Clifford Chance Luxembourg has been working with some of the largest names in global asset management to make this happen across the country’s borders, on a pan-European basis. Products like the US REIT (Real Estate Investment Trusts) have proved popular in America and are attracting increasing quantities of relatively small investments of a few tens of thousands of dollars from individual investors. This phenomenon is called the retailisation of private funds, but this success has yet to be replicated in Europe.

Replicating a passport

There is no ideal off-the-shelf pan-European solution to make this happen. The continent’s AIFMD regulatory regime is focused on cross-border passporting for alternative funds to institutional and professional investors, but is not even targeted at distribution to high net worth individuals. Structures such as the ELTIF, EuVECA and EuSEF created by the EU have proved to be insufficiently flexible. Some investors have turned to options provided through life insurance and pension policies, but these have limited use and are not particularly cost effective.

To create cross-border structures to target retail clients requires a country-by-country approach. While not straightforward, with deep knowledge of local regulatory, legal and tax environments, structures can be created to replicate passporting regimes.

For example, in Germany, the “semi-professional investor” status comes with a steep €200,000 minimum investment before alternative assets can be accessed by private individuals. However, this minimum can be reduced considerably by looking at options other than basic fund vehicles, for instance by combining a debt instrument with a Luxembourg master fund. In France, using a feeder fund to manage complicated local authorisation rules can be the right approach. Each jurisdiction has its own characteristics which must be taken into account.

Ideal Luxembourg hub

There’s nowhere better than Luxembourg to manage these complexities to achieve critical mass by creating a central fund hub. Specialists in Luxembourg have years of experience dealing with local regulators, so are well placed to help asset managers and investors achieve cost-effective solutions.

At Clifford Chance in Luxembourg, advising on these pan-European fund solutions for individual investors also means leveraging decades of experience. We are experts in structuring open-ended real estate funds, and we have a strong track record in complex UCITS and so-called NewCITS which feature a portion of alternative investments. This is coupled with our unrivalled international network.

Retail alternative investment has achieved double-digit growth in the US in recent years. This experience is inspiring asset managers to seek to replicate this approach and meet growing demand in Europe.