Luxembourg tax alert
19 August 2011
Specialized Investment Fund law ready for AIFMD
The Luxembourg Government on 12 August 2011 submitted a draft law to the Chamber of Representatives that would amend the 2007 Law on Specialized Investment Funds (SIF). The purpose of this bill is to modernize the legal framework applicable to the SIF and to implement the Alternative Investment Fund Managers Directive (AIFMD). It would make the following key amendments to Luxembourg’s existing regime.
- Obligation for SIFs to have a clear risk management process and rules relating to the management of potential conflicts of interests
- Obligation for SIF to include in its activities portfolio management service
The proposal also strengthens the authorisation and supervision rules. The SIF must henceforth obtain approval from the CSSF prior to being launched. This also extends to those persons selected to manage the investment portfolio of the fund and the depositary, who must also be approved by the CSSF before the launching of the fund. Going forward, it introduces the concept of sufficient relevant experience in the approval of managers of the SIF and requires that the SIF has a suitable procedure in place for verifying that an investor is a sophisticated investor as opposed to a retail investor.
Finally, the proposal should allow the SIF to benefit from the opportunities currently offered to Undertakings for Collective Investment under the 2010 Law. It includes notably the possibility of cross sub fund investment and the possibility to write its bylaws in English. The obligation to send the annual report to all investors has also been removed and replaced with the need to make such document readily available to investors upon request.
Once approved, the new rules will enter into force the first day of the month following the publication of the law. However, SIF will have until 30 June 2012 to comply with the new rules in matter of risk and conflict of interests.
These changes will improve the overall quality of that product which has experienced an overwhelming success with more than 1,300 SIF launched since 2007. The SIF is now perfectly designed to become the number one vehicle for asset managers wishing to benefit from the passport that the AIFMD will grant to alternative fund managers.