The Reserved Alternative Investment Fund (Raif) is a new investment vehicle launched in Luxembourg that provides greater flexibility and speed to market compared to traditional regulated fund structures. The Raif does not require prior authorization or ongoing approval from Luxembourg's financial regulator (CSSF). It is still subject to depositary, administration and audit requirements. While not directly regulated, the Raif provides investor protections as it must be managed by an authorized Alternative Investment Fund Manager (AIFM) that is regulated. The Raif is expected to attract interest from managers looking for a more flexible solution than traditional regulated funds, while still providing the operational characteristics and reporting of regulated funds.

1. INSIDE VIEW
REACHING FOR
THE SKY:
The Reserved
Alternative
Investment Fund
has moved quickly
from idea to reality.
December/January 2016
Alan Dundon and Gautier Despret of Alter Domus give their
opinion on Luxembourg’s newest innovative investment vehicle.
LUXEMBOURG’S RAIF
THERE HAS BEEN much talk and
excitement in the Luxembourg
marketplace in recent months
with the anticipated launch of the
Reserved Alternative Investment
Fund (Raif), managed by an
authorised alternative investment
fund manager (AIFM), moving
quickly from idea to reality.
This culminated on November
27, 2015, with the adoption
of the Raif Bill of Law by the
Luxembourg government, and
the expected passing of the Raif
law itself by the second quarter
of 2016.
The excitement centres around
what local practitioners, and
indeed the wider industry, see
as the ideal product to leverage
the advantages of the Alternative
Investment Funds Managers
Directive (AIFMD), bringing to
market a level of efficiency and
speed not dreamed of prior to
implementation of the directive.
From wishful thinking to
concrete reality, the Raif is
viewed by industry practitioners
as a hugely significant addition
to the product armoury of the
Luxembourg marketplace, and a
key differentiator to its traditional
competitors.
So what makes it so special?
Essentially, the legal framework
of the Luxembourg Raif has
the same characteristics and
flexibility as a Specialised
Investment Fund (Sif) but with a
long-awaited major difference:
the Raif will not in itself be
subject to the supervision of
the Luxembourg Supervisory
Authority, the CSSF.
Not being subject to the
prudential supervision of the
CSSF means that the Raif requires
neither prior authorisation
for its creation and launch nor
the ongoing approvals to key
documents throughout its life-
cycle.This will undoubtedly
attract the interest of many
players, already set up as
AIFMs, looking for the flexibility
and speed to market which
the traditional regulated fund
structures are today unable to
provide.The flexibility of the
AIFM not necessarily needing
to be located in Luxembourg
will make it even more attractive
to many.
WHATWILL INVESTORS
THINK?
Sceptics may take the view that
the hype around this investment
vehicle might not last long. And
the question begs to be asked –
“Why introduce an investment
vehicle without prudential
supervision from the local
regulator? How could this be
good for the industry?” Indeed,
unlike the Sif and Sicar, the Raif
will not benefit from investor
protection afforded by the CSSF.
In our view, however, this will
not unduly concern investors,
the Raif being an alternative
investment fund, or Aif, managed
by an authorised AIFM – itself
supervised by its EU local
regulator – whose responsibility
is, among others, to ensure that
the Aif will comply with the
directive requirements.
The main idea behind the Raif
is thus to avoid a double layer of
supervision: one at the manager
level and one at the product or
Aif level. Additionally, in order
to comply with AIFMD, the Raif
will be subject to a Luxembourg-
based depositary and central
administration requirement, and
will need to appoint an auditor,
all providing comfort to investors,
as indeed envisaged by the
directive.
From a practical perspective,
the Raif, whilst not directly
regulated, is set up in the form
of an investment fund. Unlike the
traditional unregulated product
we refer to later in this article,
the Raif will be serviced in the
same manner as its regulated

2. counterparts, with regular net
asset value calculations, transfer
agency services and depositary.
In particular, reporting common
to the regulated fund world,
including detailed investor
reports, will be fully available to
Raif managers and investors.We
therefore expect that ongoing
administrative and depositary
running costs for a Raif will be
similar to those of its regulated
counterparts.
It is expected that the Raif will
have the same features as a Sif
managed by an authorised AIFM
with no restrictions in terms
of eligible assets, structuring
flexibility and rapidity combined
with noticeable investor
protection. It will be open for
organisation as a company,
partnership or contractual
form, subject to a 0.01% p.a.
subscription tax (waived under
specific conditions), and will
have the option of multiple
compartments with multiclass
shares and investments kept at
fair value unless otherwise stated
in its articles of association.
Although the Raif is an attractive
option for the alternative
investments industry, the risk
of it overtaking or substituting
current Luxembourg structures
over time is unlikely. Certain
promoters will, for example,
continue to favour establishing
regulated product, often to
respond to investor preferences.
It does however represent an
additional component to an
integrated offer, and indeed a
differentiating advantage over
other jurisdictions, helping
Luxembourg in its drive to offer
a one-stop shop to the increasing
and varying needs of the
alternative investment industry.
WHERE AREWE TODAY?
It is useful for us to look at what
already exists, and will continue
to be used, in the industry. In
the Luxembourg alternative
investments’ domain, two
structuring options exist:
UNREGULATED
STRUCTURES
• Soparfi: • The Soparfi, or Société
de Participation Financière, is
the most common European
alternative investment vehicle
used for cross-border investment.
It can be organised in various
forms (SàRL, SA, SCA and SCS),
with access to 75 double tax
treaties currently in force in
Luxembourg (19 pending) and
is not subject to the prudential
supervision of the CSSF.
• Limited partnerships:
Modernised by the
implementation of AIFMD, limited
partnerships remain an attractive
structure to investors, and indeed
have grown significantly in
number over the past two years,
with around 900 established to
date.They are established by
contract (LP agreement) for a
limited or an unlimited duration.
Composed of at least one general
partner (GP) and one limited
partner (LP), Luxembourg
limited partnerships are tax-
transparent. In Luxembourg,
limited partnerships may be
incorporated as a common
limited partnership (CLP –
Société en Commandite Simple)
and partnership limited by
shares (PLS – Société en
Commandite par Actions), both
having legal personality or
special limited partnership
without legal personality (SLP –
Société en Commandite Spéciale).
The limited partnership is
not subject to the prudential
supervision of the CSSF by nature
but can opt in by applying the
Sif/Sicar regime.
REGULATED STRUCTURES
• Sif: The Sif has become one
of Europe’s most recognisable
alternative investment fund
regimes. It can be organised as a
company (i.e. SàRL, SA and SCA),
a partnership (CLP and SLP)
or in a contractual form (Fonds
Commun de Placement – FCP) as
a mono or multi-compartment
vehicle. It is subject to the prior
approval and ongoing supervision
of the CSSF, its financial
statements must be approved
by an independent auditor
(réviseur d’entreprises agréé)
and its financial fixed assets must
be recorded at fair value unless
otherwise stated in its articles of
association.
• Sicar: Launched in 2004, the
Sicar is a dedicated structure
designed for the private equity
and venture capital industry.
The Sicar is reserved for qualified
investors investing in risk capital
only.The Sicar can be organised
under company (i.e. SàRL, SA
and SCA) or partnership forms
(CLP and SLP) as a mono or
multi-compartment vehicle. It is
subject to the prior approval and
ongoing supervision of the CSSF,
its financial statements must be
approved by an independent
auditor (réviseur d’entreprises
agréé) and its financial fixed
assets must be recorded at
fair value.
Undoubtedly the Luxembourg
marketplace will continue to fuel
the global alternative investment
industry with attractive and
innovative products.The Raif will
certainly play its part in promoting
Luxembourg’s innovative
character, and we expect further
innovation in the coming years,
particularly as AIFM market
practices continue to develop.
Alan Dundon is chief marketing
officer and Gautier Despret is
fund services senior manager
at Alter Domus
❱❱ THE RAIF ISVIEWED BY INDUSTRY
PRACTITIONERS AS A HUGELY
SIGNIFICANT ADDITION TO THE
PRODUCT ARMOURY OF THE
LUXEMBOURG MARKETPLACE. ❰❰