On 14 July 2016, legislation took effect in Luxembourg introducing a new type of investment vehicle, the Reserved Alternative Investment Fund or RAIF. The RAIF is regulated under the EU Alternative Investment Fund Managers (AIFM) Directive (2011/61/UE of 8 June 2011) and is not supervised by the Luxembourg regulator, the Commission de Surveillance du Secteur Financier (CSSF). Sufficient protection and oversight comes from management of the RAIF by an authorised external AIFM.

Historically, Luxembourg’s regulatory approach has been based on product regulation, in this case the supervision of funds. This has led to the creation of a range of regulated investment funds including:

• UCITS subject to Part I of the legislation of 17 December 2010 on Undertakings for Collective Investment;
• Part II funds subject to Part II of the 2010 legislation (non-UCITS funds);
• SIFs subject to the legislation of 13 February 2007 on Specialised Investment Funds, as amended, restricted to well-informed investors; and
• SICARs (risk capital investment companies) subject to the legislation of 15 June 2004 on the SICAR, as amended, covering risk capital investments.

Wealth managers now have the choice, depending on the investor’s preferences and profile, between setting up alternative investment funds as Part II Funds, SIFs or SICARs which are subject to direct supervision by the CSSF, or RAIFs, which are more attractive from a time-to-market perspective.

The Luxembourg insurance regulator, the Commissariat aux Assurances or CAA, permits a wide range of investments in the form of an Internal Dedicated Fund and/or Specialised Insurance Fund (SPIF).

At OneLife, these investments may include notably unquoted/unlisted assets, depending generally on the investment strategy of the life assurance policy.

While Internal Dedicated Funds offers discretionary, mandated management, the SPIF, a recent solution introduced by the CAA in Circular 15/3, enables policyholders to select the underlying asset(s) of their policy independently from a list of assets predefined by the insurer. The SPIF is aimed at a ‘buy and hold’ strategy.

This low-cost solution, which does not involve an investment manager, can be used for investors in private equity or other long-term assets, such as real estate or securitisation instruments.

While the RAIF is available only to well-informed investors, the SPIF is aimed at Category D investors (category C in certain cases) as defined by the CAA. The admissible underlying assets of a Luxembourg life assurance policy are determined according to the regulatory classification of the policyholder, in principle based on the amount of the initial premium as well as the policyholder‘s total wealth and their investment profile, which depends on their risk profile.

Combining the RAIF and the innovative SPIF solution clearly enhances the efficiency of investment transactions involving real estate, private equity or securitisation instruments by offering a low-cost solution for the policyholder, due to the absence of an investment manager and other intermediation.

The aim is eventually to create an investment option tailored to the policyholder’s particular objectives and needs.

UPDATE : Interest on RAIF “OneLife” solutions strongly increased since few months. Since RAIF launch in July 2016, the interest shown by the alternative investments industry to the Reserved Alternative Investment Fund (“RAIF”) is real and concrete.  Indeed, at the end of February 2017, we counted up to 53 RAIFs distributed on the European market.

Anthony Lorrain

Director – Unquoted & Traditional Assets

 https://lu.linkedin.com/in/anthony-lorrain

>>> For more info on RAIFs or other underlying assets available within our life assurance contracts, please contact our Investment specialists at: Users_IFS@onelife.com

>>> This article is part of the September 2016 edition of our monthly newsletter Life Insights. Click below to subscribe.