An alternative investment vehicle that relatively swiftly established itself in Luxembourg continued to become more popular last year, an analysis of data filed with the country’s business register shows. If growth continues at the current pace, Luxembourg will be home to more than 2,000 such funds, known as Raifs, by the end of this year.
Raif is the acronym for “reserved alternative investment fund”. A Raif can be created relatively quickly and does not involve direct interaction with financial supervisors. Its management companies nevertheless are subject to supervision by Luxembourg’s CSSF. At least one of the funds of this type holds assets in excess of USD800 million.
Last year was the biggest year ever for RAIFs. A total of 417 such funds were created, up 39 percent from 364 a year earlier, according to analysis conducted by Investment Officer Luxembourg of filings with the Grand Duchy’s business register (LBR). Luxembourg was home to a total of 1653 RAIFs at the end of 2021.
Luxembourg’s government enabled the creation of Raifs in 2016. This regime is “very flexible” thanks to light establishment requirements and efficient corporate operating rules, said Stephane Pesch, CEO of the Luxembourg Private Equity & Venture Capital Association (LPEA). The new approach also avoids double supervision for alternative investment funds. Only the management company is supervised by CSSF, not the product itself.
“It is one of the two main innovations in Luxembourg’s toolbox,” said Pesch, referring also to the 2013 laws for limited partnerships such as a SCSp “which proved to be also very successful.”
The Raif vehicles are received with enthusiasm by management companies and investors.
“Investors’ demand for alternative investments has continuously been rising in recent years,” said Sofia Harrschar, country head universal at Luxembourg-Investment, a top-five Raif issuer. ”Luxembourg’s Raif structure offers investors an efficient way to invest in this space. Particularly time-to-market and its flexibility once the fund is launched are two factors they appreciate.”
The analysis of Luxembourg’s business register data shows the top five companies active in RAIFs are Carne Global, Hauck Aufhäuser Lampe, LRI Invest, Universal-Investment and Luxembourg-Investment. Each of these have registered more than 40 RAIFs since 2016.
Decisive innovation
Carne Global, the world’s largest third-party fund management company, and German private bank Hauck Aufhäuser Lampe were lead Raif issuers last year with 19 funds each.
At Hauck Aufhäuser Lampe, Marc Kriegsmann, Head of Business Development Asset Servicing, described the Raif as a “decisive innovation” that stemmed from the modernisation of Luxembourg’s financial supervision laws in 2016. He said this triggered a move away from specialised investment funds known as SIFs, which still accounted for about 80 percent of alternative funds in 2016, and towards RAIFs.
“This distribution has reversed over 2018 and 2019, so that in the last two years we stand at over 90 percent RAIF launches and only occasionally the SIF is still chosen by our clients,” Kriegsmann. “Some funds originally launched as SIF are being converted to the RAIF variant.”
Shorter time-to-market
“The main advantage versus a SIF is time-to-market as you do not have the additional onus of going through the approval process with CSSF to launch a fund,” said Dominik Becker, Head of Business Development at Apex Group company LRI.
Raifs can be used for a variety of investment strategies from real estate to private equity to debt to commodities. Clients also benefit from the speed and flexibility of the launch process, while the vehicle “combines the tax and legal advantages of the regulated and unregulated world and significantly shortens the time to market.” said Hauck & Aufhäuser’s Kriegsmann.
The funds are only available to “well-informed” or institutional investors, unlike widely used and popular Ucits funds that are structured for more liquid asset classes. A Raif investor is required to invest at least EUR125,000.
IQ-EQ Fund Management joined the top five last year with 15 Raifs. Managing Director Fèmy Mouftaou said he sees a number of reasons that explain the success. Among them, flexibility, investor protection and the speed at which they can be brought to the market.
Smooth European fund raising
“In short, Raifs offer investors the same ‘product’ as other funds, but with a larger focus on alternative assets, flexibility, investor protection and smooth European fund raising,” said Mouftaou. “This makes RAIFs an attractive and successful solution for many fund promoters across the globe.”
Luxembourg’s government enabled the creation of RAIFs in 2016 using the new EU rules for alternative investment funds. Under the AIFM Directive RAIFs can be given a European passport. This gives “investors the capacity to easily access the European market.” said Mouftaou.
Luxembourg is home to more EUR843 billion held in alternative investments, according to the Association of the Luxembourg Fund Industry (Alfi). It houses more than 15.000 funds that are distributed in some 70 countries.
— with data reporting by Mike Gordon