Article Post on 26 April 2012

New SIF Law (update)

Update following CSSF Press Release 12/16 -

New SIF Law Amending the Luxembourg Law of 13 February 2007 Relating to Specialised Investment Funds

The draft bill 6318 amending the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the “Bill”) has been finally adopted by the Luxembourg parliament, published in the Luxembourg Official Gazette (Mémorial) and the new law has come into force as of 1 April 2012 (hereinafter the “New Law”). Thus, the New Law amends the Luxembourg law of 13 February 2007 relating to specialised investment funds (hereafter the “SIF Law”) and takes into account in particular the adoption of the Directive of the European Parliament and of the Council of 27 May 2011 on alternative investment fund managers (hereafter the “AIFM Directive”) and also attempts to modernise the SIF Law by implementing certain provisions already existing under the Luxembourg law of 17 December 2010 on undertakings for collective investment (hereafter the “UCITS Law”).

Any currently existing SIF will need to set up relevant measures and documentation regarding investment management and conflicts of interest up to 30 June 2012, respectively in case of new SIFs provide such documents to the CSSF at the time of its approval process

In detail, the changes introduced by the New Law can be (inter alia) summarised as following, including also the practical impact for the future:
 

AUTHORISATION PROCESS WITH THE CSSF

First of all, specialised investment funds (“SIFs”) shall now be submitted to the prior authorisation of the CSSF before carrying out their activities. This change creates the same authorization process (at least from a timing perspective) as currently existing for collective investment funds under the UCITS Law.
 

THE RISK MANAGEMENT AND CONFLICT OF INTEREST

The New Law introduces the concept of “risk management” and “conflict of interest” stemming from the AIFM Directive as well as from the UCITS Law. SIFs shall implement an appropriate risk management system to limit the risk linked to the investment positions and their contribution to the general risk profile of the portfolio. In addition, SIFs shall also be structured and organised in order to limit any possible conflict of interest with their counterparts or any persons linked to SIFs. In practice, any currently existing SIF will need to set up relevant measures and documentation regarding risk management and conflicts of interest up to 30 June 2012, respectively in case of new SIFs provide such documents to the CSSF at the time of its approval process (CSSF Press Release 12/16, further details to follow upon issuance of the relevant CSSF Regulation). Relevant adaptations to the fund documentation (i.e. articles of association and placement memorandum) will be thus required, too.
 

INVESTMENT MANAGEMENT

In order to exclude the possibility to set up a passive SIF having an investment activity limited to pure shareholding, the New Law introduces the definition of “management” of assets, which is an activity including at least the management of portfolio meaning that SIFs should carry out a real and active management of their portfolio. Practically speaking, any existing SIF being more of a passive nature when it comes to the management is now required to implement a real and active management of its assets.


DELEGATION TO THIRD PARTIES

The New Law follows the same provisions as given under the UCITS Law when it comes to the delegation of tasks by the management of the SIF to third parties. In such case, SIFs shall adequately inform the CSSF and the mandate shall not prevent the supervision conducted by the management on the SIF. In case of an appointment of an investment manager, such must be authorised or registered in order to manage investment portfolios and submitted to a prudential supervision. Service providers of existing SIFs shall be notified to the CSSF at the latest by 30 June 2013.

CROSS-INVESTMENTS

With regard to cross-investments (i.e. possibility for a sub-fund of a SIF to invest in another sub-fund of the same SIF), the New Law follows again the UCITS Law. Indeed, cross-investments will be possible under following conditions:

  • the cross investment between the sub-fund target and the investing sub-fund are not permitted;
  • the voting rights of the target compartment are suspended during the period of investment;
  • the value of the assets is not taken into account for the calculation of the NAV in the context of meeting the minimum net assets requirements.

Relevant updates of the fund documentation (i.e. articles of association and placement memorandum) will be however required in that respect.

CONTRIBUTIONS IN KIND

Regarding contributions in kind, the New Law puts an end to several discussions about the requirement of an independent auditor’s report. Henceforth, any contribution other than cash shall, whatever the legal structure of the SIF is and prior to the incorporation, meet the conditions of article 26-1 of the law of 10 August 1915 concerning commercial companies (i.e. auditors’ report).

DEROGATION OF THE CORPORATE LAW

As it is already foreseen under the UCITS Law, SIFs are now exempted to translate their articles of association or any modifications of it into French or German, if these documents have been drawn up in English. In addition, SIFs are no more required to send their investors any copies of their annual reports by mail and they are also allowed - for the purpose to fix voting rights – to provide for a record date system, being five days before a general meeting. Relevant updates of the fund documentation (i.e. articles of association and placement memorandum) will be however required in that respect.

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