Setting up an Umbrella Fund in Luxembourg - 10 Leaves

  • 16-03-2021

A GLOBAL CENTRE FOR INVESTMENT FUNDS:

Luxembourg is a global centre for investment funds, the second largest fund jurisdiction in the world, after the United States. It is the largest centre for funds in Europe, with over Euro 4.5 trillion in cumulative assets under management in supervised funds alone.

Why setup an investment fund in Luxembourg?

The country is:

  • A founding member of the EU.
  • Politically stable.
  • Financially stable.
  • AAA-rated.

It has:

  • Access to over 500 million EU residents.
  • Reliable investment regulations.
  • Over 4,200 supervised investment vehicles with around 14,500 sub-funds.
  • A competitive framework for passporting of funds within the EU.
  • Luxembourg funds are sold in more than 70 countries and is the leading jurisdiction for fund distribution.
  • A responsive and globally recognized financial regulator.

It offers:

  • A wide range of supervised and non-supervised investment funds.
  • UCITS and AIFs.
  • Umbrella funds.
  • Non-supervised funds.

Tax benefits:

  • Depending on the need of investors, Luxembourg offers tax exempt, tax neutral or taxable investment vehicles,
  • Some exemptions for VAT payments;
  • Funds may access Double Taxation Avoidance Treaty benefits or establish SPVs that would have access.

Luxembourg funds and the GCC:

Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.

Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.

Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.

Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.

United Arab Emirates – 64% of foreign funds are Luxembourg funds

Saudi Arabia – 50%

Kuwait – 75%

Bahrain – 75%

Oman – 99%

Qatar – 98%

What is an umbrella fund?

An umbrella fund is collective investment scheme that legally exists as a single entity but has several distinct compartments or sub-funds. These sub-funds may follow completely different investment policies and can have different investors for each compartment. Such sub-funds are treated as separate funds, with assets and liabilities being segregated and fund accounting also being done separately.

 Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg also has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

What are the advantages of setting up an umbrella fund in Luxembourg?

Luxembourg offers many advantages for the establishment of umbrella funds:

The first one being time-to-market.

1. Setting up an umbrella fund is a one-time process, with an incremental sub-procedure for each compartment.

a. The fund manager does not have to go through a separate setup process, nor re-negotiate terms with service providers, every single time.  

2. Costs also play a big part here. An umbrella fund with multiple compartments costs much lesser than setting up distinct funds, especially for fund managers who wish to employee various strategies for specific investor groups.

3. The third is choice. Fund managers can choose the level of supervision they require, depending on the class of assets that the fund will invest in, and the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).

4. A Luxembourg sub-structure offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers. Besides, this is a well-established practice, being tried and tested for many years.

5. Distribution options are also available. For instance, the umbrella and sub-funds could be passported on the basis of the UCITS or AIFMD framework.

What types of funds can be setup as umbrella funds?

Fundamentally, any fund in Luxembourg can have an umbrella structure.

Here are some commonly-offered solutions:

1.UCITS (Undertaking for Collective Investment in Transferable Securities). UCITS are the most distributed investment fund product globally. They are well-regulated by the CSSF, since they can be offered to retail investors.

UCITS are subject to strict diversification rules, and can only invest in certain asset classes, such as listed securities, bonds, index components and assimilated assets.

They benefit from the EU Passport and can be distributed through the European Union.

2. Specialised Investment Fund (SIF). These are very flexible fund structures, and available to qualified investors only. The fund can hold assets directly, and lower levels of diversification are required (usually 30%).

SIFs can also opt for the EU Passport, after meeting certain conditions.

3. RAIF, or Reserved Alternative Investment Fund. RAIFs were introduced in 2016 and have been very successful.

They are faster to setup, and flexible enough, and they can be transformed into SIF or SICAR, if required.

In fact, they are structurally similar to the Luxembourg SIF and SICAR, but are not directly supervised by the CSSF. Instead, a RAIF has to appoint an AIFM, which in turn is regulated by the CSSF. This allows the RAIF to benefit from the AIFMD passport and be marketed throughout the European Union.

4. Securitisation Vehicles (SV) are investment vehicles, that can be set up as an alternative investment vehicle, as a substitute for fund structures. Luxembourg SVs are very flexible and can be set up either as a corporate, or a securitisation fund.

An SV can issue securities such as bonds and notes in relation to underlying risks such as receivables and credit.

How fast can an umbrella fund be set up?

The time to setup depends on whether the umbrella fund is a supervised or non-supervised fund. A non-supervised umbrella fund can be set up within 2 weeks, and a supervised structure can take around two months, depending on the complexity of the fund and the time it takes to get approved by the Luxembourg regulator.

How can we at 10 Leaves help you?

We provide turnkey services for Luxembourg structures:

From initial consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the legal framework in Luxembourg and submit an application that is comprehensive, complete and compliant.

Our services include assistance in:

1. Reviewing the business model and advice on the applicable regulatory framework;

2. Preparation of all the required documentation, including Private Placement Memorandums and agreements;

3. Provision of compliance and bookkeeping services; and

4. Finalisation of registered space and bank account opening.

5. In fact, we can do all this without you having to visit Luxembourg!

Get in touch! to know more about umbrella fund in luxembourg

For More Information on Luxembourg Funds, View our Luxembourg Brochure

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