Definition of the RAIF and analysis of its competitive advantage

Abstract

In the last decade, the fund industry in Luxembourg has been prone to major challenges. One of the most significant in the 2007 after-crisis was the development of the Alternative Investment Fund Managers Directive by the European Parliament. Luxembourg, as Europe fund leader, took the lead by implementing the directive into national law in 2013. This directive created a double layer of supervision for funds, both on the manager and the product, which has been seen by some as too constraining. For this reason, the legislator simultaneously created the now well-known unregulated SLP form to meet the needs of the promoters and investors when they implemented the AIFMD, which resulted in a wide-ranging panel of available investment vehicles, each with its level of regulation and specific features. However, the legislator did not stop his effort with the SLP, and in 2016, he introduced an additional type of vehicle for fund manager, the Reserved Alternative Investment Fund. The purpose of this thesis was to understand what lead the legislator to broaden the portfolio of investment vehicles and to determine what the added value for private equity fund was. First, we went through what makes the RAIF structure so different by the way it is designed. Secondly, we compared its key features to the most used investment alternatives in private equity. And, finally, we conducted a series of interviews with professionals to support our analysis and case study. Resulting from this study, we demonstrated that the RAIF has been granted an advantageous mix of features, which allows it to be marketed very quickly while benefiting from a relevant supervision based on its AIFM and the AIFMD. In addition, it benefits from great flexibility concerning its structuring possibilities as well as the rules that the manager can set in the constitutive document. Luxembourg aims at strengthening its position locally and internationally with the implementation of this new vehicle.