In focus: Luxembourg's Reserved Alternative Investment Fund

05 December, 2022

Europe Funds

Since its creation in 2016, the Reserved Alternative Investment Fund (RAIF) vehicle has had tremendous success with alternative asset managers around the world.

Introduced as an upgrade to Luxembourg's investment funds offering in July 2016, RAIFs provide a faster and more flexible alternative to Luxembourg's Specialised Investment Fund (SIF) and Investment Companies in Risk Capital (SICAR) structures.

Unsurprisingly, the RAIF product has proven to be a popular choice and now represents over 50% of all Luxembourg PE funds.
Today, we dive deep into the intricacies of Luxembourg’s RAIF, exploring its origins, benefits, beneficiaries, and more.

What Is a Reserved Alternative Investment Fund (RAIF)?

A Reserved Alternative Investment Fund (RAIF) is a Luxembourg investment vehicle designed for professional investors seeking flexibility and efficiency in structuring their investments. It was introduced in 2016 under Luxembourg's RAIF Law and is a hybrid structure that combines the benefits of regulated and unregulated funds.

Unlike other investment funds, RAIFs are not directly supervised by Luxembourg's financial regulator (CSSF).

Instead, they must be managed by an authorised Alternative Investment Fund Manager (AIFM), which ensures compliance with the European Union's Alternative Investment Fund Managers Directive (AIFMD).

Luxembourg RAIF Key Features

Feature	Description
Regulation	Not directly supervised by the CSSF – must be managed by an authorised Alternative Investment Fund Manager (AIFM).
Target Investors	Reserved for well-informed investors (institutional, professional, or individuals meeting specific criteria).
Legal Forms	Can be structured as a corporate entity (SICAV, SICAF), limited partnership (SCS, SCSp), or common fund (FCP).
Investment Scope	A broad range of asset classes, including private equity, private debt, real estate, infrastructure, and hedge funds.
Setup Time	Faster launch due to no prior authorisation required from the CSSF.
Taxation	Tax-efficient structure – may benefit from Luxembourg’s double tax treaty network and tax exemptions.
Regulatory Compliance	Indirect regulation through AIFMD-compliant AIFM, ensuring adherence to EU-wide standards.
EU Passporting	Eligible for marketing across the EU to professional investors through AIFMD passporting rights.
Governing Law	Subject to the RAIF Law of 2016 and the general Luxembourg legal framework.
Investor Protection	Managed under the AIFM, providing oversight and compliance with industry standards.

How RAIFs Have Become the Go-To Choice for Alternative Asset Managers Globally

Alternative assets such as private equity, infrastructure, real estate, specialist debt and renewable energy went 'mainstream' a number of years ago. However, the ultra-low and negative interest rates of recent years have forced investors to look beyond traditional asset classes for increased and sustainable long-term investment returns – and this trend has not stopped despite the change in market rates.

As a result, Preqin forecasts that alternative assets under management will rise from $16.8 trillion at the end of 2023 to $29.22 trillion by the end of 2029.[1]

The rise of alternatives is most notable in Luxembourg, and more specifically in its private equity sector. For context, the AUM of its private equity and venture capital funds has risen nearly 198% in the past decade.[2]

Fund initiators are attracted by Luxembourg's robust financial services infrastructure, diverse fund products and sound regulatory framework that support its standing as the second-largest fund centre in the world behind the USA, with over EUR 4.5tn AUM as of May 2024, according to the CSSF.[3]

Luxembourg has also become a jurisdiction of choice for North American private equity managers interested in setting up private equity structures for European investors.

The USA now accounts for the largest proportion of fund initiators in Luxembourg, with 20.7% AUM, December 2024. [4] The Reserved Alternative Investment Fund (RAIF) has rapidly emerged as ka ey product driving this growth.

What is a Reserved Alternative Investment Fund (RAIF)?

Introduced as an upgrade to Luxembourg's funds offering in July 2016, RAIFs provide a faster and more flexible alternative to Luxembourg's Specialised Investment Fund (SIF) and Investment Companies in Risk Capital (SICAR) structures. Unsurprisingly, the RAIF product has proven to be a popular choice and now represents over 50 per cent of all Luxembourg PE funds.

What Are the Benefits of an RAIF Structure?

RAIF offers numerous potential benefits to fund managers. Among the ones mentioned the most are:

Flexibility: Qualifying as an alternative investment fund (AIF), the RAIF product is able to invest in all asset classes and adhere to any kind of investment policy. A RAIF must be managed by an external Alternative Investment Fund Manager (AIFM), who can be domiciled in Luxembourg or in any other member state of the EU, meeting investor demands for onshore fund structures in the EU. Many of the common features of fund structures, such as umbrella structures with sub-funds or compartments, are also possible within the RAIF structure.
Speed to market: Unlike the SIF and SICAR vehicles, the RAIF is not subject to dual regulation, where both the manager and the fund are regulated and supervised by the CSSF. Therefore, a RAIF does not have to get clearance from the CSSF before launch, which means it can be deployed to market relatively quickly. It must instead appoint an AIFM with a registered office in a European Union member state and is regulated by the Alternative Investment Fund Managers Directive (AIFMD), enabling it to take advantage of the AIFM’s marketing passport to market across the EU.
Passporting: A RAIF can benefit from passporting advantages of distribution because it is managed by an authorised AIFM. This allows for its shares to be distributed to professional investors across Europe.
Investor protection: The RAIF's flexibility enables it to switch to the SIF or SICAR regimes if additional investor protection is required at the fund level. Similarly, SIFs and SICARs can surrender their regulatory status to fall under the RAIF model.

Should You Choose a RAIF?

The decision to choose the RAIF vehicle depends on who the fund manager targets as investors in its fund.

In general, RAIFs are specifically targeted at institutional investors, professional investors and those confirming in writing that they are well-informed investors (investing a minimum of EUR 125,000 and have been assessed by a credit institution, investment firm or management company which certifies the investor’s expertise).

It is important to note that the appointment of certain service providers is mandatory for a RAIF:

An AIFMD compliant depositary. A RAIF must appoint a depositary that complies with the Alternative Investment Fund Managers Directive (AIFMD). The depositary’s primary role is to safeguard the fund’s assets, oversee cash flows, and verify ownership of holdings.
A Central Administration. The central administration, or fund administrator, manages the RAIF’s operational and administrative tasks. It handles bookkeeping, processes subscriptions and redemptions, calculates the net asset value (NAV), and prepares investor reports.
A Luxembourg external auditor. Every RAIF must appoint an external auditor authorised in Luxembourg. The auditor reviews the fund’s financial statements, ensuring accuracy and compliance with accounting standards.

Set Up Your RAIF Luxembourg Structure with Ocorian

In order to establish RAIF structures efficiently and benefit from the structure's dynamic offering, asset managers require an experienced fund services partner to reduce administrative burdens, costs, and above all, the time-to-market of their RAIF.

At Ocorian, our Luxembourg funds team have extensive experience administering RAIFs in addition to Luxembourg's other fund products. If you would like to know more about the RAIF or our fund services in Luxembourg, contact our funds team.