Has growth in new registrations of Reserved Alternative Investment Funds, known as Raifs, in Luxembourg peaked? As Investment Officer readers have noted, growth tailed off in February and March. Marc Kriegsmann, Raif market specialist at leading Luxembourg Raif issuer Hauck & Aufhäuser, said the dynamic in the Raif market may be affected by increasingly stringent risk control processes and the presence of suitable alternatives.
Luxembourg’s Raif vehicle has become very popular of late, with 2021 being the biggest ever for Raif registrations, according to Investment Officer Luxembourg’s analysis of data made available by the Luxembourg Business Register government business registration office.
One of the most active of the companies, as AIFMs, who register and manage the Raifs on behalf of the companies who set up the funds, is Luxembourg-based management company Hauck & Aufhäuser Fund Services, a unit of Frankfurt-based Hauck & Aufhäuser Lampe Privatbank AG. We asked Marc Kriegsmann, head of business development asset servicing, at the bank to answer a few questions about the Raif sector and his firm’s activity.
Hauck & Aufhäuser launched about 50 Raif structures in 2021, “either in combination of AIFM and central administration services or for a single function only,” said Kriegsmann. As of 30 April 2022, the firm reports that it services about 150 Luxembourg Raif structures.
AML/KYC slows Raifs down?
Asked about the recent growth slowdown in the number of Raifs being registered, on a monthly basis, Kriegsmann said that “at our Luxembourg branch, we are currently not seeing any slowdown in the growth of the number of Raifs.”
He pointed out that there are increasing requirement for anti-money laundering and know-your customer processes in Luxembourg. “These increasingly stringent risk controlling processes also apply to Raifs and could possibly have an impact on the launch dynamic.”
He also said that in the German-speaking market “it is possible that the interest in German fund structures has increased and they are sometimes being preferred over Luxembourg Raifs.” However, he underlined that it’s not clear whether this will become a trend.
Alternatives do exist
On the German market, Kriegsmann explained, the alternatives to Raifs are the well-known alternative investment funds. These AIFs can be used for real estate funds, hedge funds and private equity funds.
Within the Luxembourg market, Kriegsmann said, EuVECAs, or European Venture Capital Funds, are “sometimes mentioned as an alternative”.
Raifs are used within a broad range of asset classes, Kriegsmann explained, not only for alternative assets but sometimes also in regards to financial asset funds which are seeking some more flexibility in terms of their investment restrictions. Currently, debt fund structures in particular are quite common for real estate, private equity, private Infrastructure and private debt.
In general, he said, the Raif is suitable for all asset classes and combines all the advantages of the regulated and unregulated world. “This is why this form of investment is increasingly preferred by initiators and institutional investors in Luxembourg.”
Shorter time to market
The Luxembourg Raif has a significant advantage compared to other fund structures, Kriegsmann explained: the time to market: “The time to market is significantly shorter and the product can be placed more quickly.”
The AIFM licence makes it possible to get a European passport, with which a rapid start of distribution can take place in all EU countries. In addition, he pointed out, the structure is already well established among international investors and investors are familiar with how to work with it, further facilitating market access.
“Raifs are a very efficient way of structuring investment platforms for institutional and professional fund initiators,” said Kriegsmann. He pointed out that one structuring option is an umbrella structure. Using this structure, different sub-funds (compartments) can be set up, in which the investment strategy, the portfolio manager and the investors differ.
Different share classes can be combined within one umbrella structure and even feeder compartments are possible. “Hauck Aufhäuser Lampe offers its Luxembourg-based clients a suitable platform for umbrella structures in order to tailor them precisely to the needs of the respective capital collection points”, he said.
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