The Specialised Investment Fund (SIF) is a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime for an international, institutional and qualified investor base. In comparison with institutional funds created under Part II of the Law of 17 December 2010 on undertakings for collective investment, the SIF is characterised by greater flexibility with regard to the investment policy and a more relaxed regulatory regime.
Investment in a SIF is reserved for “well-informed” investors requiring a limited level of protection and looking for investment flexibility suitable to their particular expertise and needs. This term comprises:
* Other investors are those who confirm in writing that they adhere to the status of “well-informed” investors and who either (i) invest a minimum of EUR 125,000 or (ii) have been assessed by a credit institution, an investment firm or a management company which certifies the investors’ ability to understand the risks associated with investing in the SIF
The specialised investment fund was introduced by the Luxembourg Law of 13 February 2007 (SIF Law, click here). The SIF regime was amended by the Law of 12 July 2013 on alternative investment fund managers (AIFM Law). As a result, the SIF Law is now divided into two parts: (i) general provisions applicable to all SIFs, and (ii) specific provisions applicable to SIFs which qualify as Alternative Investment Funds (AIFs) and which are required to be managed by an authorised Alternative Investment Fund Manager (AIFM). Due to the broad definition of SIF AIFs, most SIFs qualify as SIF AIFs.
The Luxembourg regulator has issued several circulars concerning SIFs. Click here to access the website of the CSSF.
Eligible assets and risk diversification requirements
There is no restriction in terms of eligible assets of a SIF.
SIFs are subject to the principle of risk-spreading. Risk diversification requirements are defined by CSSF Circular n° 07/309 and are less stringent than the ones in application for Part I (UCITS) and Part II (UCI) funds.
A SIF may take the legal form of a common fund (FCP – fonds commun de placement) or may be constituted as an investment company (SICAV – Société d’investissement à capital variable or SICAF – Société d’investissement à capital fixe). Other legal forms are possible.
The FCP has no legal personality and thus must be managed by a management company.
A SICAV/SICAF may take one of six possible legal forms:
These different entities may be set up as a single fund or as an umbrella fund consisting of multiple compartments, each with a different investment policy. The compartment of an umbrella SIF can invest in one or more other compartments of the same SIF. The fund and compartments respectively may have an unlimited number of share classes, depending on the needs of the investors to whom the fund is distributed.
The structures may be open-ended or closed-ended, for both subscriptions and redemptions.
Capital requirement and other aspects
The net assets of a SIF may not be less than EUR 1,250,000. This minimum must be reached within a period of twelve months following its authorisation. Only 5% of the capital needs to be paid up on subscription.
Unless otherwise provided for, the assets of a SIF must be valued at fair value.
SIFs must have appropriate risk management systems in place to identify, measure, manage and monitor the risks associated with the positions and their contribution to the overall risk profile of the portfolio. Moreover, SIFs are required to establish a conflict of interest policy. Further details are provided by CSSF Regulation N° 12-01.
Authorisation and supervision
As a regulated vehicle, the SIF must be approved by the Luxembourg supervisory authority CSSF prior to the launch. The authorisation will be granted subject to approval of:
- the constitutional documents;
- the choice of directors/managers;
- the depositary bank and auditor;
- the persons or entities in charge of the investment management function;
- the administrative agent.
An offering document must be produced and approved by the CSSF.
SIFs which qualify as AIFs
SIFs qualifying as AIFs (SIF AIFs) are required to appoint an AIFM which can be established in Luxembourg, in another EU Member State or in a third country. They may either appoint an external AIFM or choose being internally managed. In the latter case, the SIF AIF will itself be considered as the AIFM. As a consequence, all of the AIFM Law’s obligations applying to the AIFM will have to be complied with by the SIF AIF.
SIF AIFs managed by an EU authorised AIFM benefit from a passport allowing AIFMs to market the SIF’s shares, units or partnership interests to professional investors within the EU through a regulator-to-regulator notification regime.
For more details, please click here to access our brochure on the AIFMD.
Investment funds created under the SIF Law pay an annual subscription tax (taxe d’abonnement) of 0.01% of their net asset value on the last day of every calendar quarter.
Certain money market and pension funds or SIFs investing in other funds which are already subject to subscription tax are exempt from subscription tax. The same applies to microfinance investment funds.
Management services – except mere technical services – provided to a SIF are exempt from Luxembourg VAT.
SIFs constituted in the form of an investment company may benefit from a large number of double tax treaties concluded by Luxembourg.
FCPs and SLPs are regarded as fully tax transparent.
- Management company:
A common fund has no legal personality and thus must be managed by a management company.
The individuals who effectively conduct the business of a management company must be of good repute and be sufficiently experienced in relation to the type of SIF to be managed. The management company must have an initial capital of at least EUR 125,000.
Luxembourg SIFs must appoint a depositary which is responsible for both the safekeeping of assets and the supervision of the fund and, if applicable, its management company.
The individuals who represent the depositary bank must be of good repute and have sufficient and relevant experience.
The physical safekeeping can be entrusted to local sub-depositories. CSSF Circular 08/372 clarifies the relationship between the depositary and any appointed prime brokers.
The fund (SICAV) or its management company (FCP) prepares an annual report which is to be audited by a Luxembourg statutory auditor with appropriate professional experience. There is no obligation to produce a semi-annual report.
Specific aspects: EuVECA and EuSEF
SIFs which qualify as European Venture Capital (EuVECA) or European Social Entrepreneurship (EuSEF) Funds have the possibility to be subject to the EuVECA and EuSEF regulation respectively. Both regulations introduce a passport for the marketing of AIFs to EU-based eligible investors.