UCI - undertakings for collective investment

An Undertaking for Collective Investment (UCI) established under Part II of the Law of 2002 is an investment fund that does not meet the criteria set by the EU Directives to render it eligible for distribution in more than one EU Member State.

Investors

UCI funds can be sold to all types of investors.

Promoter

The promoter of a UCI must be a regulated entity with sufficient financial resources.

Legal framework

Luxembourg: Part II of the Law of 20 December 2002 relating to undertakings for collective investment.

Circulars issued by the CSSF complement the regulatory framework by clarifying the implementation of different legal provisions governing the supervised entities. Moreover, the CSSF publishes prudential rules relating to specific activities and gives recommendations regarding financial activities.

IML Circular n° 91/75 clarifying certain aspects of the UCI legal framework

Eligible assets and risk diversification requirements

There is no restriction in terms of eligible assets of a UCI. However, the investment objective and strategy is subject to prior approval by the CSSF.

Risk diversification requirements are defined by IML Circular n° 91/75 and are less stringent than the ones in application for Part I funds (UCITS). Specific restrictions concerning funds adopting an alternative investment strategy are contained in CSSF Circular n° 02/80. The risk management function is not regulated.

Legal form

A UCI may take the legal form of a common fund (FCP – fonds commun de placement) or may be constituted as an open-ended investment company (SICAV – Société d’investissement à capital variable) or a closed-ended investment company (SICAF – Société d’investissement à capital fixe). The FCP has no legal personality and thus must be managed by a management company.

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 fund and compartments may have an unlimited number of share classes, depending on the needs of the investors to whom the fund is distributed.

Capital requirements

The net assets of an FCP may not be less than EUR 1,250,000 This minimum must be reached within a period of six months following its authorisation.

The minimum capital of a self-managed SICAV/SICAF may not be less than EUR 300,000 at the date of authorisation. The capital of any SICAV/SICAF must reach EUR 1,250,000 within a period of six months following its authorisation.

Authorisation and supervision

A UCITS fund must be authorised by the CSSF before it can start its activities. To this end, the fund has to the following documents and information to the Luxembourg supervisory authority:

articles or management regulations, prospectus and main agreements with service providers;
directors of the fund or managers of the management company;
choice of depositary bank and auditor;
promoter’s experience and financial soundness.

UCI are supervised by the CSSF and must fulfil detailed reporting requirements.

Distribution

UCI (“Part II”) funds do not benefit from a European passport.

Taxation

Investment funds created under the 2002 Law generally pay an annual subscription tax (taxe d’abonnement) of 0.05% of their net asset value on the last day of every calendar quarter. This rate is reduced to 0.01% in case of money market cash funds and institutional funds.

Investments in special institutional money market cash funds, special pension funds and funds investing in other funds which are already subject to subscription tax are exempt from subscription tax. The same applies to microfinance investment funds.

A fixed capital duty which was payable by the investment fund on incorporation was abolished as from 1 January 2009.

Investment funds incorporated as investment companies are subject to a registration duty of 75 euros at incorporation and in case of modification of the articles of incorporation, as well as transfer of the effective place of management or registered office in Luxembourg. Investment funds constituted as FCPs are not subject to this registration duty.

Service providers

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 UCI to be managed. The management company must have an initial capital of at least EUR 125,000.

Depositary bank:

Luxembourg UCI must appoint a credit institution as depositary bank which is responsible for both the safekeeping of assets and the supervision of the fund and its management company.

The individuals who represent the depositary bank must be of good repute and have sufficient experience in relation to the type of UCI concerned.

Central administration:

The central administration of a UCI must be in Luxembourg, but can be performed by a third party. This concerns the accounting, NAV calculation, keeping of the register of shareholders/unit holders, handling of subscriptions and redemptions, communication with investors and preparation of financial statements.

External Auditor:

The fund (SICAV) or its management company (FCP) prepares an annual and semi-annual report. The annual report is audited by an authorised external auditor with appropriate professional experience.