b s p ˜˚˛˛ ˙ˆˇ˘ ˇ˛ ˆ˛ˇ...usually set up as ucis, sifs or as sicars, alternative...
TRANSCRIPT
2
“With regard to excellence, it is not enough to know, but we must try to have and use it.”
Aristotle, Nicomachean Ethics
3
ThE LuxEmbourg FuNd INdusTry 4 Key Advantages of Luxembourg Luxembourg as a Global Player in the Fund Industry INvEsTmENT vEhIcLEs 8 UCITS ALTernATIVe ProdUCTS UCIs SIFs SICArs SoPArFIs SVs SPFsLEgAL Forms 20 FCP - SICAV - SICAF Framework for Investment Vehicles in LuxembourgA hub For A vArIETy oF INvEsTmENT sTrATEgIEs 28 real estate Private equity Hedge Funds Islamic Finance Sustainable and Socially responsible Funds Carbon Funds MicrofinanceInvestment new Legal developmentsgLossAry oF TErms 36PrEsENTATIoN oF ThE FIrm 38
Summary
4
Luxembourghasimposeditselfovertheyearsasaleadingfinancialcentrewithitswiderangeofinvestmentfunds.With a political and legal framework focused on business development, its industry is well-prepared for the up-comingchallengesofamarketalwaysmoreregulated.
Thepolitical stability fromwhich itbenefits, aswell as its constanteconomic growth,makeLuxembourg thecountrywiththehighestgrossdomesticproductpercapitaintheworldandthelowestpublicdebt.
ThankstoitsqualityasamemberoftheEUandtoitslegalenvironmentwhichconstantlyadaptstofitnewmar-ket trends though preserving the stability of the sector, its competitive taxation, its multilingual and experienced workforce,Luxembourghasbecomeakeyplaceforthesetting-upandmanagementoffinancialproducts.
Inadditiontosuchafund-friendlyenvironment,theregulationsonthefightagainstmoney-launderingandtheunceasing work from the legislator to promote Luxembourg as a fully-regulated on-shore location have greatly contributedtotheattractivenessofthecountry.
LuxEmbourg INvEsTmENT vEhIcLEsTHe LUXeMBoUrG FUnd IndUSTrY
Key Advantages of Luxembourg
6
0,5
0
1,5
2,5
2
1
1991
1990
1993
1992
1995
1994
1997
1996
1999
1998
2001
2000
2003
2002
2005
2004
2007
2006
2009
2008
2011
2010
1990
0
2000
4000
6000
10000
8000
12000
14000
16000
eUr Trillion Funds Fund Units
Data: ALFI
eUr Trillion Units/Funds
UCIs development in Luxembourg
7
LuxembourgisthesecondlargestinvestmentfunddomicileintheworldaftertheUnitedStates.
OnJuly31,2012almostEUR2.3trillionofassetsandmorethan3,800fundsweredomiciledinLuxembourg.
Inaddition, since2007and thesuccessfulcreationof theSIF regime,Luxembourghaswitnesseda significantincreaseinthenumberofsuchlegalvehiclesadaptedtoalternativeinvestments.
With over 140 banks coming from all over the world, among which more than 70 offer their custodian and administrativeservicestofunds,380localmanagementcompaniesandawiderangeoflawfirmsandauditors,Luxembourg has proven itself capable of responding to a large variety of investors’ demands thanks to the competence,effectiveskillsandexperienceinthefundindustry.
The attractiveness of Luxembourg is grounded on the fact that both legal and regulatory developments are not onlybusiness-ledbutarealsoconsideredinacontextofglobalgrowth.Suchdevelopmentsareconstantlyinspiredbyconsultationsamongstthemajorfundactors,theGovernmentandthelocalregulator.
An example of this permanent adaptation to suit macro and microeconomic advancements is the coexistence in Luxembourg of seven different legal structures available to investors, allowing the creation of a sharp structure for eachcontemplatedinvestment,varyingaccordingtothetargetedinvestorsandtheplannedinvestments.
Dependingontheelectedvehiclefortheinvestment,samemaybenefitfromalightersupervision,amoreflexiblestructureoratax-friendlytreatment.
of course, the protection of investors being of paramount importance for the Luxembourg fund industry, in all cases, vehicles targeted to retail investors undergo a stricter supervision process than those addressed to institutionals,experiencedorwell-informedinvestors.
Luxembourg as a Global Player in the Fund Industry
B S P BONN STEICHEN & PARTNERS
8
The most successful vehicles allowing for the offering of units to retail investors are the undertakings for collective investment in transferable securities, which literally became a brand of “safe” investment for retail investors.
Indeed, funds that meet the criteria set by the 2010 Law may be sold to the public in any eU country (provided notificationrequirementsarecompliedwith).originally created to facilitate cross-border distribution within europe, UCITS have became trusted vehicles even outside europe, particularly in growing markets in AsiaandSouthAmerica.
Sincethetranspositioninthelate80’sinLuxembourgof the first European directive implementing aharmonised framework for funds tailored for retail investors, Luxembourg has not only witnessed the growing interest for UCITS but has also played a major roleinthedevelopmentofsame.
More recently, Luxembourg has positioned itself as the firstmover in the transpositionof theUCITS IVdirective through its early transposition into national law with the 2010 Law which gained full effect on July 1,2011.
Through the ambitious regulatory work performed by the Government, together with the local regulatory authority, the Commission de Surveillance du Secteur Financier and the main associations active in the Luxembourg fund sector, the country has been able to passwith flying colours the transposition process,managing to provide the elements and support needed bytheindustry.
Theefficient transpositionof theUCITS’passport aswell as of the KIId, has strongly contributed to the positioning of Luxembourg as a leading investment fundcentre.Indeed,withamarketshareof31.2%ofallUCITS, Luxembourg has become the biggest centre for retailinvestmentinEurope.
ucITs
LuxEmbourg INvEsTmENT vEhIcLEsInVeSTMenT VeHICLeS
9
Features of UCITS branded funds make them perfectly suited to retail investors seeking a balance between liquidity of their assets, security and return:• strictsupervisionbytheCSSF• unitsareredeemableatleasttwiceamonth• unitscanalsobelistedonastockexchange• Europeanpassport,whichallowsthemtobesoldeverywhereintheEU• widerisk-spreadingoftheassets.
B S P BONN STEICHEN & PARTNERS
UCITS Assets under Management 2011
Luxembourg
France
Ireland
UK
Germany
Switzerland
Spain
others
Data: EFAMA
11
“Do not go where the path may lead, go instead where there is no path and leave a trail.”
ralph Waldo Emerson
12
ALTErNATIvE ProducTsUsually set up as UCIs, SIFs or as SICArs, alternative structures find, through such legal vehicles, a flexibleframe to be further coupled to the choice of a legal form(SICAV,SICAF,FCP).
Such structures allow the vehicles to be organised as umbrella funds, master-feeder funds or funds of funds, in addition to the direct investment in other companies and offer the possibility of being listed on the LuxembourgStockExchangeundercertainconditions.
Although SIF and SICAr structures are dedicated to Well-Informed Investors, the diversity of schemes they permit provides promoters with the possibility to create the structure best suited to the contemplated alternativeinvestment.
InVeSTMenT VeHICLeS
13
B S P BONN STEICHEN & PARTNERS
UCIs SIFsUCIs are governed by Part II of the 2010 Law, and as they do not qualify as harmonised UCITS, they allow anexposuretoalternativeassets.
UCIsmaybeofcorporateorcontractual form.Thetextallowsfortheircreationasclosed-endedvehicles.They may also reserve the sale of units to the public in non eU countries and pursue alternative investment policies.
The marketing of these types of funds to retail investors is permissible through private placement provided the relevant local regulations on distribution arecompliedwith.UCIsundergostrictersupervisionfromtheCSSFthanSIFsorSICARs.
After the creation, through the 2007 Law, of a vehicle allowing investment in any type of assets, even in “specialised” ones (such as, for example, art, wine, wood), coupledwith an adaptable regulatoryframework,initiatorsmayeasilyfindinSIFsavehiclethatfitsallinvestmentdesigns.
SIFs may be of corporate or contractual form and the only limit to investments arises from the principle of risk spreading which is applicable to SIFs (contrary to SICARs).
SIFsbenefitfromatax-friendlyregime.Atthelevelofthe investors, when they are not domiciled or resident in Luxembourg, they are not subject to capital gains, incomeorwithholdingtax.
In March 2012, Luxembourg amended the 2007 Law already introducing certain of the changes required pursuant to the AIFM Directive. Further to thisamendment, SIFs are now obliged to implement a risk managementprocessandaconflictofinterestpolicy,and also are to be approved by the CSSF prior to their launch.Theymay also now benefit from sub-fundcross-investments.
14
InVeSTMenT VeHICLeS
number of SIFs since enactment of the 2007 Law
number of SIFs
Data: ALFI/CSSF
15
SICArsThe investment company in capital risk was introduced in Luxembourg by the 2004 Law.Thiscorporate investment structure, tailored for private equity and venture capital investments, differs from the SIF, insofar as it allows for the concentration of holdings in a single project and is then not subject to diversificationrules.
SICARshavebeenspecificallydesignedforinvestmentsin risk capital.Through this vehicle, a private equityfund may follow all of its planned investment strategies under the supervision of the CSSF, such as:• leveragedbuyouts,• venturecapital,• growthcapital,• distressedinvestments,• mezzaninecapital,• realestate.
In 2011, 7 years after the implementation of the law regulating the SICArs, there were 234 traditional SICArs and42umbrellaSICARscomprising67compartments.
SICAr Investment Policies 2011
Private equity
Venture capital
Mezzanine
Public-to-private
Data: CSSF
B S P BONN STEICHEN & PARTNERS
16
SoPArFIsSoPArFIs are common private vehicles under the form of an ordinary commercial company subject to Luxembourgcompanylaw.
Indeed, one of the main distinctions between the SoPArFIs and SIFs, SICArs or UCIs is that SoPArFIs benefit from a total absence of regulation orregulatorysupervision.
As unregulated vehicles, SoPArFIs provide maximum flexibilityregardingtheinvestmentpolicywhilegivingto the investors the possibility to take advantage of Luxembourgtaxtreatment.
As participation companies, they may opt for any companyformavailablepursuanttocompanylaw.
The most common forms are SA, SàRL and SCA.SoPArFIs may however also be set up as SCS or SCSp (once the draft law implementing the AIFM Directiveisenacted)orasSNC.
SoPArFIs success is grounded on the fact that the structure is entitled to benefit from Luxembourgdoubletaxationtreaties,signedwithover60countries.Provided that all criteria are met, SoPArFIs will benefitfromanincometaxexemptionondividendsand capital gains and liquidation proceeds derived fromqualifyingparticipations.Thestructuremayalsofurther pay dividends to qualifying recipients free of withholdingtax.
These vehicles have turned Luxembourg into a hub forprivateequityinvestment.
InVeSTMenT VeHICLeS
17
SVsThe Luxembourg law of March 22, 2004, as amended, on securitisation creates a dedicated, yet flexible,legal environment in which the participants in a securitisation are able to pick and choose the features theywanttoapplytoeachindividualstructure.
The law provides a favourable framework for structuring a securitisation, for example through the use of compartments and tranching, or by offering a wide range of possibilities to originators, arrangers and investors in terms of deciding on such essential matters as the assets they wish to securitise, the techniques for transferring the risks to the vehicle and theformofvehiclealongwithitsfinancing.
The tax environment retains all of its traditionally attractive features, but securitisation undertakings enjoyfurtherspecifictaxadvantages:• absence of withholding tax on dividend
payments,• VATexemptionofmanagementfees,• wealthtaxexemption,• investmentfund-typeincometaxexemption
availableifthefundstructureischosen.
From a regulatory perspective, only vehicles that issue securities to the public on a continuous basis are subject to prior authorisation and supervision by theCSSF.RegulationofsecuritisationinLuxembourgisthereforekepttoaminimum.In all other cases, including:• aone-offissuanceofsecuritiestothepublic,
or• the continuous issuance of securities not
available to the public
a securitisation undertaking has the full benefit ofthe securitisation law without having to obtain an authorisationandbeingsupervisedbytheCSSF.
B S P BONN STEICHEN & PARTNERS
18
SPFsA SPF can be set up in the form of any capital company existing under Luxembourg law but by contrast, it cannot be set up in the form of a transparent entity, suchasapartnership.
The object of a SPF is limited to the acquisition, holdingandmanagementoffinancialassetsexcludinganybusinessactivity.
SPFs do not benefit from the Luxembourg doubletax treaties and hence do not either fall under the respective information exchange provision of the relevantdoubletaxtreaty.
The tax authority in charge of the supervision of the SPFs is the Administration de l’Enregistrement et des Domaines which may only use its powers in order to verify that the conditions set forth under the law in ordertoqualifyasaSPFaremetatalltimes.
The SPF regime benefits from full exemption fromboth corporate income tax and net wealth tax and levy of a nominal subscription tax, but same is restricted to capitalcompaniesheldbyprivateinvestorsonly.
TheSPFisnotlimitedintermsofthefinancialassetsit may hold, which thus opens wide investment opportunitiesforprivateinvestorsviaaSPF.
Hence, the new SPF regime can be considered as an extremely adapted alternative for private wealth and assetmanagementpurposes.
InVeSTMenT VeHICLeS
20
Apart from the SICArs, SoPArFIs and SPFs which are corporate investment structures, investments adopting the formofUCIandSIFvehiclesmustfurtherchoosethebestlegalformsadaptedtotheirneeds.
LuxEmbourg INvEsTmENT vEhIcLEsLeGAL ForMS
21
FCP SICAV
SICAF
TheFCPisanunincorporatedcontractualstructure.
each FCP is governed by its management regulations whichlaydowntheinvestmentpolicyofthefund.
Lacking any legal personality, FCPs must be managed and administered by a management company.Themanagement company is itself an entity regulated by theCSSF. UnitholdersofFCPstructuresusuallydonot have any voting rights and have hence no power ofdecisiononthemanagementoftheFCP.
FCPs may issue several classes of units and may also bestructuredasumbrellafunds.This contractual form allows the initiators a great flexibility, though at the same time is suitable foralmostalltypesofinvestments.
The SICAV is the most commonly used form for corporateinvestmentstructures.
As indicated in its name the SICAV has a variable capitalwhichisalwaysequaltoitsnetassets.Whenadopting this kind of structure a fund may hence increase or reduce its share capital automatically upon issue or redemption of shares thus avoiding the need forageneralmeetingofshareholders.
TheSICAFbeingacompanywithafixedsharecapitalthe variation of its capital is subject to company law provisions.
The SICAF can take any form allowed by Luxembourg companylaw.
B S P BONN STEICHEN & PARTNERS
22
Unregulated
Soparfi Spf SV
Eligible investors Unrestricted Individual investorsPrivate estate management entitiesIntermediaries acting on behalf of individual investors or private estate management entities
Unrestricted
Eligible assets Unrestricted Financial assets only no controlling activity over investments
Securitisation of risks linked to any types of assetsno active management of assets
Risk Diversification no no no
Supervision and Approval Process by the CSSf
no no no, unless issue of securities to the public more than 3 times a year in which case before launch approval of: •constitutionaldocuments•directors/managers/
shareholders/originator•documentation •typeoftransactions contemplated
reporting to the CSSf no no Yes, for regulated vehicles
Management Company Requirement
no no Securitisation funds: yesSecuritisation companies: no
Luxembourg Service Providers Requirement
no no Administrative agent
European Passport no no no
Framework for Investment Vehicles in Luxembourg
23
RegulatedLightly regulated Regulated
Sif SiCar UCiTS UCi
Well-Informed Investors Well-Informed Investors Unrestricted but must be available to the public
Unrestricted but must be available to the public
Unrestricted Investments in securities /assets representing risk capital
Transferable securities, money market instruments, bank deposits, UCITS, other undertakings for collectiveinvestment,financialderivatives, ancillary liquid assets
Unrestricted
Maximum30%insecuritiesofthesame issuer, subject to derogation
no •Maximum10%intransferablesecurities and money market instruments of the same issuer
•Maximum20%indepositswiththe same entity
•Maximum10%riskexposureto a counterparty for oTC derivatives
•Maximum20%inoneUCITS/another undertaking for collec-tive investment
Maximum20%insecuritiesofthesame issuer, subject to derogation
Before launch, approval of:•constitutionaldocuments,
prospectus and agreements with main service providers
•directors/managers•investmentmanager,ifany•choiceofdepositaryandauditor
Before launch, approval of:•constitutionaldocuments,
prospectus and agreements with main service providers
•directors/managers•choiceofdepositaryandauditor
Before launch, approval of:•promoter•constitutionaldocuments,
prospectus, KIId and agreements with main service providers
•directors/managers•investmentmanager,ifany•choiceofdepositaryandauditor
Before launch, approval of:•promoter•constitutionaldocuments,
prospectus and agreements with main service providers
•directors/managers•investmentmanager,ifany•choiceofdepositaryandauditor
Monthly and annually Twice a year as at 30 June and 31 december
Monthly and annually Monthly and annually
FCP: yesSICAV/SICAF: no
no FCP: yesSICAV/SICAF: no/conducting persons for self-managed SICAV/SICAF
FCP: yesSICAV/SICAF: no
depositary Administrative agent
depositary Administrative agent
depositary Administrative agent
depositary Administrative agent
Yes* Yes* Yes Yes*
(*)AvailableupontranspositionoftheAIFMDirectiveandlimitedtoprofessionalinvestors.
24
Unregulated
Soparfi Spf SV
Calculation of NAV no no no
Listing Possible no Possible
Entity Type SA, SCA, SàrL, SCoSA SA, SCA, SàrL, SCoSA SA, SCA, SàrL, SCoSA or securi-tisationfund.
Minimum Share Capital/Net Assets Requirements
SA/SCA: eUr 31,000SàrL: eUr 12,500SCoSA: no minimum requirement
SA/SCA: eUr 31,000SàrL: eUr 12,500SCoSA: no minimum requirement
For securitisation companies:SA/SCA: eUr 31,000SàrL: eUr 12,500SCoSA: no minimum requirement
no minimum capital for securitisation funds
Share Capital Fixed/Variable
Fixed Fixed Fixed
Segregated Assets no no Yes
Financial Reports/ Audited Reports
Annual report (audited report underspecificcircumstances)
Annual report (audited report under specificcircumstances)
Audited annual report
Tax Regime
Income tax Fullytaxableatarateof28.80%(corporate income tax and munici-palbusinesstax)
100% exemption for dividends, liqui-dation proceeds and capital gains from qualifying participations
80% exemption for income deriving from qualifying IPs
no Securitisation funds: no Securitisation companies: fullytaxableatarateof28.80%(corporate income tax and municipalbusinesstax)butdeductibility of payments made to investors
Subscription tax no 0.25%ofsharecapital,sharepremiumanddebtexceeding8timesthesharecapital plus share premium, with a maximum of eUr 125,000 per year
no
Framework for Investment Vehicles in Luxembourg
25
RegulatedLightly regulated Regulated
Sif SiCar UCiTS UCi
Yes, at least once a year no Yes, on each day there are subscriptions or redemptions and at least twice a month
Yes, on each day there are subscriptions or redemptions and at least once a month, subjet to derogation
Possible Possible Possible Possible
FCP SICAV/SICAF: SA, SCA, SàrL, SCoSA, SCS*, SCSp*
SA, SCA, SàrL, SCoSA, SCS, SCSp*
FCP SICAV: SASICAF: SA,SCA, SàrL, SCoSA
FCP SICAV: SASICAF: SA,SCA, SàrL,SCoSA
eUr 1,250,000 to be reached within 12 months following the authorisation
eUr 1,000,000 to be reached within 12 months following the authorisation
eUr 1,250,000 to be reached within 6 months following the authorisation
eUr 1,250,000 to be reached within 6 months following the authorisation
Fixed or variable Fixed or variable Fixed or variable Fixed or variable
Yes
Cross-investments allowed under certain conditions
Yes Yes
Cross-investments allowed under certain conditions
Yes
Cross-investments allowed under certain conditions
Audited annual report Audited annual report Audited annual report and (unaudited)semi-annualreport
Audited annual report and (unaudited)semi-annualreport
no Fullytaxableatarateof28.80%(corporate income tax and municipalbusinesstax)butexemption of income derived from transferable securities and income from cash held for a period of maximum one year prior to its investment in risk capital
no no
0.01%ofNAV Exemption for certain money market funds and funds investing indeposits,microfinancefundsand pension funds or SIFs investing in other funds already subject to subscription tax
no 0.05%ofNAV
except0.01%for :
(i)moneymarketfundsandfundsinvestingindepositsand(ii)sub-funds or classes of securities reserved to institutional investors
Exemption for special institutional money market funds, pension funds, exchange traded funds, microfinancefundsandfundsinvesting in other funds already subject to subscription tax
0.05%ofNAV
except0.01%for :
(i)moneymarketfundsandfundsinvestingindepositsand(ii)sub-funds or classes of securities reserved to institutional investors
Exemption for special institutional money market funds, pension funds, exchange traded funds, microfinancefundsandfundsinvesting in other funds already subject to subscription tax
(*)AvailableupontranspositionoftheAIFMDirectiveandlimitedtoprofessionalinvestors.
26
Unregulated
Soparfi Spf SV
Withholding tax 15%ondividendsbutexemption for qualifying parent companies or reduced treaty rates
no withholding tax on interest (saveifEUSDisapplicable),royal-ties, capital gains and liquidation proceeds
no no
Net wealth tax 0.5%ofthenetassetvalueat 1 January of each year
100% exemption for qualifying participations and qualifying IPs
no no
VAT no no exemption of management services
Registration duties eUr 75 upon incorporation, share capital increase through contribu-tion in cash against shares or other amendments to the articles of incorporation
eUr 75 upon incorporation, share capital increase through contribution in cash against shares or other amendments to the articles of incorporation
eUr 75 upon incorporation, share capital increase through contribution in cash against shares or other amendments to the articles of incorporation
Access to Double Tax Treaties
Yes no Securitisation funds: noSecuritisation companies: yes
Thin Capitalization Holding activity: administrativepracticeof85/15debt-to-equity ratio for holding activities
Intra-groupfinancingactivity: 1%equitycappedtoEUR2,000,000forfinancingactivities
Debtsexceeding8timesthepaid-upcapital plus share premium will be subject to subscription tax
no
Practical Use Various use such as holding activity, privateequityinvestments,financeactivities, holding of IPs
Private wealth management of indi-viduals
Refinancingorrepackagingofalltypes of assets
Framework for Investment Vehicles in Luxembourg
27
RegulatedLightly regulated Regulated
Sif SiCar UCiTS UCi
no no no no
no no no no
exemption of management services
exemption of management services
exemption of management services
exemption of management services
eUr 75 upon incorporation, share capital increase through contribu-tion in cash against shares or other amendments to the articles of incorporation
eUr 75 upon incorporation, share capital increase through contribu-tion in cash against shares or other amendments to the articles of incorporation
SICAV/SICAF: eUr 75 upon incorporation, share capital increase through contribution in cash against shares or other amendments to the articles of incorporation
SICAV/SICAF: eUr 75 upon incorporation, share capital increase through contribution in cash against shares or other amendments to the articles of incorporation
FCP: no
SICAV/SICAF: limited to some double tax treaties
Yes FCP: no
SICAV/SICAF: limited to some double tax treaties
FCP: no
SICAV/SICAF: limited to some double tax treaties
no no no no
Hedge funds, private equity and venture capital, real estate, carbon funds,microfinance,sustainablefunds and any other types of alternative funds
Private equity and venture capital transactions
Investments meeting criteria set by the UCITS IV directive
Investments not meeting criteria set by the UCITS IV directive
28
“Wealth flows from energy and ideas.”
William Feather
Hosting real estate, private equity and hedge funds, or more generally alternative structures, requires a high level oflegalandregulatoryadaptability.
Nowadaysthelevelofflexibilityavailableoff-shoreisbeingtemperedbytheincreasingnumberofEUregulationsimposingrestrictionsonmarketingandmanagementoffundsbyoff-shorebasedentities.
Asaconsequence,agrowingnumberoffundsarerelocatingorconsideringrelocatingtheiractivitieson-shore.Luxembourgoffersvehiclesbenefittingfromlegalcertaintyandtransparencythoughsufficientlyflexibletobeadaptedtoawiderangeofalternativeinvestmentstrategies.
LuxEmbourg INvEsTmENT vEhIcLEsA HUB For A VArIeTY oF InVeSTMenT STrATeGIeS
29
LuxembourgistheEuropeanleaderforinternationalrealestatevehicles.
Fordecades,Luxembourghasbeenasuitableon-shorecentreforrealestateinvestments.Thissuccessistheresultoftheimpressivelegalflexibilityavailabletopromoters.Arealestatevehiclemaybeestablishedasanunregulatedentityorasaregulatedone.Thechoiceofthelegalformdependsonthetargetinvestors,thetaxenvironmentandtheobjectivesofthevehicle.
When unregulated, these entities are set up as “plain” companies under Luxembourg company law and are thusnotsubjecttosupervisionbytheCSSF.Therearenorisk-spreadingrequirements.Thereforetheyareonlysuitableforexperiencedinvestors.TheymaytaketheformofSOPARFIs,benefittingfromtheLuxembourgdoubletaxationtreatiesnetworkandtheparticipationexemptionregimeapplyingtoqualifyingparticipations. on the other side, these structures may take the form of a regulated corporate or contractual type fund, subject totheCSSFsupervision.Thelevelofsupervision,therisk-spreadingrequirementsandthetaxenvironmentwillthendependontheadoptedregulatedvehicle(UCI,SIForSICAR).Duetotheirflexibleregime,investmentfundstructuresofthecontractualtype,FCPs,havebecomethemostbroadlyusedvehicleforregulatedrealestateinvestments.Because of their lack of liquidity, real estate structures are often set up as closed-ended vehicles but Luxembourg alsoallowsforaspecialsemi-openregimethatpreventsinvestorsredeemingtheirshareswhensomespecificconditionsarenotmet.real estate funds in Luxembourg experienced an exponential increase of their net assets under management, whichamountedtoEUR23.083billionasofJuly2011.
real estate Funds in Luxembourg Assets under Administration 2011
eUr Million
Data: ALFI/CSSF
B S P BONN STEICHEN & PARTNERS
real Estate
30
Private EquityLuxembourgpositions itselfasthemostattractivecountryforprivateequity.Outof10ofthe largestprivateequity structures in the world, 9 are carrying out business in Luxembourg1.
The fast adaptation of Luxembourg to this type of investment has led to the creation of a dedicated sector able toprovidemuchmorethanjusttheessentialsubstancenecessarytodomicilethevehicleinLuxembourg.
The increasing legislation pushing for more transparency within this sector drove Luxembourg to respond through the creation of two main regulated private equity and venture capital vehicles, the SICAr in 2004 and the SIF in 2007.
Private equity investments may either be structured as regulated funds and go under the supervision of the CSSF orbesetupasunregulatedvehiclessuchasSOPARFIsandbenefitfromamoreflexiblevehiclenotsubjecttotheCSSFsupervision.
As of today Luxembourg has 25,000 holding companies domiciled within its territory most of which are used forprivateequitypurposes.UnregulatedvehiclesasflexibleastheSOPARFIshavestronglycontributedtothisdevelopment.
In most cases private equity vehicles structured in Luxembourg use a limited liability company to act as the general partnerforthevehicle.
In the case of SIFs structured as FCPs and qualifying as tax transparent structures, the use of intermediate companiesfurtherallowstheprivateequitystructuretobenefitfromthedoubletaxtreaties.
The structuring possibilities are so wide that investors can choose to either invest directly into the Luxembourg vehicleorindirectlyviaanadditionalLuxembourg-basedornonLuxembourg-basedfeederinvestmentvehicle.
1
1 Luxembourg Private equity Association
A HUB For A VArIeTY oF InVeSTMenT STrATeGIeS
31
hedge FundsIn the context of the euro-zone crisis deriving from the sub-prime crisis in the United States, it has become difficultforinvestorstoachieveareturnaboveinflation.Investinginhedgefundsishenceseenasoneofthebestinvestment opportunities for those who are prepared to take risks to potentially earn a high return from their investment.Hedge funds generally use alternative investment strategies such as:• shortselling• investmentsinderivatives• useofincreasedleverage• pursuitofabsolutereturnsdespitemarketturbulences• arbitrage
due to the dynamic policy such funds need to have in order to quickly react to stock market evolutions, hedge fundsneedveryflexiblelegislation.
As the second largest domicile for investment funds in the world, Luxembourg has acknowledged those needs andhasimplementedandadoptedalegalinfrastructurefromtheverybeginningofthehedgefundindustry.
ThehedgefundindustryinLuxembourgrecoveredquicklyafterthe2007financialcrisisandresumesitscontinuinggrowth.AsofJune30,2011therewereoverEUR70billionhedgefunds’assetsadministeredinLuxembourg.
Hedge Funds in Luxembourg Assets under Administration 2011
only administrated domiciled and administrated Total assets Data: ALFI
Totalassets:70,872
B S P BONN STEICHEN & PARTNERS
eUr Million
32
Islamic FinanceAs a pioneer in europe, Luxembourg has, very early on, considered the growing importance of Sharia-compliant investment funds in the global fund industry.The first European Sharia-compliant institution was set up inLuxembourgasearlyas1978andthefirstIslamicinsurancecompanyinEuropewasestablishedinLuxembourgin1983.In2002,Luxembourgwitnessedthelistingofthefirstsukuk in europe on the Luxembourg Stock exchange andnowadaysthelatterisstilloneofthefavouriteplatformsinEuropeforthelistingofSharia-compliantvehicles.
TheCentralBankofLuxembourgisalsoamemberoftheIslamicFinancialServicesBoardsince2009.
The Luxembourg regulatory environment is Sharia law compatible insofar as Luxembourg vehicles like SIFs and SICARsofferadaptedstructurestotheseversatilekindofinvestmentswithpreciserequirements.
TherearenoadditionalspecificLuxembourgconditionstobecompliedwith,withregardstothecompatibilityoftheinvestmentswithinSharialaw,aslongasthelegalrequirementsarecompliedwith.
Beingoneoftheleadinghubsforinternationaldistributionofinvestmentfunds,andbenefittingfromthepassportingprovisionsavailabletoUCITSandtoalternativeinvestmentfunds(asfromJuly2013),LuxembourgpositionsitselfasanideallocationforthedomiciliationofShariah-compliantfunds.
While SIF structures have found a real success amongst promoters willing to create Shariah-compliant funds, UCITSarestillanoptionofchoiceforthoseseekingawiderdistributionofShariah-compliantfunds.LuxembourghasbecomethefifthdomicileforShariah-compliantinvestmentvehiclesintheworld.
A HUB For A VArIeTY oF InVeSTMenT STrATeGIeS
33
sustainable and socially responsible Funds
Carbon Funds
Inourmodern and changingworld, newchallenges arise everyday such as climate change, thefight againstpovertyandsustainablegrowth. Inthisrespect,anewtypeofsustainability-minded investmenthasstartedtoemerge amongst the other common types of funds, and their investors often allow, through their investment, for thecontributiontosustainableprojectsthroughinvestmentfunds.
Sophisticated investment funds, such as carbon investment vehicles (“CIVs”), have set up their domicile inLuxembourgasearlyas2007.
Carbon restrictions aiming at carbon reduction have led large carbon emitters to monitor their carbon emissions leading them to purchase carbon credits when they are not able to comply with the legislation of their home country.
CIVsbuydirectlyorindirectlycarboncreditsnamedcertifiedemissionreductionsontheprimaryorthesecondarymarket to further sell them to industrialised emitters willing to meet the requirements of carbon emissions providedforbytheKyotoProtocolandtheEuropeanUnionEmissionsTradingScheme.Growing concerns about the climate coupled with increasing requirements imposed by local legislators, have led to an exponential growth in the CIV market, particularly within the eU which hosts half of the CIVs of all the world,andmorepreciselyLuxembourg,withitsleadingpositioninthissector.
In2009,therewereabout96CIVswithEUR10.8billionofassetsundermanagement2inLuxembourg.
With the availability of the SIF and SICAr vehicles, Luxembourg has a major competitive advantage for the hosting ofsophisticatedinvestmentfunds.
Inaddition,CIVshavethepossibilitytodistributedividendsinkinddirectlyasaremunerationtotheirinvestors.This means that CIV investors in case of distribution, will receive, in return for their investment, the carbon credits tradedbytheCIV.
1
2 Association of the Luxembourg Fund Industry
B S P BONN STEICHEN & PARTNERS
34
Microfinance involves institutions, generally credit cooperatives, credit unions, financial non-governmentalorganisationsandevencommercialbanks,supplyingloans,microcredits(i.e.verylowcreditsallowinglongertermrepayments)andotherfinancialproductstosmall-businessesinpoororlow-incomecountriesorindividuals,inordertohelppeoplegetoutofpoverty.
Inthelastyears,thenumberofpeoplereceivingmicrocreditshasrapidlyincreased.
In linewiththisglobaltrend,Luxembourghasbenefittedfromitstax-friendlytreatmentandtheavailabilityofdiversestructurestobecomeacentralplaceformicrofinanceinvestmentvehicles(“MIVs”)andnowadays,51%of the global total assets invested in MIVs are domiciled in Luxembourg3.
LuxembourghasitsownMIVlabellingagency:LuxFLAG.Oncetheeligibilitycommitteehasapprovedastructure,sameisprovidedwiththelabelofregulatedmicrofinanceinvestment.
Thepresenceofsuchlabelprovidesinvestment-proofinglabelguaranteeingthatspecificrequirementsaremetbythevehicleintermsoflegalrequirements,governanceandon-goingsupervision.
MIVsmaybestructuredasUCIs,SICARs,SIFsorSVs.
“This is not charity. This is business: business with a social objective, which is to help people get out of poverty.”
muhammad yunus Founder of grameen bank and
Nobel Peace Prize recipient1
3 Association of the Luxembourg Fund Industry
A HUB For A VArIeTY oF InVeSTMenT STrATeGIeS
MicrofinanceInvestment
35
New Legal developmentsWantingtoremainontopintheEuropeanfundindustry,LuxembourgwillbethefirstMemberoftheEUtoimplement theAIFMDirective into national law.This implementationwill allow the Luxembourg investmentindustrytofacethenewregulatorychallengesregardingalternativeinvestments.Furthermore, Luxembourg will also be in the starting blocks to implement the future amendments to the UCITS IVDirective,knownasUCITSVandUCITSVI.
TheLuxembourgfinancialsectorkeepsattentiontothesedevelopmentsinordertoconstantlybepreparedandup-to-dateinachangingglobalfundindustry.
B S P BONN STEICHEN & PARTNERS
36
GLoSSArY oF TerMS
AIF(s) AlternativeInvestmentFund(s)
AIFM(s) AlternativeInvestmentFundManager(s)
AIFM Directive directive 2011/61/eU of the european Parliament and of the Council of 8June2011onAlternativeInvestmentFundManagers
ALFI Association of the Luxembourg Fund Industry
CSSF Commission de Surveillance du Secteur Financier
EU european Union
EUSD Directive2003/48/CEoftheEuropeanParliamentandoftheCouncilof 3 June 2003 on Taxation of Savings Income in the Form of Interest Payments
FCP(s) Fonds Commun de Placement, an undivided collection of assets managed according to the principle of risk-spreading on behalf of joint owners who are liable only up to the amount contributed by them
IP(s) IntellectualProperty(ies)
KIID Key Investor Information document
MiFID directive 2004/39/eC of the european Parliament and of the Council of 21 April 2004 on Markets in Financial Instruments amending Council directives 85/611/EECand93/6/EECandDirective2000/12/ECoftheEuropeanParliamentand of the Council and repealing Council directive 93/22/eeC
NAV net Asset Value
SA Société Anonyme
SàRL Société à Responsabilité Limitée
SCA Société en Commandite par Actions
SCoSA Société Coopérative organisée comme une Société Anonyme
SCS Société en Commandite Simple
SCSp Société en Commandite Spéciale
SICAF Société d’Investissement à Capital Fixe
SICAR(s) Société(s) d’Investissement en Capital à Risque
SICAV Société d’Investissement à Capital Variable
SIF(s) Specialised Investment Fund(s)
SNC Société en Nom Collectif
SOPARFI(s) Société(s) de Participations Financières
SPF(s) Société(s) de Gestion de Patrimoine Familial
SV(s) SecuritisationVehicle(s)
37
B S P BONN STEICHEN & PARTNERS
UCI(s) Undertaking(s)forCollectiveInvestmentsetupunderPartIIofthe 2010 Law
UCITS Undertaking for Collective Investment in Transferable Securities authorised in accordance with Article 5 of the UCITS IV directive
UCITS IV Directive directive 2009/65/eC of the european Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities
VAT Value Added Tax
Well-Informed Investors Well-Informed Investors must be either:•aninstitutionalinvestor•aprofessionalinvestorinvestingwithinthemeaningofAnnexIItothe
MiFId•aninvestorwhohasadheredinwritingtothestatusofawell-informed
investor and complies with one of the following conditions:•investmentofatleastEUR125,000inthefund•hisexpertiseisconfirmedbyabanking
institution,byaninvestmentfirmasdefinedintheMiFIDorbyamanagementcompanyasdefinedintheUCITSIVDirective
2004 Law Law of 15 June 2004 on SICAr, as amended
2007 Law Law of 13 February 2007 on SIF, as amended
2010 Law Law of 17 december 2010 on undertakings for collective investment, as amended
38
oVerVIeW oF oUr PrACTICeBonnSteichen&PartnersisafullserviceLuxembourglawfirmcommittedtoprovidingthehighestqualitylegalservices.With inexcessof50professionalsweofferawealthofknowledgeandexperience inall aspectsofLuxembourglaw.
Werepresentawiderangeofclientsinmattersthatcrossmanyareasoflaw.
Considering the fast moving world in which we live and the hostile business environment our clients may face, our experience grows continuously with the needs of our clients and our lawyers are required to remain attentive in ordertoconstantlyadaptthemselvestonewlawsandregulations,situationsandchallenges.With regard to the scope of law and matters in which we are active, we have subdivided those into three main categories:
regulated Activities
BankingBank LendingCapital MarketsFinancialServices(Funds)(Re)-InsuranceSecuritisationStructured Finance
unregulated Activities
Corporate - M&AInsolvency & restructuringPrivate equity / FundsTax
dispute resolution
Compensation&Benefitsemploymentdispute resolutionCommercialIP / ITreal estate & Construction
LuxEmbourg INvEsTmENT vEhIcLEsPreSenTATIon oF THe FIrM
39
FoCUS on SoMe PrACTICe AreAS
B S P BONN STEICHEN & PARTNERS
Investment FundsOurteamhasastrongandwell-establishedexpertiseinallareasofinvestmentfundslaw.
Wearetunedintoourclients’needsandabletodelivertailor-madeclientworkproductsandsolutions.
This includes advice on the structuring or the restructuring of UCITS and all other investment vehicles including realestatefunds,hedgefunds,privateequityfunds,carbonfundsandotheralternativeinvestmentfunds.We also assist management companies and investment managers in their development in a fast moving legal environment.
our dedicated team is consistently highly rated in international legal guides (Chambers, Practical Law Company, Legal500,etc.).
Private equityA special team deals with private equity investments and has a very robust experience in all types of venture capitalandprivateequityacquisitionsusingLuxembourgholdingcompaniesfortargetcompanyacquisitions.
We also assist private equity funds with all aspects of legal and tax structuring of funding instruments to be issued forfinancingacquisitionswithaviewtoachievelegalflexibilityandtaxneutralityforrepaymentsuponprivateequitydivestments.
40
Structured Finance, Securitisationour team of experienced lawyers represents domestic and international lenders and borrowers on a wide range ofcomplexfinancingtransactionsincludingseniorandsubordinatedfinancings,projectandacquisitionfinancings,asset-backedfinancings.
We advise on Luxembourg law issues, assist in the drafting of documents and help design appropriate security packages.
Wearealsoworkingregularlyonstructuredfinancetransactions,inparticularsecuritisationscarriedoutundertheLuxembourglawofMarch22,2004.Weadvisebothoriginatorsandarrangersonsecuritisationsinvolvingawidevariety of assets such as: commercial and residential mortgage-backed loans, auto loan and leasing receivables, creditcardreceivables,differedpaymentrightsandnon-performingloans.
We were instrumental in setting up several multi-billion euro structured note programs sponsored by large banks usingLuxembourgsecuritisationvehicles.Togetherwithourcapitalmarketsandtaxteamsweprovidedthefullrangeofservicesrequiredtosuccessfullylaunchtheseprograms.
PreSenTATIon oF THe FIrM
41
TaxTheteamisconsistentlyhighlyratedinlegalguides(Legal500,Chambers,GlobalCounsel).
our dedicated team of tax lawyers and advisors provide a comprehensive range of direct and indirect tax advicestoawidevarietyofinternationalandlocalclients,essentiallycompanies,butalsoindividuals.Thisincludesadvices on the structuring and execution of transactions and strategic tax planning advice for businesses operating internationallyviaLuxembourg.
Manyofourtaxprofessionalshavespecificandleadingedgepracticesinfinance,privateequity,transferpricingand cross-border planning investment funds real estate taxation and dispute resolution, so that our advice is up-to-the-minute,clearandpracticalanddeliveredbyexperts.
We are able to offer a complete tax service including:• transactions including: disposals, acquisitions and joint ventures; • tax planning including: inward and outward investment, holding and financing structures and group
reorganisations; • tax audits and litigation; • value added tax; • the creation of all forms of collective investment vehicles; • transfer pricing; • structuredfinancialproductsincluding:securitisationandtaxenhanceddebtfinancing.
B S P BONN STEICHEN & PARTNERS
42
Luc COURTOISPartner Investment FundsContact:[email protected]
oUr PArTnerS And SenIor CoUnSeL
selected experience• Luc has been active in the investment fund practice for more than 16
years.• He specialises in setting up UCITS and other regulated investment
vehicles, including real estate funds, hedge funds, private equity funds and carbonfunds.Heassistsalsomanagementcompaniesindevelopingtheiractivities,bothinLuxembourgandabroad.
• Lecturer in investment fund law at the Institut de Formation Bancaire Luxembourg.
• Board member of various investment funds and management companies and a member of the Association of the Luxembourg Fund Industry (ALFI).
• AssistedUCITSintheirconversionintoUCITSIV.• AssistedmanagementcompaniesintheircompliancewithUCITSIV.• Assisted in the launch of SIFs acting in the renewable energy and carbon
financemechanismsectors.• AssistedUCITSindevelopingnewproducts.
selected experience• AssistancetoMittalinrelationtopublictakeoverofArcelor.• Assistance to wide range of regulated private equity funds constituted
underthespecialregimeforinvestmentinriskcapital.• Assistance to several SPAC in the acquisition process of high value target
(listedandnon-listed)withrespecttotakeover,corporate,marketabuseandtransparencyregulations.
• AdvisorinrelationtonumerouslistingsonbothregulatedandMTFmarkets.
Evelyn MAHERPartner Investment Funds Capital MarketsContact:[email protected]
43
B S P BONN STEICHEN & PARTNERS
Alain STEICHENPartner Tax
Contact:[email protected]
Pierre-Alexandre DEGEHET Partner Corporate, M&ACapital MarketsContact:[email protected]
Jean STEFFENPartner Banking Financial Services, Private equityContact:[email protected]
Fabio TREVISANPartnerdispute resolution, IP, IT & General Commercial, real estate & ConstructionContact:[email protected]
Christine BEERNAERTSSenior CounselTax
Contact:[email protected]
Linda HARROCHPartner Private equity Corporate, M&AContact:[email protected]
Anne MORELPartner EmploymentCompensation&BenefitsAnti-Money LaunderingContact:[email protected]
Laurent LAZARDPartner Banking & Finance, Insolvency & restructuringContact:[email protected]
44
GLoSSArY oF TerMS
B S P BONN STEICHEN & PARTNERSAvocats
2, rue Peternelchen I Immeuble C2 I L-2370 Howald I Luxembourg
T.+35226025-1 [email protected] I www.bsp.lu
BAnKInG & FInAnCeCorPorATe
dISPUTe reSoLUTIoneMPLoYMenT, CoMPenSATIon & BeneFITS
InVeSTMenTIP, IT & GenerAL CoMMerCIALreAL eSTATe, ConSTrUCTIon
TAX