If you want to open an investment fund in Luxembourg, you will most likely need to appoint a fund manager. The need to appoint a fund manager in Luxembourg will depend based on the type of fund that you want to set up in this country. If you have to appoint a fund manager, you should also be aware of the responsibilities and obligations one has under this function.
| Quick Facts | |
|---|---|
| Legislation applicable to fund managers | Law of 17 December 2010 (on management companies for undertakings for collective investments), Law of 12 July 2013 (on alternative investment fund managers), Circular CSSF18/698 |
|
Supervision (yes/no) |
Yes |
|
Regulatory body |
Financial Sector Supervisory Commission (CSSF) |
| Main responsibilities of fund managers |
The role of fund managers in Luxembourg is comprised of the following activities: – manage the assets of the fund; raise capital; – maintain the internal governance of the fund; – participate in cross-border operations; – comply with the fund’s reporting obligations; – create suitable investment strategies, etc. |
| Legal structure |
The role of fund managers in Luxembourg can be accomplished only when operating through a legal entity registered in this country. They can set up management companies or, in the case of alternative investment fund managers (AIFMs), one of the legal entities prescribed by the local laws. |
| What is the AIFMD passport? |
The Alternative Investment Fund Manager Directive (AIFMD) allows funds to be marketed in other countries, as long as they are member states of the European Union (EU), commonly known as a “passport”. |
| License required (yes/no) |
Yes |
| Can foreign fund managers operate in Luxembourg? |
Yes, but they need to comply with the local legislative requirements. |
| European laws on fund managers |
The Alternative Investment Fund Managers Directive and the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS) |
| Types of funds that need a fund manager | alternative investment funds, investment companies with variable capital, specialized investment funds, reserved alternative funds, etc. |
| Reporting obligations |
They vary greatly based on the type of fund. In general, investment funds need to have their annual accounts audited, comply with AML/CFT regulations, pay taxes, activities which can fall under the role of fund managers in Luxembourg. |
| Passport coverage for AIFMs |
In general, the AIFMD policy is available in the EU and EEA countries. It can also apply to some non-EU/EEA states, as per the regulations of the European Securities and Markets Authority (ESMA), in countries such as: Canada, the USA, Japan, etc. |
| Highly regulated/ unregulated funds |
Highly regulated: UCIs, SIFs, SICARs; unregulated: RAIFs, special limited partnerships |
| Most popular funds that need a fund manager |
RAIFs, SIFs |
| Advantages of opening a fund in Luxembourg | Tax exemptions, stable economy, solid regulatory framework designed for the needs of each type of fund, investor-friendly market, passporting rights, professional and competent financial specialists, etc. |
This is why our team of financial advisors has prepared an article regarding the role of fund managers in Luxembourg and other important information that should be of help for both local and foreign businessmen who want to open a fund in this country.
Does a fund manager in Luxembourg need to be registered as a legal entity?
Yes, the fund manager in Luxembourg needs to operate under a business form, as per the legal requirements in Luxembourg. This is established under the CSSF Circular 18/698 of 23 August 2018, which specifies that the fund manager has to be organized as one of the following:
- UCITS management companies;
- management companies organized as other entities;
- Luxembourg branches of foreign investment fund managers (IFMs);
- self-managed investment companies;
- authorized AIFMs;
- internally managed AIFs.
Important note: we can handle incorporation of types of vehicles necessary for operating as fund manager in Luxembourg.
Just like in the case of those who open investment funds in Luxembourg, the IFM needs to obtain an approval for its activities from the CSSF. The fund manager in Luxembourg also has the obligation to report its financial documents to the CSSF following the end of the financial year (usually, withing the first 5 months after the end of the financial year).
Those who will operate through a branch of an IFM in Luxembourg will follow the same incorporation and reporting obligations as the ones applicable to entities incorporated in this country.
Things to know on the fund manager profession in Luxembourg
A fund manager in Luxembourg is the person who has as a main responsibility creating suitable investment strategies for the fund he or she represents.
Given that in Luxembourg one can set up numerous types of funds, an investment strategy that is recommended for a fund may not be recommended for another fund type, and this is why investors will have to address to a fund manager with a solid activity and results in this industry.
Please mind that regardless of the fund type, such as hedge fund or a SICAR in Luxembourg, the investor will have to pay a specific fee to the fund manager, who is customarily paid by a percentage of the fund’s assets under management.
The fund manager is obligated to manage the fund’s assets in a manner that will result in a successful return on investment, but the management of the assets will always be done taking into consideration the client’s risk preferences.
Amongst other responsibilities, the fund manager in Luxembourg is required to prepare reports for his or her clients, where the manager will present the results of the investment strategies applied to an investment fund.
The fund manager is also responsible for preparing new investment proposals, where the clients will receive very clear information on how the respective strategies may provide a possible positive financial outcome.
What is the legal framework applicable to a fund manager in Luxembourg?
Given the level of complexity of this profession, fund managers are required to obtain an authorization for developing this activity. In Luxembourg, fund managers are regulated by the UCI Law or the AIFM Law (or both, in certain cases). In some cases, the fund manager in Luxembourg will need an approval from the CSSF, the institution regulating the financial industry in this country.
If you need more details on the law referring to fund managers, you can request more details from our team of financial experts. In short:
- fund managers must comply with the Directive 2009/65/EC, regarding their fee policies;
- at the same time, they must comply with Circular 10/437 issued by the CSSF;
- one of the laws applicable to fund managers is the Alternative Investment Fund Managers Law of 12 July 2013;
- the manager of a fund can pay a commission to the distributor of the fund in accordance with the rules of the Directive 2014/65/EU;
- the manager also has specific obligations under the CSSF Circular 18/698.
In the following infographic, you can find out the basic requirements for fund managers in Luxembourg:
Rules on appointing AIFMs in Luxembourg
Given that in the sections above we have shortly mentioned, besides the IFMs, the AIFMs as another type of fund managers, who manage exclusively alternative investment funds, in this section we will present some of the basic rules on appointing this category of managers.
According to the Association of the Luxembourg Fund Industry (ALFI), the AIF is required to appoint 1 AIFM, who will have the obligation to abide by the AIFM laws applicable in this country. Investors who want to open a Luxembourg fund as an AIF should know that the management of the fund can be done internally or externally.
The manner in which AIFMs can be appointed (internally or externally) can be influenced by the legal entity under which the AIF is incorporated. Our specialists can provide further information on this rule.
Please know that if you plan to incorporate an AIF, one of the ways to register this type of fund is by setting up a SIF in Luxembourg, which is a specialized investment fund included in the alternative investment fund umbrella.
Capital requirements for AIFMs in Luxembourg
In most cases, when opening an investment fund in Luxembourg or a commercial company, investors are required to comply with certain capital requirements. The same is true when you open a SICAV in Luxembourg or other structures. This rule is imposed to those who want to register AIFMs as well.
According to the AIFM Law, Article 8, a share capital of at least EUR 300,000 is necessary for AIFMs who will work for AIFs internally managed, while for those who are externally managed, the capital requirements are of at least EUR 150,000.
In the case in which the value of the AIFs’ portfolios are above EUR 250,000,000, the AIFMs capital must be increased (from the AIFMs own funds) by 0,02% calculated on the value of the portfolios. However the law states a maximum threshold to which the capital increase can be made, of maximum EUR 10,000,000.
Can AIFM companies be liquidated?
Yes, just like in the case of any commercial company, an AIFM business can also be liquidated. The manner in which this procedure can be conducted is regulated by the AIFM Law, Article 10, which states that CSSF can remove its approval due to various reasons.
For instance, the fund manager may want to renounce this activity or has simply ceased operations in the last 6 months, situation in which the approval will be automatically withdrawn, which will lead to the liquidation of the business.
What are the trends for fund managers in Luxembourg?
Luxembourg is one of the leading jurisdictions at a global level for the registration on investment funds. Both local and foreign businessmen find here attractive policies and incentives. It is important to know that foreign funds are distributed on the local market, through the activities carried out by foreign fund managers, who have created investment strategies to expand on other markets through Luxembourg.
Data on IFM in Luxembourg
An IFM in Luxembourg refers to an investment fund manager – it is one of the main acronyms set up for this profession. Investors may also be familiarized with the AIFM, which refers to the same profession, but which defines the alternative investment fund manager, the IFM working specifically for alternative investment funds (AIFs).
Considering that Luxembourg is the main destination for investment funds (in Europe) and the 2nd global financial center, it also employs a large number of IFMs. In the list below, our team has gathered up-to-date information on IFM in Luxembourg, as presented by the Financial Supervisory Authority Commission (CSSF).
The data presents the situation on IFM in Luxembourg by the end of 2023 (31 December 2023) and it shows the following:
- 45% of all fund managers were registered as AIFMs;
- the rest, of 55%, were registered by the 2010 Law and the 2013 Law (the latter regulates the AIFMs as well);
- the number of authorized IFMs revolved around 300 (the highest number, of 301, was registered in June 2023, while the lowest number, of 298, was registered in December 2023 – please mind that these values refer to companies registered as IFM in Luxembourg, not individuals);
- the largest number of authorized IFMs originated from Germany (44), France (36), Switzerland (35), United States of America (32), Luxembourg (31);
- the total value of assets under management managed by IFMs accounted for EUR 5,215.2 billion.
If you need more details on other matters concerning this profession or if you want to appoint a fund manager in Luxembourg for your fund, no dot hesitate to contact our team of financial advisors, who are ready to assist you in any inquiry that you may have regarding this subject.
Our team can assist with advice on setting up legal entities suitable for fund managers and may also advise on the registration of other types of companies/funds. We can help you open a SPF in Luxembourg or we can assist those who want to seek suitable options for private equity in Luxembourg, so do not hesitate to contact us.