CMS Luxembourg AIFM in Luxembourg
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Contents
1. Source of Law – ESMA and CSSF Guidelines
2. Definition of an AIF
3. Applicability to regulated investment vehicles…
4. … and to unregulated vehicles
5. Derogations under the AIFM Law
6. Exemptions under the AIFM Law
7. Practical cases
8. Summary
Scope of the AIFM law
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
EU AIFM Directive 2011/61 (8 June 2011)
EU Regulation 231/2013 (19 December 2012)
AIFM EU Directive : implementation in the Luxembourg legislation by
the law of 12 July 2013 on alternative investment fund managers
(The « AIFM Law ») - Entry into force of the AIFM Law:15 July 2013
ESMA final reports on guidelines on key concepts
CSSF circular 14/581 on reporting obligations
CSSF Guidelines (FAQ 4 January 2014)
Sources of law – ESMA and CSSF Guidelines
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
An alternative investment fund (AIF) is constituted by 4 cumulative
elements.
Article 1 (39) (a) of the AIFM Law: « collective investment
undertakings, including investment compartments thereof which
raise capital from a number of investors, with a view to investing it
in accordance with a defined investment policy for the benefit of
those investors ;
and do not qualify as UCITS. »
Point 1.a of the CSSF Guidelines: « It is the responsability of the
management body of any collective investment vehicle to self-
assess if it has to be considered as an AIFM under the AIFM law
or not. »
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(i) « collective investment undertakings »
This concept is neither defined in the EU AIFM Directive nor in the AIFM Law.
Its purpose is to pool assets from investors in order to generate a return by
acquiring, holding or selling assets and where the investors do not have
access to the daily discretion or the control over the management of the
assets of the undertaking.
Hence, it does not restrict the definition of an AIF to a regulated collective
investment scheme subject to the prudential supervision of the CSSF.
However it excludes ordinary companies with general commercial or
industrial purpose.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(ii) « raise capital »
Direct or indirect steps to procure the transfer or commitment of capital by
one or more investors to an undertaking for the purpose of investment with a
view to generating a pooled return for the investors;
and/or commercial communication between the undertaking seeking capital
or a person or entity acting on its behalf and the prospective investors, which
results in the transfer of capital.
Raising capital has various forms: a single transfer or multiple transfer
(including contribution in kind).
F.O. exemption: No raising of capital if the exclusive purpose of the
undertaking is the investment of private wealth of a pre-existing group.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(iii) « a number of investors »
An undertaking could not qualify as an AIF if it has a single investor.
However the constitutive documents must clearly mention that the
undertaking has a sole investor/shareholder.
Recommendation: amending the constitutive documents in order to secure
this issue.
If the undertaking has a sole investor who has raised funds from multiple
entities, it will be still regarded as « a number of investors » - applicable to
fund of funds, nominee arrangement, feeder structures etc.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(iv) « a defined investment policy » (1/3)
Means how the pooled capital will be managed in order to generate a pooled
return in favour of the investors.
CSSF Guidelines reflect the ESMA Guidelines (ESMA/2013/611) to define the
concept of « defined investment policy ».
Factors that would solely or cumulatively tend to indicate the existence of
such a policy:
• The investment policy is fixed at the latest by the time that investor’s
commitments to the undertaking become binding on them;
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(iv) « a defined investment policy » (2/3)
• The investment policy is set out in a document which becomes
part of, or is referenced in, the rules or instruments of
incorporation of the undertaking;
• The undertaking or the legal person managing the undertaking
has an obligation to investors, which is legally enforceable by
them, to follow the investment policy;
• The investment policy specifies investment guidelines with
reference to criteria including any or all of the following:
─ Invest in some categories of assets
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Definition of an AIF
(iv) « a defined investment policy » (3/3)
• Restriction on asset allocation
• Invest in particular geographical regions
• Restrictions on leverage
• Minimum holding periods
• Provide risk diversification
Articles of incorporation or management regulations might be defined as a
« defined investment policy ».
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Applicability to regulated investment vehicles…
Investment Vehicle Status under AIFM Law
UCI Part II Always qualify as AIF
Securitisation Vehicle Excluded upon conditions
SIF AIF test & Derogation / Exemptions
SICAR AIF test & Derogation / Exemptions
UCITS are explicitly excluded from the scope of the AIFM Law.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
….and to unregulated vehicles
« Does the concept of AIF cover only regulated entities?
No. The concept of AIF covers AIFs established in Luxembourg, in
another EU Member State or in a third country irrespective of
whether such AIF is a regulated or a non-regulated entity.
[…] any entity not regulated under the law of 2010, the law of 2007
or the law of 2004 that also meets the criteria of article 1(39) of the
law of 2013. » (Point 1.b) CSSF Guidelines v.4).
CSSF has confirmed that unregulated entities could qualify as AIF if
they meet the AIF test. Hence, a SOPARFI, a IP Holding, a SPF,
etc. might qualify as AIF and therefore would fall under the scope of
the AIFM Law. The body vested with management must
therefore conduct a self-assessment.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Derogations under the AIFM Law
Limited number of exemptions to the AIFM Law:
• Holdings
• Securitisation Special Purpose Vehicles
• Central banks
• Pension funds
• Supranational institution
• Etc.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Focus on Holdings (1/2)
• Definition: company with shareholdings in one or more
companies, the commercial purpose of which is to carry out a
business strategy or strategies through its subsidiaries,
asssociated companies or participations to contribute to long-term
values and which is a company that is:
─ operating on its own account and whose shares are admitted to
trading on a regulated market in the EU
or ;
─ not established for the main purpose of generating returns for
its investors by means of divestments of its subsidiairies or
associated companies as evidenced in its annual report
or other official documents.
Derogations under the AIFM Law
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Focus on Holdings (2/2)
• A holding is a separate legal entity which carries out its business
through the holding of equity shares of other companies without
seeking to dispose of such shares for generating profits but to create
long-term values by conducting commercial or industrial projects
(business strategies). The holding is always acting for its own benefit
and not for third parties.
• The concept of « Holding » is therefore divergent from the concept
already defined under EU or domestic law.
• How to define long-term values? What is the status of Joint Ventures?
(i) Not defined under the AIFM Law
(ii) The AIFM test must therefore be performed
Derogations under the AIFM Law
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Focus on Securitisation SPV
Law of 22 March 2004 on securitisation
• Ad hoc Securitisation SPVs are out of scope under the
AIFM
due to the Article 2 (2) g provided that they meet the definition
of the ECB 24/2009
• Point 19 of the CSSF Guidelines:
─ Exclusive object to perform securitisation deals
─ True sale transaction(s)
─ Synthetic transactions limited to credit/loans
─ Issuance of CLOs or debt instruments only
─ Uncertainties when:
• The securitisation SPV is the first lender
• Synthetic transaction on non credit related assets
• Securitisation SPV could be therefore unregulated and out of scope of the AIFM law
Securitisation Vehicle
Regulated Unregulated
Exclusion Art. 2(2) G of AIFM
Law
Art. 19
Derogations under the AIFM Law
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Exemptions under the AIFM Law (1/2)
Exemption in full vs partial exemption
Art 3(1) : Intragroup exemption
When the AIFM manages AIF(s) where the only investors are the AIFM
and/or the subsidiaries and/or parent companies of the AIFM or other
companies of the same group.
AIFM
Parent Company
AIF
SPV Group Company
PM / RM Agreement
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Exemptions under the AIFM Law (2/2)
Exemption in full vs partial exemption
Art 3(2) : De minimis exemption (2 categories)
(i) Managers in Luxembourg that manage AUM in excess of EUR 100 Mio
(ii) Managers in Luxembourg that manage AUM in excess of EUR 500 Mio
without leverage and redemption rights during the first 5 years
Complex calculation of thresholds: it include alls AIFs under AIFM
management (directly or not, delegated or not, etc.) with exceptions.
Partial exemption means mandatory registration with the CSSF and
regular reporting obligations.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Legal consequences (1/2)
If the self-assessment is positive:
(i) The governing body of the AIF must determine the AIFM:
- AIFM is in charge of the PM or the RM
- Could be external (delegation)
- Could be internal (BOD, BOM, GP) self-managed
(ii) The governing body must undertake the appropriate regulatory
process:
- Registration with the CSSF (if partial exemption)
or
- Full authorisation process with the CSSF
Deadline: 22 July 2014!
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Legal consequences (2/2)
If the self-assessment is negative:
Recommendations:
1. Documenting the self-assessment;
2. Regular review of the structure;
3. Anticipating the potential consequences if the client intends to
change the features of the investement vehicle (timing, associated
costs, etc.).
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Practical cases (1)
Sole
shareholder
Participations
SOPARFI (Sàrl)
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Practical cases (2)
Shareholder 2
Participations
SOPARFI (SCA)
Shareholder 1 Shareholder 3
EUR 60 Mio
Cash Cash CIK
CIK = Contribution in Kind
G.P.
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Practical cases (3)
Group Company
Parent Company
SOPARFI
(SA)
SPV Group Company
EUR 135 Mio
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Practical cases (3)
Father
SOPARFI
(SA)
SPV Children
EUR 35 Mio
Sisters of the
father
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Summary
Unregulated Regulated
Non-AIF AIF
SOPARFI, SPF &
Securitisation SPV
Part I SIF
Part I SICAR Part II SIF
Part II SICAR
Part II UCI
+ De minimis regime
UCITS
AIF AIF
CMS DeBacker Luxembourg | Scope of the AIFM Law | May 2014
Vivian Walry Partner
Cédric Buisine Senior Associate
French – English – German French – English
T +352 26 27 53 21 T +352 26 27 53 31
F +352 26 27 53 53 F +352 26 27 53 53
E [email protected] E [email protected]
Contact details
Investment Funds Team
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