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Domiciling a Hedge Fund – Luxembourg and the RAIF: a guide for first-time managers

Domiciling a Hedge Fund – Luxembourg and the RAIF: a guide for first-time managers
  • United Kingdom
  • Luxembourg
  • Financial services and markets regulation
  • Financial services and markets regulation - Hedge funds
  • Financial services


Nestled between France, Belgium and Germany sits the last sovereign Grand Duchy and one of Europe’s pre-eminent financial centres.

Luxembourg is a meeting of the medieval and the modern that continues to attract fund managers. This is hardly surprising: with world-class service providers, four working languages (English/French/German/Luxembourgish), marketing reach across four continents and a set of finely tuned set of laws and regulations the Grand Duchy has much to recommend it.

To this list of qualities we should add one further: ‘flexibility’. Luxembourg offers fund managers a variety of collective investment vehicles to choose from. In recent years one of the most popular has been the reserved alternative investment fund (“RAIF”).

Here is how you get to grips with it.


RAIFs are alternative investment funds (“AIFs”) under the EU’s Alternative Investment Fund Managers Directive (“AIFMD”) and must appoint a duly authorised alternative investment fund manager (“AIFM”) in Luxembourg or in any other EU Member State as their external AIFM. The AIFM is therefore subject to the full requirements set out in AIFMD. Compliance comes with its own challenges (as we discuss here), but funds established in the EEA, with a manager authorised in the EEA can be granted passporting rights which enable them to be marketed to professional investors across the EEA.

RAIFs are not subject to any kind of supervision or oversight by the Luxembourg’s financial regulator – the Commission de Surveillance du Secteur Financier (“CSSF”). It is therefore possible to launch a RAIF without obtaining regulatory approval. A RAIF must meet specific requirements in the days following its creation:

• the constitution of any RAIF must be recorded by notarial deed

• a notice of the formation – clearly identifying the RAIF’s AIFM – must be registered with the Register of Commerce and Companies

However, since registration can be made online and a notary appointment arranged within a few days neither should present much difficult.

A RAIF can take the form of a stand-alone or an umbrella structure (with different compartments). There are no unavoidable restrictions on a RAIF’s investment strategies or its target assets (see Risk Spreading Requirements below). This malleability extends to the fund’s legal structure: RAIFs can be set up as partnerships, corporates, or eschew legal personality entirely in favour of a common contractual fund arrangement. Corporate and partnership RAIFs have the further option of forming investment companies with fixed or variable capital (“SICAFs” and “SICAVs” respectively). This is a key distinction, Investment companies with fixed capital (SICAFs) must seek a resolution from an extraordinary meeting of shareholders before making any changes to their share capital. The share capital of an investment companies with variable capital (SICAVs) always matches its current net assets.

Combine this flexibility with a regulatory light touch and it quickly becomes clear why this fund vehicle is so popular.

Risk Spreading Requirements

RAIFs must comply with the risk-spreading principle, which in general requires a fund to invest no more than 30% of its assets or commitments in securities of the same kind issued by the same issuer, unless they invest exclusively in risk capital.

Target Market

RAIFs can only target ‘well-informed investors’. This includes professional and institutional investors. Other investors may be targeted provided they meet certain conditions. For example, an investor might be deemed well-informed if they confirm in writing that they are a well-informed investor and invest a minimum of EUR 125,000 in the fund. Investors that have been subject to an assessment by a credit institution, an investment firm or a management company certifying that they have the expertise, experience and knowledge to adequately appraise the risks of investment in the RAIF may also be eligible.

Further Considerations

RAIFs must issue a document known in Luxembourg law as an “issue document”. The issue document must include the information necessary for investors to be able to make an informed judgement of the investment proposed to them. This document should include all disclosures required under AIFMD.

A RAIF’s fund’s manager must be a fully authorised as a ‘full-scope AIFM’ under AIFMD (you can read more here), with a registered office in an EEA member state. In general the AIFMs of Luxembourg RAIFs are established in Luxembourg and regulated by the CSSF. Alternatively, the AIFM may be established and regulated elsewhere in the EAA while operating through a branch in Luxembourg. In addition, the CSSF requires RAIFs to employ a Luxembourg-based Depositary, Administrator and Auditor (the Depository must be AIFMD compliant).

Finally, a minimal capital requirement of €1,250,000 must be satisfied within 12 months of launch.

While negotiations with investors or service providers might drag on, if a RAIF catches the right tailwind it can be brought to market within eight to twelve weeks.

In summary

The RAIF structure allows fund manager’s to create tailored, widely-marketable funds quickly, and with minimal regulatory hassle.

How Eversheds Sutherland can help

Our team has been at the forefront of regulatory interpretation and product development for the fund management industry since the 1980s. We advise on all types of fund structures and prepare all documentation necessary to achieve a successful fund launch.