Publication of the Act Modernizing Luxembourg Fund Product Laws and AIFM Act
The Act Modernizing Luxembourg Fund Product Laws and AIFM Act has been officially published. This act, passed by the Luxembourg Parliament on 11 July 2023 as bill of law n°8183, introduces amendments to five existing laws related to alternative investment funds (AIFs) and alternative investment fund managers (AIFMs). These laws include the UCI Act, SICAR Act, SIF Act, RAIF Act (collectively referred to as the « Fund Product Laws »), and the AIFM Act.
The Modernization Act, published on 24 July 2023 in the Official Journal of the Grand Duchy of Luxembourg, will mostly take effect from 28 July 2023. Its main objective is to enhance the Luxembourg UCITS and AIFs framework, with a focus on making alternative asset classes more appealing to retail investors. This includes the introduction of measures related to the European long-term investment fund (ELTIF), following the adoption of Regulation (EU) 2023/606 on ELTIFs on 15 March 2023. Additionally, the Modernization Act incorporates certain administrative practices of the Commission de Surveillance du Secteur Financier (CSSF) into legislation.
The key changes introduced by the Modernization Act for Luxembourg investment funds are summarized as follows:
- Investor eligibility criteria remains unchanged, allowing units to be distributed to the public, including retail investors.
- The minimum capital amount of €1,250,000 must be met within six months of CSSF authorization, as before.
- The maximum two months’ notice period for replacing the depositary in case of resignation or dismissal is removed. The CSSF’s administrative practice of withdrawing an investment fund from its official list when no depositary is replaced at the end of the notice period is now legislated.
- The definition of money market funds (MMF) is now aligned with EU Regulation 2017/1131, offering MMFs reduced subscription tax or exemption under certain conditions. UCITS exclusively used as Pan-European Pension Products (PEPP) are exempt from subscription tax.
2) Part II AIF
- The minimum capital amount of €1,250,000 must be met within six months of CSSF authorization, as for UCITS.
- Part II AIFs authorized as ELTIFs are exempt from the subscription tax.
- A variable capital structure with the legal form of SCA, SCS, SCSp, SARL, or SCoSA is now allowed for Part II AIFs. If structured as an SCA, SCS, or SCSp, an external AIFM authorized in the EEA must be appointed.
- Closed-ended Part II AIFs can freely determine the issuance price in the constitutive document. Fair value is the basis for asset valuation unless otherwise stated in the constitutive documents.
- The investment threshold in the definition of « well-informed investors » is reduced for non-professional investors from €125,000 to €100,000.
- The minimum capital amount of €1,000,000 must be met within 24 months (previously 12 months) of CSSF authorization.
- CSSF approval is now required for directors.
- Contributions other than cash in case the SICAR is an SCS or SCSp must be accompanied by a report from an auditor.
- The minimum capital amount of €1,250,000 must be met within 24 months (previously 12 months).
- SIFs meeting the updated definition of short-term MMF are exempt from subscription tax.
- SIFs authorized as ELTIFs are exempt from the subscription tax.
- No major changes to the withdrawal of the depositary.
- RAIFs meeting the updated definition of short-term MMF are exempt from subscription tax.
- RAIFs authorized as ELTIFs are exempt from the subscription tax.
- The requirement for a Luxembourg notary to acknowledge the establishment of a RAIF and appointment of an external AIFM within five business days is removed. The RAIF can be marketed to non-professional investors if they qualify as « well-informed investors. »
For Luxembourg management companies and AIFMs, certain changes will be made to chapter 16 of the UCI Act and the AIFM Act to formalize CSSF’s current administrative practices. The Modernization Act also introduces rules for voluntary and judicial liquidation of AIFMs.
Finally, the Modernization Act enables Luxembourg AIFMs to appoint tied agents, who are non-regulated individuals or companies appointed for specific purposes under MiFID, subjecting the AIFMs to certain obligations similar to credit institutions and investment firms.