LUXEMBOURG Law and Practice Contributed by: Evelyn Maher, Gaston Aguirre Draghi and Djelloul Mansour, BSP
fund’s shares to be adapted to the needs of its investors and its sponsor. UCITS Funds UCITS funds are highly regulated investment vehicles that can be easily marketed to retail investors in the EEA thanks to the EU passport, but also to professional and institutional inves - tors. Stringent diversification rules are laid down by the UCI Law. In particular, a UCITS fund may invest no more than 10% of its assets in trans - ferable securities (which must be listed on a regulated market) or money market instruments issued by the same body, and specific restric - tions apply to index funds, holdings of other funds, use of financial derivative instruments and deposits. Leverage is restricted, and a UCITS fund must be an open-ended fund – ie, investors must be able to redeem. Part II UCIs Although Part II UCIs always qualify as AIFs, they are open to retail investors. Part II UCIs are subject to a less stringent diver - sification policy than UCITS: • they may borrow money or securities (up to 400% of the NAV for Part II UCIs following alternative investment strategies); • they can be closed or open-ended funds; and • they can be used to invest beyond transfera - ble securities (private equity, real estate, etc). However, Part II UCIs remain subject to the supervision of the CSSF. Part II UCIs are not entitled to the European UCITS passport for distribution to retail inves - tors in the EEA, but they can rely on the AIFMD
marketing passport if they fall under the scope of the full AIFMD regime. 3.1.2 Common Process for Setting Up Investment Funds Retail funds must be authorised and supervised during their lifetime by the CSSF. A retail fund set up in contractual form as an FCP shall only be authorised if the CSSF has approved its management company, which must be based in Luxembourg. A retail fund set up in corporate form and appoint - ing a management company or AIFM shall only be authorised if the CSSF has approved the management company or AIFM (if a Lux - embourg entity), or if the relevant management company or AIFM has notified pursuant to the management passport. Where the management company or AIFM delegates portfolio manage - ment, the entity to whom they have delegated is subject to the approval of the CSSF. Directors (who must be of sufficiently good repute and be sufficiently experienced) and oth - er service providers of retail funds are subject to the approval of the CSSF. The application is carried out online on a CSSF portal and requires the provision of, inter alia, the following documents: • an application questionnaire; • draft instruments of incorporation; • a draft prospectus; • a draft PRIIPs KID or, in the case of UCITS funds exclusively distributed to professional investors, a UCITS key investor information document (KIID); • key policies (generally already in place within the investment fund manager);
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