The Luxembourg Parliament has adopted a law on Specialized Investment Funds (SIF), which offers a number of new features, including a broader definition of “eligible investors” to include both professional and private “well-informed” investors.
The new law replaces the law of 19 July, 1991 which concerned collective investment schemes reserved for institutional investors. According to the Association of the Luxembourg Fund Industry (ALFI), the 1991 law was a success: as at November 2006, 207 institutional funds existed, with combined assets under management of EUR76 billion (US$100 billion).
ALFI says that all the provisions of the 1991 law are to be found in the new law, so existing institutional investment funds will not find that their legal base has disappeared. However, the SIF law offers a number of interesting new features. The new law likewise offers greater flexibility in terms of investment policy. The principle of risk spreading has been maintained, but there are no quantitative investment restrictions, given that such vehicles would be reserved for sophisticated investors.
The law requires that the directors (dirigeants) of a Specialised Investment Fund, as well as the directors of the custodian bank and the auditor, be approved by the CSSF. However, the promoter is not subject to CSSF approval. Furthermore, since the investors in funds targeted by this law are deemed to be sufficiently experienced to make their own decision with regard to the fund manager, there is no need for the CSSF to verify the status and financial standing of a company to which asset allocation has been subcontracted.
The new law has been welcomed by ALFI, whose president Thomas Seale commented: “I am convinced that this innovative new legal framework will open up new possibilities for fund promoters in the area of alternative and institutional investment funds.”