Reserved Alternative Investment Fund (“RAIF”) The perfect tool for impact investing funds
How to setup your fund as a Luxembourg RAIF in less than 2 months
Get your Impact Fund launched in two months with Innpact The RAIF - the obvious choice to launch an impact fund Since its launch, the Luxembourg Reserved Alternative Investment Fund (‘RAIF’) has become the go-to legal form to launch an impact fund. Why is the RAIF so popular? It is because the RAIF combines key advantages critical for impact funds: low setup and running costs, flexibility and fast time to market while being indirectly regulated and thereby allowing pre-marketing and marketing to qualified EU investors. The Luxembourg law of 23 July 2016 created the Reserved Alternative Investment Fund (RAIF) as an optimal solution for funds to meet the
TESTED AND TRUSTED
requirements of the AIFM Law and CSSF Circular 18/698 through the simple appointment of an Alternative Investment Manager (AIFM) to indirectly provide the regulatory requirements.
No CSSF approval is required. Funds can therefore be setup and in operation in rapid time. Innpact has created and launched numerous RAIFs for impact sponsors, guiding them from the fund concept to the first closing in under two months. Let us support you in this fast-track journey.
SHORT TIME TO MARKET
LIGHT REGULATION
EFFICIENT EU MARKETING
Indirect supervision with AIFM
Setup within 6-8 weeks
EU distribution passport via AIFM
High AIFMD standards
No CSSF approval for launch
Select Depositary, Admin, Auditor
Well-informed investors only
Regulatory options for PE funds
No CSSF approval for changes
Prepare legal documentation
Pre-marketing possible
> 2,000 RAIFs setup (June 2022)
An Industry standard with multiple interesting features Most impact funds select the RAIF as it provides a simple way to structure their fund with features well known by international investors used to
investing in private equity funds. Our structuring team will guide you in selecting the RAIF features that best fit your impact fund project and strategy.
Flexible structuring options
Simple legal considerations
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RAIF can invest in all types of assets targeted by impact strategies (private equity, private debt, impact bonds, carbon credits,…) High flexibility in creating multiple share classes with or without a blended finance approach Umbrella structures can be established with segregated sub-funds bearing different investment strategies, different structuring features and targeting different investors Limited risk diversification requirements (similar to Lux SIFs) unless the fund has a risk capital investment strategy (such as for Lux SICARs) Flexibility in the choice of the accounting principles (IFRS or LuxGAAP) and the valuation methodology Possibility to change to SIF regime later if needed Possibility to upgrade to RAIF from a non regulated sub-threshold registered alternative investment fund (start with small fund size)
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RAIFs are established by a simple notarial certification thereby confirming the fund’s creation. RAIFs benefit from an attractive tax regime and is only subject to a 0.01% subscription tax (no corporate income or withholding tax) unless it is considered as fully tax transparent (SCS or SCSp). It is possible to opt for a corporate form where shareholders elect a Board of directors (usually SA) or a partnership/GP-LP model controlled by a General Partner (SCSp, SCA or SCS). It is mandatory to appoint an AIFM authorised in Luxembourg (supervised by CSSF) or in another EU Member State. Like all funds, RAIFs are subject to the Sustainable Finance Disclosure Regulation (SFDR).
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Get your Impact Fund launched in two months with Innpact The critical role of the AIFM The RAIF benefits from the structured governance of the appointed authorised AIFM which in-house policies and procedures approved by the CSSF. These are updated regularly and ensure the fund is fully in compliance with any new regulations. The AIFM is in charge of producing the annual report and other regulatory reports according to the AIFM law. As such, the AIFM carries full responsibility
towards the regulator in the name of the Fund. The AIFM will therefore complete a full due diligence on the Investment Advisor/Portfolio Manager and on the Fund for compliance to the procedures and policy standards of the AIFM law. This due diligence will be done at the setup of the fund and on an ongoing basis.
INVESTORS / LPs
Service Providers • •
ADVISORY COMMITTEE • •
RAIF Impact Fund
Conflict of Interest settlement Any other matters provided by the Partnership Agreement / Offering Memorandum
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General Partner / Board • •
GENERAL PARTNER or BOARD
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OPTIONAL Technical Assistance Facility DONORS
Alternative Investment Fund Manager (AIFM)
INVESTMENT COMMITTEE (*) TA FACILITY COMMITTEE
Investment Advisor TA Facility Manager
Depositary (mandatory) Fund Administrator (mandatory) Auditor (mandatory) Legal Counsel (not mandatory)
INVESTEES
While the key AIFM responsibilities are Portfolio Management, and Risk Management of the Fund, it can however delegate the performance of these functions under certain conditions. Considering the expertise required to originate and monitor impact investments, the best option is usually to delegate the Portfolio Management to an authorised impact investment advisor which would take all investment decisions. If the investment advisor is not authorised in an EU Member State (or similar jurisdiction), the AIFM remains responsible for Portfolio Management and so the Investment Committee of the Fund is the responsibility of the AIFM. In such cases the Investment Advisor may
Carry out corporate objective of the Fund Select & supervise the AIFM, legal counsel, auditor and depositary Delegate implementation of the investment policy to AIFM The GP is usually owned by the Investment Advisor
AIFM • • • •
Risk management Fund compliance Portfolio management (*) Investment decision-making process through Investment Committee (*) • Valuation review (*) Functions that could be delegated to Investment Advisor if licenced
Investment Advisor • • •
Appointed by GP/Board Originating, monitoring and exiting investments Any other work delegated by GP/Board
have a separate Investment Committee that refers investments to the AIFM for final approval. In any case, the AIFM is ultimately responsible for risk management, compliance, NAV oversight and the annual report which requires a solid understanding of the impact investment strategy of the fund. This is why our expert AIFM team brings over 15 years of practical experience of Innpact in supporting 30 innovative impact investing funds. This critical experience and our impact mission alignment will be key success factors of the management of your impact fund. Innpact | The Reserved Alternative Investment Fund |3
Get your Impact Fund launched in two months with Innpact A simple and fast incorporation process The setup of a RAIF follows a simple and lean incorporation process. From the day the fund initiator has agreed on the fund legal documentation with its prospective investors and selected its service providers (AIFM, Depositary, Bank, Admin, Auditor), the process will take a
maximum of 6 to 8 weeks. Fund initiators should factor in the length of the onboarding process of the Bank which could in certain cases cause delays. Our team will guide you in each of the steps and ensure a smooth and seamless incorporation.
6 to 8 weeks
GP Incorporation
Preincorporation
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Select legal and structuring advisors Select AIFM Draft GP Articles Draft Fund Limited Partnership Agreement/Articles Draft Private Placement Memorandum/ Prospectus
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Publications with Luxembourg Gazettes
RAIF Incorporation
(if GP-LP)
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2 weeks
2 to 3 weeks
2 to 3 weeks
GP Bank account opening Share capital wire by GP shareholders Notary appointment Publication with Luxembourg Gazette
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Fund Bank account opening SCA min. capital EUR 30k (no minimum for SCA) Min. EUR 1,25m to be reached within one year Constitution in Front of the Notary
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Full Articles incl. GP and initial LPs details
Inscription on Luxembourg RAIF List
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Limited information only
Minimum substance in Luxembourg to operate a RAIF ▪ Registration of the vehicle with the Luxembourg Trade and Company Register including the identification of the ultimate beneficial owners of the Fund (>=25%) in the ultimate beneficial owner register
While the AIFM provides usually most of the Luxembourg substance requirements to the Fund, certain additional elements need to be domiciled in or originated out of Luxembourg: ▪ Registered office in Luxembourg, usually at the premises of the Central Administrative Agent ▪ Bank account in Luxembourg ▪ Financial statements under Luxembourg accounting rules ▪ At least one board member being knowledgeable of Luxembourg AML Laws
It is also advisable to: ▪ Have the majority of GP Board Members/ Board directors to be Luxembourg residents ▪ Hold Board meetings of the GP/Fund in Luxembourg
INDICATIVE COST BUDGET Assumptions : EUR 75m limited duration fund with 7 Investors and 15 private equity deals • • •
SETUP
GP Notary : EUR 2,000-5,000 Fund Notary : EUR 2,000-5,000 Fund Legal : EUR 40,000-80,000
ANNUAL
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GP Admin & accounting : EUR 20,000-25,000 AIFM : EUR 70,000-120,000 Depositary : EUR 40,000-EUR 60,000 Central Admin : EUR 40,000-EUR 60,000 Fund Legal : EUR 20,000-50,000 Independent director : EUR 15,000-20,000
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Get your Impact Fund launched in two months with Innpact Ready for distribution to EU investors Pre-marketing and marketing of funds to EU investors is a key factor in choosing to setup a RAIF where the AIFM facilitates these services on behalf of the sponsor and the Fund. This is well defined in the key regulations and are services that Innpact AIFM can provide based on an agreed fee scale. Pre-Marketing in the EU is regulated as of 28 July 2021 by the Cross Border Directive – the AIFM can file for the Sponsor in all EU countries and then
contacts potential investors in coordination with the sponsor of the Fund. Marketing is the phase when investors can subscribe. The AIFM files for the EU marketing passport on a country-by-country basis through the Luxembourg regulator. With the EU passports, the AIFM supports the Sponsor or Investment Manager to directly contact targeted investors.
The (interim) sub-threshold fund alternative Even if the RAIF is a lean and cost efficient structure, the mandatory service providers (such as AIFM and depositary) may still generate costs that are difficult to absorb for funds in the range of EUR 20m-50m. An option could be to opt for a sub-threshold unregulated fund in the form of an SCSp with the General Partner acting as the registered AIFM. This structure would allow for a lighter operational cost as no authorised AIFM nor depositary is required. The Central admin would still be needed
to provide accounting and domiciliation services but an auditor (although recommended) is not mandatory either.
The disadvantage of this solution is that the fund will not benefit from the EU marketing passport and some investors may be less comfortable with the lack of indirect supervision. However it is definitely a solution to contemplate and maybe consider for an interim phase until the fund has reached a sufficient size (e.g. after second closing).
How we can help you Our team has structured and setup more than 30 impact funds investing across all SDGs, all instruments (private equity, private debt, carbon credits) and all regions (from single country to worldwide, Europe or Emerging Markets). We can guide you in the launch and management of your fund: DESIGN YOUR IMPACT FUND ▪ Develop the fund concept and rationale ▪ Define the impact investment strategy ▪ Create the financial model ▪ Design an efficient fund structure, governance and operational system ▪ Develop your impact management framework including theory of change, impact metrics, SDG alignment, impact report and impact incentives mechanisms
SETUP YOUR IMPACT FUND ▪ Develop the legal documentation with your preferred legal counsel ▪ Draft all necessary policies and procedures ▪ Select the required service providers ▪ Ensure compliance with SFDR ▪ Help in the negotiation with prospective investors ▪ Coordinate the incorporation and first closing MANAGE YOUR IMPACT FUND ▪ Act as your third-party authorised AIFM ▪ Provide additional hands-on fund management services (ALM, risk, cash, FX, annual report…) ▪ Act as your impact officer and support the impact report publication
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Get your Impact Fund launched in two months with Innpact
Contact our RAIF and AIFM experts Arnaud Gillin Partner Co-founder
arnaud.gillin@innpact.com T: +352 27 02 93 73 M: +352 621 376 473
Charles Kirsch Associate Director Head of legal
charles.kirsch@innpact.com T: +352 27 02 93 24 M: +352 691 236 008
Michael White AIFM Conducting Officer Head of Business Development and Marketing
michael.white@innpact.com T: +352 27 02 93 93 M: +352 691 482 088
Innpact is a leading impact finance specialist providing advisory and third-party fund management services. Our team, based in Luxembourg and Mauritius, has unrivalled expertise in designing impact funds and blended finance vehicles. We work with fund managers, sponsors and investors around the world on impact investing projects totaling more than $8 bn targeting the Sustainable Development Goals. We provide our services with motivation, dedication and smile, being faithful to our mission and our values.
Innpact S.A. 5 rue Jean Bertels L-1230 Luxembourg Grand Duchy of Luxembourg Tel. : +352 27 02 93 1 www.innpact.com info@innpact.Com
Dedicated to Impact Finance. Innpact believes the information contained in this document to be reliable and correct. However, Innpact makes no representation or warranty (express or implied) as to the accuracy, completeness or continued availability of the information and data available from this document. To the fullest extent permissible under applicable law, Innpact does not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information and data from this document. The information and data provided in this document are for general information purposes. It does not constitute legal, tax or investment advice nor can it take account of your own particular circumstances.
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