All you need to know about the Luxembourg RAIF and the future Swiss L-QIF
Swiss L-QIF: this new type of fund should be deployed in 2023 and could compete with the Luxembourg RAIF. How do these two types of funds work?
Background to the creation of the RAIF in Luxembourg in 2016
The implementation of the 1st European Directive on Alternative Investment Funds (AIFs) in 2011 (transposed in 2013), offers a manager’s license with this obligation to appoint a depositary for the AIF.
In 2016 Luxembourg took this opportunity to create a new product, the RAIF, or Reserved Alternative Investment Fund. This Luxembourg vehicle launched in 2016 is submitted to AIFMD. All AIFM managers can opt for this competitive alternative product which offers the same advantages as any other AIF. What’s more, RAIFs can be liquidated with lower costs.
How does the RAIF work?
Firstly, it is a regulated product. That is, RAIFs are subject to the Luxembourg Law of 23 July 2016, even though they are not under the direct supervision of the CSSF, the competent authority in Luxembourg. So RAIFs do not need permission from the local Luxembourg authority to be established. However, for a RAIF to be qualified as an AIF, under the AIFM Directive, when it is launched, it must appoint a European manager who has this AIFM status.
The RAIF is subject to the principle of investment risk diversification with the possibility of creating multiple sub-funds.
What is the current situation?
At December 2022, the Luxembourg Trade and Companies Register lists more than 2000 RAIFs. RAIFs are catching up with SIF structures (Special Investment Funds) as the preferred legal forms, especially for real estate or private equity funds.
SGSS offers FIS and RAIF administration and depositary services for AIFM managers based in EU countries.
AIFMD is a directive that regulates the managers of alternative investment funds and not the product itself, i.e. the AIF, or alternative investment fund. In other words, AIFMD grants managers a licence to create and manage alternative funds in any country in the European Union.
The idea behind the RAIF creation was to offer a flexible alternative investment structure that can be set up quickly and, above all, positioned for competitive access to the European market for managers of alternative assets and AIFs located in third countries offering greater flexibility in terms of authorisation and supervision.
From the Luxembourg RAIF to the creation of the Swiss L-QIF1 in 2023
On August 1, 2023 the Swiss Collective Investment Schemes Act (LPCC) is expected to deploy a new financial instrument in its array, designated L-QIF or Limited Qualified Investor Fund, which, once in place, could well take off and compete with the Luxembourg RAIF.
The L-QIF will offer qualified investors a Swiss alternative to similar foreign fund structures, the most comparable of which is the Luxembourg RAIF. Like the RAIF, the L-QIF will not need the agreement of the local authority FINMA to be constituted.
The L-QIF will allow an investment fund – exclusively for qualified investors – to invest in all types of products or risk diversification, without restriction, thus allowing financial market participants maximum freedom within a limited framework. The L-QIF will be an investment fund and therefore an optimal tax tool in Switzerland.
The L-QIF, unlike the RAIF, will not have this obligation to designate at the time of its creation a manager with the AIFM licence. Moreover, this type of flexible Swiss investment fund can be launched quickly and at low cost.
Who will administer and manage an L-QIF?
An L-QIF can be established in financial institutions subject to FINMA supervision, the Federal Securities and Markets Supervisory Authority, meaning a regulated asset manager: banks, third-party managers, family offices, insurance companies, pension funds or asset management companies.
An L-QIF will be open strictly to qualified investors. The launch of the new fund structure will not include the introduction of a new legal structure and may be added to an existing legal structure, Swiss contractual fund, Swiss investment company with variable capital or Swiss limited partnerships for collective investment.
The aim of the introduction of the L-QIF is to increase Switzerland’s competitiveness as a financial centre for the investment fund industry and to be less dependent on Luxembourg by offering this type of vehicle.