This Wednesday, the Luxembourg Parliament enacted the law regarding alternative investment fund managers (AIFM Law), which implements in Luxembourg the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD).

The AIFM Law, while regulating alternative investment managers, offers new possibilities in respect to the distribution and the management of AIFs.

Scope
Subject to some exemptions, the AIFM Law applies to all legal persons incorporated under Luxembourg law, whose activity consists in managing one or several alternative investment funds ("AIFs") regardless of the location of those AIFs (in the European Union or outside) or of their legal form and structure.

Requirements
Luxembourg alternative investment fund managers (AIFMs) falling within the full scope of the AIFM Law shall become seek authorisation from and be regulated by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg financial supervisory authority. Those not falling within the full scope will be subject to certain registration requirements.
Authorisation is granted upon compliance with the requirements of the AIFM Law, relating to:
- organisational structure;
- liquidity management, valuation and delegation;
- reporting to investors and to the CSSF;
- remuneration policy, conflicts of interest policy and risk management policy.

Passports
While complying with the new requirements imposed by the AIFM Law, Luxembourg and EU AIFMs shall henceforth benefit from two different passports.
Passport for the marketing of EU AIFs
Luxembourg and EU AIFMs shall now be able to market the shares of their EU AIFs to professional investors in the single market through a notification procedure with their supervisory authority.
Passport for the management of EU AIFs
Luxembourg and EU AIFMS shall also be allowed to manage their EU AIFs on a cross-border basis through a notification procedure with their supervisory authority.

Impact on depositaries - A new category of professional of the financial sector ("PFS ")
The AIFM Law imposes new requirements on depositaries of AIFs.
In addition, a new category of PFS has been created in Luxembourg, the "professional custodian of assets other than financial instruments". Entities authorised under this regime may act as depositaries for AIFs that meet certain conditions i.e. no redemption rights for five years after initial investment and generally investing in assets that do not need to be held in custody and in issuers or non listed companies in order to potentially acquire control. This will be particularly interesting to private equity and real estate funds.

New partnership regimes
The AIFM Law modifies the Luxembourg law dated August 10th 1915 on commercial companies in order to update the common limited partnership ("société en commandite simple") regime. Basically, the common limited partnership may allow a more flexible distribution of benefits among the partners and a derogation from the principle "one share, one vote". Contributions in industry shall be accepted and the name of first limited partners and their delegates shall remain secret.
In addition, a special limited partnership ("société en commandite spéciale") will be introduced for specialised investment funds and investment companies in risk capital. The special limited partnership shall have no legal personality and includes most of the advantages of the common limited partnership.
For both the common limited partnership and the special limited partnership there will be the possibility of full tax transparency and tax neutrality.

Transitory provisions

All existing Luxembourg AIFMs are from now on entitled to request authorisation as regulated AIFMs from the CSSF.

AIFMs that fall within the scope of the AIFM Law that do not immediately request authorisation will have to use their "best efforts" to comply with the provisions of the AIFM Law before the earlier of:
- the moment of authorisation as AIFM; or
- July 22nd 2014.

This means that all Luxembourg AIFMs will have up to the July 22nd 2014 to comply with the provisions of the AIFM Law.
On June 18th, the CSSF published a Q&A further clarifying the transitory provisions applicable to AIFMs and AIFs.

The AIFM law brochure will be available online shortly.