LUXEMBOURG Law and Practice Contributed by: Evelyn Maher, Gaston Aguirre Draghi and Djelloul Mansour, BSP
Part II UCIs Asset valuation of Part II UCIs must be done in accordance with the UCI Law (which provides that the valuation must be based on fair value unless the constitutional documents provide otherwise). Part II UCIs also need to value assets in compliance with the AIFM Law if managed by an authorised AIFM. Authorised AIFMs of Part II UCIs must have poli - cies in place to prevent insider dealing and the misuse of confidential information by one of their employees or service providers. Part II UCIs may have uncovered short positions. 3.5 Fund Finance UCITS Funds A UCITS fund may borrow (i) on a temporary basis provided that such borrowing represents no more than 10% of its assets, or (ii) to enable the acquisition of immovable property essential for the direct pursuit of its business and repre - senting no more than 10% of its assets. Borrow - ing under (i) and (ii) shall not exceed 15 % of its assets in total. Generally, borrowing is used to finance redemption requests, not to invest. UCITS funds may invest in derivative financial instruments, which can provide leverage, and can enter into back-to-back loans to acquire foreign currencies. For the foregoing transactions, a UCITS fund may provide security, such as a pledge on the securities it owns, as collateral. Securities lending transactions, as well as repurchase agreement transactions and reverse repurchase agreement transactions, can only be used by UCITS funds for the purpose of efficient portfolio management.
Part II UCIs A Part II UCI may borrow money or securities up to 25% of its NAV on a permanent basis. How - ever, this cap may increase depending on the investment strategy, being: • 200% of its NAV for alternative investment strategies; and • 400% of its NAV for alternative investment strategies with a high level of correlation between long positions and short positions. A Part II UCI may invest in derivative financial instruments, which can provide leverage, but it cannot borrow to finance margin deposits. A Part II UCI is authorised to enter, as a bor - rower, into securities lending transactions with first-class professionals specialised in this type of transaction. For the foregoing transactions, a Part II UCI may pledge its own securities as collateral. Equity bridge financing can be used if the Part II UCI in question operates on a commitment basis. 3.6 Tax Regime UCITS funds and Part II UCIs are exempt from net wealth tax, corporate income tax and munic - ipal business tax. UCITS funds and Part II UCIs are subject to an annual subscription tax of 0.05% of the NAV (paid quarterly), reduced to 0.01% in certain specific cases- The Modernising Law amended the UCI Law by regulating a full exemption for the subscription tax stated in the new Article 175 for: • those UCITS funds dedicated to the pan- European personal pension product (PEPP),
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