, it is the main tax-free structure for foreign investors holding Irish assets.
An open-ended fund company is an open-ended collective investment scheme structured in the form of a company with limited liability and variable share capital. An OFC provides flexibility for investors to trade their interests in the fund through the creation, redemption and cancellation of shares. OFCs could be set up as public or private funds in Hong Kong.
