This type of investment fund is governed by the Luxembourg law of 13 February 2007 replacing the law of 1991 defining the legal framework for institutional funds and enlarging the distribution scope to “well-informed investors”. The SIF law significantly simplified the rules for setting up investment fund structures ranging from straightforward investment strategies investing in listed securities to hedge funds, real estate and private equity funds.
On 12 July 2013, the SIF regime was amended by the law on alternative investment fund managers (AIFM law). Consequently, the specialized investment funds law has been divided into two parts:
* General provisions applicable to all SIFs;
* Specific provisions applicable to SIFs which qualify as Alternative Investment Fund (AIF) and which require to be managed by an authorized Alternative Investment Fund Manager (AIFM).
Investment Restrictions and Leverage
The SIF regime offers a broad scope of eligible assets. There are no specified investment restrictions or leverage rules by the SIF Law. It is simply stated that a SIF should apply the principle of risk diversification. Therefore, assets may include equity bonds, derivatives, structured products, real estate and shareholdings in privately held companies.
The Luxembourg regulator (CSSF) may provide exemptions from these restrictions on a case-by-case basis. However, the CSSF may also request that additional restrictions are adhered to, in cases of funds with specific investment policies.
Minimum Fund Size and Dividends
The SIF law sets a minimum fund size of €1.25 million which must be reached within 12 months after inception.
Issued shares of a SICAV must be fully subscribed, but only 5% of the amount of the subscription must be paid up in cash or by other means of contribution.
There are no specific restrictions on the payment of dividends. Nevertheless, such payments may not result in the size of the SIF falling below the minimum level of €1.25 million.
Valuation of the Assets
Unless otherwise provided for in the issuing document, the valuation of the assets must be based on fair value, determined in accordance with the procedures laid down in the management regulations (FCP) or articles of incorporation (SICAV-SICAF).
Duties and Taxes
The CSSF filing duty is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF. The CSSF annual fee is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF.
An annual subscription tax of 0,01% on the net asset value (NAV) has to be paid to the Luxembourg government (‘taxe d’abonnement’).
A SIF qualifying as an alternate investment fund must establish a risk management function separated hierarchically from that of the operating units. An adequate risk management system must be implemented in order to identify, measure, manage and monitor appropriately all investment risks arisen through the SIF AIF investment strategy.
Appointing a SIF-AIF
A SIF that is qualified as an alternative investment fund according to the AIFM law must be managed by an authorized alternative investment fund manager (AIFM)which may either be established in Luxembourg, in a Member State of the EU, or in a third country.
Following the AIFM Law, a SIF-AIF can be managed in two different ways:
* It can be managed externally through the calling of a separate AIFM responsible for managing the SIF AIF. In this case it is the governing body of the SIF AIF which is empowered to call an authorized AIFM;
* It can be managed internally. In this case the SIF AIF will be considered as the AIFM itself and it will be required to comply with all of the AIFM Law obligations which apply to an AIFM and submit a request for authorization under the AIFM Law.
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