Diligent evolution, rather than revolution
The Bill aims to broaden structuring opportunities following the trend of democratisation of private assets and will lead to an increased attractiveness of Luxembourg as a central hub for investment funds in the middle of Europe. It also will ensure future competitiveness of Luxembourg as financial centre.
In essence, the Bill amends the five sectoral product laws currently regulating investment funds and their management entities in Luxembourg: the Law of June 15, 2004 on the investment company in risk capital (SICAR) (the “SICAR Law”), the Law of February 13, 2007 on specialised investment funds (SIF) (the “SIF Law”), the Law of December 17, 2010 on relating to undertakings for collective investment (UCI) (the “UCI Law”), the Law of July 23, 2016 on reserved alternative investment funds (RAIF)(the “RAIF Law”) and the Law of July 12, 2013 on alternative investment fund managers (AIFM) (the “AIFM Law”).
Focus on selected details
The changes of the law are multifaceted, with the following amendments being of particular interest to financial market participants in the alternative investment sphere, with a special emphasis on changes increasing the attractiveness of the Luxembourg investment funds toolbox for retail investors.
The Bill finally improves consistency amongst the SICAR Law, SIF Law and the RAIF Law by clarifying that aforementioned vehicles may be marketed in Luxembourg to all well-informed investors, even those that do not qualify as professional investors. Of central importance is also the lowering of the minimum investment amount for well-informed investors from EUR 125,000 to EUR 100,000, alongside the waiving of the requirement to have the constitution of the RAIF recorded in a notarial deed within 5 working days following constitution of the entity (so called constat de constitution) for RAIF vehicles incorporated by notarial deed as well as introduction of the duty to maintain the information provided to the Luxembourg commercial register (Registre de Commerce et des Sociétés - RCS) within twenty (20) days following a change.
Furthermore, especially following market demands of AIFMs implementing illiquid strategies, the periods for achieving the required legal minimum capital for SICARs, SIFs and RAIFs has been extended from 12 months to 24 months and from 6 months to 12 months in the UCI Law. The UCI Law now also reflects amendments as to the available legal forms for such entities being now in line with what is allowed for RAIFs and SIFs and to freely determine the issuance price (formerly solely linked to NAV).
In addition, the Bill introduced contractual flexibility from the formerly prescribed 2-month notice period for a depositary change. SICARs, SIFs, UCITS and Part II UCIs can now contractually agree with the respective parties to a desired time period. Additionally, AIFMs are now enabled to also use the services of tied agents and the subscription tax regime has been modernised in certain aspects, among others, by providing a tax exoneration to funds authorised as European Long Term Investment Fund (ELTIF) or Pan European Pension Products (PEPP).
Survey in the Netherlands
Whilst the Netherlands did not recently introduce specific new legislative developments to the legal environment of investment funds, the Dutch supervisory authority, the AFM, published on 1 August 2023 its preliminary observations and specific views from an earlier survey as to management of sustainability risks by managers of Dutch investment funds.
The survey aimed to identify, assess, minimise and monitor sustainability risks. In the first stage of the survey, the AFM asked 15 fund managers for information in respect of specific aspects of sustainability risk management. In the second stage, the AFM went into detailed discussions with 4 selected fund managers.
The AFM’s specific observations are that there are big differences in the availability and quality of data, that the difference between sustainability goals and sustainability risks is not quite clear for every party and that the majority of fund managers has, to a greater or lesser extent, processes in place in respect of risk identification.
The insights are, among other things, that there are various methods for to arrange the overall responsibility for sustainability risk management and that most fund managers use the SFDR-definition for the assessment of sustainability risk. Furthermore, stress-tests and scenario analyses are not generally applied.
In the time to come, the AFM will continue to pay attention to risk management by fund managers, including risk management in relation to the use of data from external providers. On a European level, also investigation will be undertaken as to the management of sustainability risks by fund managers.
Tom Loonen is professor of financial law at Vrije Universiteit Amsterdam and special counsel Pinsent Masons Netherlands, while Jan Saalfrank is partner investment funds at Pinsent Masons Luxembourg. Lous Vervuurt is an attorney at Pinsent Masons. She advises on financial regulation and anti-money laundering compliance. The law firm is an Investment Officer knowledge partner.