Luxembourg targets ‘retailisation’ as it updates AIF offering

September 2023: With the Department of Finance undertaking a wide-ranging review of Ireland’s investment funds sector Luxembourg has taken steps to modernise its own investment funds toolbox.

The changes, that aim to simplify, rationalise, offer greater flexibility and increase product structuring options, are aimed to help facilitate the marketing of private strategies to non-professional investors.

The changes in Luxembourg modernise a number of its alternative fund product laws notably the specialised investment fund (SIF), the reserved alternative investment fund (RAIF), the investment company in risk capital (SICAR), the undertakings for collective investment (UCI) and the alternative investment fund manager (AIFM) regimes.

One of the overarching changes has been to the definition of a ‘well-informed investor’ which has now been harmonised across the laws governing the SIF, RAIF and SICAR. These now refer to MiFID in relation to the term ‘professional investors’, giving greater clarity and certainty, and in addition the minimum investment amount applicable to ‘well-informed investors’ who are not professional investors has been aligned with the MiFID ‘informed investor’ standard by reducing the amount from €125,000 to €100,000.

The changes also see the SICAR regime coming more in line with the SIF regime in a number of areas including delegation of functions, regulatory approvals and actions.

The updates to the RAIF regime look to capitalise on the ‘retailisation’ trend of alternative investment strategies by clarifying that the fund type can be marketed to non-professional investors provided they qualify as ‘well-informed investors’.

Further efforts to capitalise on this trend sees the introduction of a raft of new structuring options for Part II SICAVs, a fund type available to all investors, including retail, which formerly had to be established as limited liability companies (SA).

Other changes include increased flexibility in depositary agreements, harmonised rules around liquidation of management companies and AIFMs and tax exemptions for Pan European Pension Products (PEPPs) and ELTIFs.

These latest changes follow an update to Luxembourg’s regime for ELTIFs earlier this year in preparation for the expected increase in interest in the fund type as revamped EU ELTIF regulations come into force 10th January 2024. Progress is also being made as Ireland makes itself ‘ELTIF-ready’ with the Central Bank of Ireland proposing to introduce a dedicated ELTIF chapter in its AIF Rulebook to facilitate the ELTIF updates. It is expected to open a consultation on the proposals in October, with the updated rulebook expected to be in place ahead of the introduction of the new ELTIF rules.