The draft bill 6318 amending the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the "Bill") has been filed by the Luxembourg government before the Luxembourg Chamber of Deputies on 12 August 2011.
This Bill takes into account in particular the adoption of the Directive of the European Parliament and of the Council of 27 May 2011 on alternative investment fund managers (hereafter the "AIFM Directive").
It also attempts to modernise the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the "SIF Law") by implementing certain provisions already existing under the Luxembourg law of 17 December 2010 on undertakings for collective investment (hereafter the "UCITs Law").

In detail, the changes proposed by the Bill can be (inter alia) summarised as following:

Authorisation process with the CSSF

First of all, specialised investment funds ("SIFs") shall now be submitted to the prior authorisation of the CSSF before carrying out their activities. This change will create the same authorisation process (at least from a timing perspective) as currently existing for collective investment funds under the UCITs Law.

The risk management and conflict of interest

The Bill introduces the concept of "risk management" and "conflict of interest" stemming from the AIFM Directive. SIFs shall implement an appropriate risk management system to limit the risk linked to the investment positions and their contribution to the general risk profile of the portfolio. In addition, SIFs shall also be structured and organised in order to limit any possible conflict of interest with their counterparts or any persons linked to SIFs.

Investment management

In order to exclude the possibility to set up a passive SIF having an investment activity limited to shareholding, the Bill introduces the definition of the "management" of the assets, which is an activity including at least the management of portfolio meaning that SIFs should carry out a real and active management of their portfolio.

Delegation to third parties

The Bill follows the same provisions as given under the UCITs Law when it comes to the delegation of tasks by the management of the SIF to third parties. In such case, SIFs shall adequately inform the CSSF and the mandate shall not prevent the supervision conducted by the management on the SIF. In case of an appointment of an investment manager, such must be authorised or registered in order to manage investment portfolios and submitted to a prudential supervision.

Cross-investments

With regard to cross-investments (i.e. possibility for a sub-fund of a SIF to invest in another sub-fund of the same SIF), the Bill follows again the UCITs Law. Indeed, cross-investments will be possible under following conditions:

  • the cross investment between the sub-fund target and the investing sub-fund are not permitted;
  • the voting rights of the target compartment are suspended during the period of investment;
  • the value of the assets is not taken into account for the calculation of the NAV in the context of meeting the minimum net assets requirements.

Contributions in kind

Regarding contributions in kind, the Bill puts an end to several discussions about the requirement of an independent auditor's report. Henceforth, any contribution other than cash shall, whatever the legal structure of the SIF is and prior to the incorporation, meet the conditions of article 26-1 of the law of 10 August 1915 concerning commercial companies (i.e. auditors' report).

Derogation of the corporate law

Finally, as it is already foreseen under the UCITs Law, SIFs will be exempted to translate their articles of incorporation or any modifications of it into French or German, if these documents have been drawn up in English.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.