Hedge funds can be characterised by the following criteria:
- use of alternative investment strategies;
- use of short selling, derivatives and increased leverage;
- pursuit of absolute returns, rather than measuring investment performance relative to a benchmark;
- charging performance-based fees in addition to a management fee based solely on assets under management;
- broader mandates than traditional funds which give managers more flexibility to shift strategy;
- usually uses a prime broker that offers services such as custody of assets, trade execution, clearing and financing.
Whereas most Luxembourg alternative investment funds were in the past created as UCIs under Part II of the 2010 Law, the introduction of the specialised investment fund (SIF) in 2007 has successfully paved the path for a new generation of alternative investment funds for an international, qualified investor base. A convergence of traditional hedge fund products and UCITS products has also become noticeable as more and more alternative investment strategies are implemented under the provisions of Part I of the 2010 Law (UCITS).
The RAIF structure allows hedge fund initiators to set up Luxembourg-domiciled hedge funds that are not subject to regulatory approval by the Luxembourg supervisory authority. This option permits the achievement of a significantly enhanced time-to-market for new fund launches.
The choice of legal form will largely depend on the investment strategy selected and the targeted investor base. More detailed information on eligible assets and risk diversification requirements is available in the UCITS section.
Consult the brochure Luxembourg Hedge Funds and get an overview of the different structures available in Luxembourg.