The Luxembourg Parliament adopted on 10 July 2013 a bill of law (the "Law") transposing Directive 2011/61/EC on Alternative Investment Fund Managers (the "AIFMD"). The AIFMD intends to provide for an internal market for alternative investment fund managers (the "AIFMs") as well as to establish a European harmonised regulatory and supervisory framework for AIFMs' activities.

Introduction

The Luxembourg Parliament adopted on 10 July 2013 a bill of law (the "Law") transposing Directive 2011/61/EC on Alternative Investment Fund Managers (the "AIFMD"). The AIFMD intends to provide for an internal market for alternative investment fund managers (the "AIFMs") as well as to establish a European harmonised regulatory and supervisory framework for AIFMs' activities within the Union, including those having their registered office in a Third Country.

Besides transposing the AIFMD, the Law modifies the management company regime, and adapts some rules applicable to regulated alternative investment funds (the "AIFs"), namely to so-called Part II UCIs1, SIFs2 and SICARs3. Another important change is the modernisation of its société en commandite simple (common limited partnership or "SCS") and the creation of a limited partnership without legal personality (société en commandite spéciale or "SCSp"). The Law also amends the SEPCAV and ASSEP regimes4. Lastly, it introduces a new custodian regime for certain types of AIFs.

The present newsflash provides a brief overview on the abovementioned innovations and changes introduced by the Law.

External Regulated AIFMS

Following the entry into force of the Law, external regulated AIFMs5 may be either:

  • a "Chapter 15 Super Manco"6 i.e. a management company authorised to manage both undertakings for collective investments in transferable securities (the "UCITS"), and AIFs;
  • a "Chapter 16 Manco"7 i.e. a management company authorised to manage (i) non-AIF investment vehicles8, (ii) Part II UCIs if an external AIFMD-compliant manager is designated, and (iii) AIFs where the assets under management do not exceed the "De Minimis Thresholds"9; or
  • a "Chapter 16 Super Manco"10 i.e. a Chapter 16 Manco which is also authorised to manage AIFs where the assets under management do exceed the "De Minimis Thresholds".

Only Chapter 15 Super Mancos and Chapter 16 Super Mancos11 will be able to benefit from the AIFMD passport.

Regulated AIFS

In Luxembourg regulated AIFs can take the form of a SIF, a SICAR or a Part II UCI. Each of these regulated AIF regimes have been amended by the Law.

SIFs

It will now be possible to establish two types of SIFs: i.e.

  • SIFs managed by an AIFMD-compliant manager; and
  • SIFs which do not need to be managed by an AIFMD-compliant manager.

Any SIF managed by an AIFMD-compliant manager is subject to the same regime as the general SIF regime, with the following main exceptions:

  • the SIF may be managed by an AIFM not located in Luxembourg12;
  • the custody of the SIF's assets may also be entrusted to an investment firm within the meaning of the law dated 5 April 1993 on the financial sector (and not only to a credit institution);
  • the valuation rules applicable to the SIF's assets as contained in the Law will apply together with the current valuation rules contained in the SIF Law;
  • the content of a SIF's annual report must fully comply with the Law;
  • information to be communicated to the SIF's investors must be in line with the Law's requirements;
  • the delegation rules contained in the Law will apply to the SIF in addition to the delegation rules inserted in the SIF Law by the law dated 26 March 2012 amending the SIF Law; and
  • the SIF will benefit from the marketing passport held by the AIFM.

SICARs

With respect to SICARs that need to be managed by an AIFMD-compliant manager, the amendments to the SICAR Law are substantially the same as those described above in relation to the SIF Law.

Part II UCIs

Under the Law, Part II UCIs automatically qualify as AIFs. Their management must be provided by an AIFMD-compliant manager, and this even if the "De Minimis Threshold" is not exceeded. As a consequence, where Part II UCIs are internally managed, they will need to be authorised as AIFMs under Chapter 2 of the Law; on the other hand, where they are externally managed, their management must be attributed to either an AIFMD-compliant manager or, as abovementioned, to a Chapter 16 Manco as long as an external AIFMD-compliant manager is designated by the Chapter 16 Manco. The valuation of the UCI's assets is determined in light of the criteria enshrined both in the Law and the UCI Law. The rules on delegation of certain functions and marketing of UCI's shares or units will be possible within the boundaries set by the Law.

Amendments To The SEPCAV/ASSEP Regimes

The Law also amends the law dated 13 July 2005 on institutions for occupational retirement provision established as SEPCAVs and ASSEPs so as to give the possibility to SEPCAVs and ASSEPs to delegate their asset management namely to Luxembourg or EU AIFMD-compliant managers

Modernisation Of The Partnership Regime

The Law substantially modifies the law dated 10 August 1915 on commercial companies in relation to the SCS regime and also creates the SCSp regime so as to create very competitive and flexible partnership regimes.

The main changes to the SCS regime (which is substantially similar to the SCSp regime, except for the absence of legal personality of the partnership) include the following:

  • the limited partnership agreement (the "LPA") will be able to derogate from the traditional civil law prohibition on granting all profits or losses to one or several partners or completely depriving one or several partners from profits or losses;
  • the LPA will be able to derogate from the "one share, one vote" principle;
  • creditors will not be able to force limited partners to repay dividends that managers incorrectly distributed to them;
  • in a non-exhaustive list of internal management acts, the LPA will clarify the prohibition on limited partners carrying out management acts;
  • contribution in industry (such as the contribution of efforts and management by the unlimited partner) will be accepted alongside cash and in-kind contributions; and
  • the identity of each of the first limited partners or of their assignees will not be published.

Regulated partnerships are fully tax exempt. Under the Law, the most part of unregulated partnerships in the form of SCS and SCSp are subject to full tax transparency, which ensures that these partnerships are tax-neutral. Such an outcome is determined by means of limiting the current fiction, according to which an SCS conducts a business where its general partner is a capital company, to cases where that general partner holds an equity interest in the SCS of at least 5%. Additionally, the Luxembourg VAT regime does not apply to management services rendered to SCSp.

Introduction Of The Professional Custodian Of Assets Other Than Financial Instruments

Besides credit institutions and investment firms, the Law allows for the attribution of depositary functions to the new category of specialised professional of the financial sector (the "PFS Custodian"). PFS Custodians can be empowered to perform depositary tasks for the assets of those AIFs which have no redemption rights exercisable for a period of five years from the date of the initial investment and generally do not invest in assets that must be held in custody, or generally invest in issuers or non-listed companies so as to potentially acquire control over companies. PFS Custodians are expected to be appointed especially with respect to AIFs of the private equity type or with a real estate policy, for which the depositary function has a lesser degree of importance. The option is therefore opened to AIFs of this kind to either appoint a credit institution/investment firm or a PFS Custodian. Only corporations having a legal personality and an adequate minimum share capital requirement (i.e. EUR 500,000 instead of EUR 730,000 for credit institutions), may be approved as PFS Custodians. Furthermore, PFS Custodians are not subject to any additional own funds requirement based on the volume of assets under custody.

Entry Into Force

The Law enters into force on 15 July 2013, date of its publication in the Luxembourg official gazette.

Footnotes

1 i.e. collective investment undertakings authorised under Part II of the Law of 17 December 2010 on undertakings for collective investments (the "UCI Law").

2 i.e. collective investment undertakings authorised under the Law of 13 February 2007 on specialised investment funds (the "SIF Law").

3 i.e. collective investment undertakings authorised under the Law of 15 June 2004 on investment company in risk capital (the "SICAR Law").

4 See the amendments made by the Law to the law dated 13 July 2005 on institutions for occupational retirement provision established as pension savings companies with variable capital ("SEPCAV") and pension savings associations ("ASSEP").

5 i.e. an external manager regulated by the Commission de Surveillance du Secteur Financier (the "CSSF"), which is the legal person appointed by the AIF or on behalf of the AIF and which through this appointment is responsible for managing the AIF.

6 See Article 99 of the Law introducing a new Article 101-1 in the UCI Law.

7 See Article 102 of the Law amending the scope of authorised activities and Chapter 16 Manco may carry out. This Article amends Article 125 of the UCI Law and renumbers it into Article 125-1.

8 This is true as long as the Chapter 16 Manco also manages Part II UCIs (if an external manager is designated), and/or AIFs where the assets under management do not exceed the "De Minimis Thresholds".

9 i.e. (a) EUR 500 million for unleveraged AIFs that have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF; or (b) EUR 100 million in other cases.

10 See Article 103 of the Law introducing a new Article 125-2 in the UCI Law.

11 Together with internally-managed AIFs (i.e. where the legal form of the AIF permits an internal management and where the AIF's governing body chooses not to appoint an external AIFM, the AIF itself, which shall then be authorised as AIFM) authorised pursuant to Chapter 2 of the Law.

12 Subject to the application of Article 66, §3 of the AIFMD when the SIF's management is carried out by an AIFMD-compliant manager located outside of the EU.

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.