Law no.  8183, which was passed by parliament on 14 July 2023, includes a panoply of improvements to existing laws relating to the investment funds industry. Its aim is to modernise legislation and to make the Luxembourg financial centre even more competitive and attractive.

As the funds industry seeks to move towards the so-called retailisation of the alternative investment funds market, many of the new rules available in the Luxembourg investment funds toolbox will help meet those goals.

“Everyone is talking about the lowering of the threshold for retail investors to qualify as well-informed from €125,000 to €100,000 and the harmonisation of the entities that could do the assessment,” says Julia Szafranska, counsel in the Investment Management practice of Arendt. This not only aligns Luxembourg with the European framework for vehicles such as European venture capital (EuVECA) funds, but also helps marketing in other jurisdictions that have €100k thresholds, she explains.

Supporting the “retailisation” of alternative investment funds

The reform has introduced tax incentives to encourage the development of products that can be marketed to retail investors, such as a subscription tax exemption for ELTIFs (European long-term investment funds). “This is consistent with the initiative of the European Commission, which wants to foster the development of this European product as part of the Capital Market Union action plan,” says David Majzoub, senior associate in the Investment Management practice at Arendt. But offering retail investors better access to private assets is not only being driven by policy-makers. “It’s also responding to a demand from asset managers, who will have easier access to retail investors seeking to invest in private asset classes,” David Majzoub explains. The ELTIF can play a key role in forming a pan-European retail market for alternative investment funds, and Luxembourg is uniquely positioned to become the main hub for these products.

Undertakings for collective investment governed by Part II of the UCI law (known as “Part II UCIs”) have also undergone helpful enhancements. David Majzoub says that Part II UCIs had fallen out of favour for some time, but they are coming back with a vengeance. “The new law introduces additional corporate forms for Part II UCIs and thus more flexibility for this product which is a vehicle of choice in the context of the retailisation of private funds.”

Ease of operation and modernisation

The new law also extends the period by which a fund must reach the minimum capital requirement from 12 to 24 months for SICARs, SIFs and RAIFs, and from 6 months to 1 year for Part II UCIs. “This is a welcome improvement,” says Julia Szafranska. “Considering the current fundraising environment, it has been at times burdensome for some fund managers to have to find a solution if they had not launched the fund and held a first closing, but had set up a RAIF, for instance.” 

Doing away with discrepancies and cumbersome procedures, to make the toolbox more flexible and easier to operate, is one of the key reasonings behind the law, according to the Arendt experts. “For instance, when setting up a RAIF in corporate form, you now only need one meeting with the notary. This sort of adjustment makes it more practical, and certainly more understandable for foreign fund managers.”

There is also clarification on the notice period required for the replacement of a depositary under the SICAR, SIF and UCI laws, says David Majzoub. “Now the notice period that applies is the contractual one rather than a two-month period imposed by the law. A sufficiently long contractual notice period will be necessary, given that in principle, the consequence of no longer having a depositary is the liquidation of the fund.”

Both lawyers welcome the fact that the legislators are taking steps to ensure that Luxembourg can consolidate its position as a leading funds centre. Julia Szafranska concludes: “It’s a modernisation and harmonisation that will ease the operation of the toolbox rather than a revolution. And it will increase competitiveness.”

Key reforms

New and consistent definition of “well-informed investor” in the SIF, SICAR and RAIF laws.

Lowering the investment threshold for retail investors from €125,000 to €100,000.

Extending from 12 to 24 months the time limit by which minimum capital must be raised for SICARs, SIFs and RAIFs. Increase from 6 to 12 months for Part II funds.

Additional corporate forms for Part II UCIs.

Subscription tax exemption for ELTIFs.

Clarification of the notice period for replacement of a depositary in the SICAR, SIF and UCI laws.

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