Innpact_Insights_RAIF_2024

RESERVED ALTERNATIVE INVESTMENT FUND(RAIF)

Aperfectmatch forimpactinvesting funds

Launchyourimpactfund injusttwomonths

THERAIF–ASOUNDCHOICETOLAUNCH ANIMPACTFUND

Sinceitslaunch,theLuxembourgReservedAlternative InvestmentFund(RAIF)hasbecomethepreferredlegalform tolaunchanimpactfund.

WhyistheRAIFsopopular?Itcombineskeyadvantagescritical forimpactfunds:competitivesetupandrunningcosts, flexibility,fasttime-to-market,andpre-marketingand marketingtoqualifiedEUinvestorsduetotheindirect regulationofRAIFs.

InnpacthascreatedandlaunchednumerousRAIFsforimpact sponsors,guidingthemfromthefundconcepttothefirst closinginundertwomonths.Letussupportyouinthisfasttrackjourney.

Asanoptimalsolutionforfundstomeettherequirementsofthe AIFMlawandtheCSSFCircular18/698,theLuxembourglaw of23July2016createdtheReservedAlternativeInvestment Fund(RAIF)withthesimpleappointmentofanAlternative InvestmentManager(AIFM)toensurecompliancewiththe regulatoryrequirements.

NoCSSFapprovalisrequired.Fundscanthereforebesetup andoperationalinashorttime.

THERAIF

TESTEDANDTRUSTED

•>2,500LuxembourgRAIFs

•HighAIFMDstandards

•RegulatoryoptionsforPEfunds

LIGHTREGULATION

•IndirectsupervisionwithAIFM

•NoCSSFapprovalforlaunch

•NoCSSFapprovalforchanges

SHORTTIMETOMARKET

•Set-upwithin8-10weeks

•Selectdepositary,administrativeagent,auditor

•Preparelegaldocumentation

EFFICIENTEUMARKETING

•EUdistributionpassportviaAIFM

•Well-informedinvestorsonly

•Pre-marketingpossible

Anindustrystandardwithmultipleinterestingfeatures

MostimpactfundsselecttheRAIFasitprovidesasimpleway tostructuretheirfundwithfeatureswellknownbyinternational investorsusedtoinvestinginprivateequityfunds.

Flexiblestructuringoptions

•RAIFcaninvestinalltypesofimpactassets(suchas impact-drivenprivateequityand/ordebt,impactbonds, carboncredits)

•Highflexibilityincreatingmultipleshareclasses,with optionalaccommodationofblendedfinance

•Umbrellastructurescanbeestablishedtargetingdifferent investorswithsegregatedsub-fundscoveringdiverse investmentstrategiesanddifferentstructuringfeatures

•Rangingfromlimitedriskdiversificationrequirements (similartoLuxSIFs)tonoriskdiversificationrequirements (withariskcapitalinvestmentstrategy,suchasforLux SICARs)

•Flexibilityinchoiceofaccountingprinciples(IFRSor LuxGAAP)andinvaluationmethodology

•PossibilitytochangetoSIFregimelater,ifneeded

•PossibilitytoupgradetoRAIFfromalightlyregulated AIFmanagedbyasub-thresholdregisteredalternative investmentfund(whenstartingwithsmallfundsize)

Innpact’sstructuringteamwillguideyouinselectingthe RAIFfeaturesthatbestfityourimpactfund.

Simplelegalconsiderations

•RAIFsareestablishedbyasimplenotarialcertification confirmingthefund’screation

•RAIFsbenefitfromanattractivetaxregimesubjectonly toa0.01%subscriptiontaxofitsnetassets(nocorporate incomeorwithholdingtax)

•MandatorytoappointanAIFMauthorisedinLuxembourg (supervisedbyCSSF)orinanotherEUmemberstate

•Likeallfunds,RAIFsaresubjecttotheSustainableFinance DisclosureRegulation(SFDR)

•Possibletooptfordifferentcorporateforms–either shareholderselectaboardofdirectors(usuallySociété Anonyme-SA)orapartnership/GP-LPmodelcontrolled byaGeneralPartner(SCSp-SpecialLimitedPartnership /SociétéenCommanditeSpéciale,SCA–Partnership LimitedbyShares/SociétéenCommanditeparActionor SCS-CommonLimitedPartnership/SociétéenCommandite Simple)

THEAIFM Acriticalrole

TheRAIFbenefitsfromthegovernancestructureandregulatory approvalsoftheappointedAIFM,includingitsin-housepolicies andprocedures.Thelatterareupdatedregularlyandensure thatAIFM-managedfundsarefullyincompliancewithanynew regulations.TheAIFMisinchargeofproducingannualand otherregulatoryreportsaccordingtotheAIFMlaw.Assuch, theAIFMcarriesfullresponsibilitytowardstheregulatorinthe

nameofthefundsitmanages.Whenapproachedtomanagea fund,theAIFMthereforealwayscompletesafullduediligence ontheinvestmentorportfoliomanagerandonthefundto ensurecompliancewiththeproceduresandpolicystandards oftheAIFMlaw.Thisduediligencewillbedoneatthesetupof thefundaswellasonanongoingbasis.

INVESTORS/Ltd.Partners

ADVISORYCOMMITTEE

•ConflictofInterestsettlement

•Anyothermattersprovidedbythe PartnershipAgreement/Offering Memorandum

OPTIONAL

TechnicalAssistanceFacility

DONORS

TAFACILITY COMMITTEE

ServiceProviders

•Depositary(mandatory)

•Fundadministrator(mandatory)

•Auditor(mandatory)

•Legalcounsel(notmandatory)

TAFACILITY MANAGER

GENERALPARTNERor BOARD

AlternativeInvestmentFund Manager(AIFM)

INVESTMENTCOMMITTEE*

RAIFImpactFund InvestmentManager

INVESTEES

WhilethekeyAIFMresponsibilitiesarefundportfolioand riskmanagement,itcandelegatetheperformanceofthese functionsundercertainconditions.Consideringtheexpertise requiredtooriginateandmonitorimpactinvestments,the bestoptionisusuallytodelegatetheportfoliomanagement toanauthorisedimpactinvestmentmanagerwhowouldtake allinvestmentdecisions.Iftheinvestmentmanagerisnot authorisedinanEUmemberstate(orsimilarjurisdiction), theAIFMremainsresponsibleforportfoliomanagementand thefund’sinvestmentcommitteeadvisedbyan“Investment Advisor”.Insuchcases,theInvestmentAdvisormayhavea separateinvestmentcommitteethatrefersinvestmentstothe AIFMforfinalapproval.

GeneralPartner/Board

•Carryoutcorporateobjectiveoffund

•Select&superviseAIFM,legalcounsel, auditoranddepositary

•Delegateimplementationof investmentpolicytoAIFM

•GPisusuallyownedbyinvestment manager

AIFM

•Riskmanagement

•Fundcompliance

•Portfoliomanagement*

•Investmentdecision-makingprocess throughInvestmentCommittee*

•Valuationreview

(*functionsthatcouldbedelegatedtoalicenced investmentmanager)

InvestmentManager

•AppointedbyGP/Board

•Originating,monitoringandexiting investments

•(PortfolioManagementandIC-if licencedinvestmentmanager)

•AnyotherworkdelegatedbyGP/ Board

Inanycase,theAIFMisultimatelyresponsibleforrisk management,compliance,NAVoversightandtheannual reportwhichrequiresasolidunderstandingofthefund’s impactinvestmentstrategy.

Innpact’sexpertAIFMteambringsover15yearsofpractical experienceinsupporting30innovativeimpactinvestingfunds. Thiscriticalexperienceandourimpactmissionalignmentwill bekeysuccessfactorsinthemanagementofyourimpactfund.

TheRAIF Asimpleandfastincorporationprocess

ThesetupofaRAIFfollowsasimpleandleanincorporation process.Fromthedaythefundinitiatorhasagreedonthe fundlegaldocumentationwithitsprospectiveinvestors andselecteditsserviceproviders(AIFM,depositary,bank, administrativeagent,auditor),theprocesswilltypicallytake

sixtoeightweeks.Fundinitiatorsshouldfactorinthelength ofbank’sfundonboardingprocesswhichcouldcausedelays. Innpact’sexpertswillguideyouineachofthestepsandensure asmoothandseamlessincorporation.

•Selectlegaland structuringadvisors

•SelectAIFM

•Selectserviceproviders

•Conductduediligences

•NegotiateanddraftAIFM andserviceprovider agreements

•DraftGeneralPartner articles

•DraftfundLimited Partnershipagreement/ articles

•DraftPrivatePlacement Memorandum(PPM)/ Prospectus

TheRAIF

•GPbankaccountopening

•SharecapitalwirebyGP shareholders

•Notaryappointment

•PublicationinLuxembourg Gazette

•Fundbankaccount opening

•SCAmin.capitalEUR30k (nominimumforSCSp)

•Min.EUR1.25Mtobe reachedwithinoneyear

•Constitutioninpresence ofnotary

•ForSCA:fullarticlesincl. detailsofGPandinitial LPs

•ForSCSp:enhanced confidentiality;only limitedinformation disclosedincl.GPdetails

•Limitedinformationonly

*indicativetimeline

MinimumsubstancerequirementstooperateinLuxembourg

WhiletheAIFMprovidesusuallymostoftheLuxembourg substancerequirementstothefund,certainadditional elementsneedtobedomiciledin,ororiginatedoutof, Luxembourg:

•RegisteredofficeinLuxembourg,usuallyatthepremisesof thecentraladministrativeagent

•BankaccountinLuxembourg

•FinancialstatementsunderLuxembourgaccountingrules

•AtleastoneboardmemberknowledgeableofLuxembourg AMLlaws

INDICATIVECOSTBUDGET

•GPnotary:EUR2,000-5,000

•Fundnotary:EUR2,000-5,000

•Fundlegal:EUR50,000-100,000

•RegistrationofvehiclewiththeLuxembourgTradeand CompanyRegister,includingidentificationofultimate beneficialownersofthefund(≥25%)intheultimate beneficialownerregister

Itisalsoadvisableto:

•HavethemajorityofGPboardmembers/directorsbe Luxembourgresidents

•HoldboardmeetingsofGP/fundinLuxembourg

•GPadmin&accounting:EUR20,000-25,000

•AIFM:EUR70,000-120,000

•Depositary:EUR40,000-EUR60,000

•Centraladmin:EUR40,000-EUR60,000

•Fundlegal:EUR20,000-50,000

•Independentdirector:EUR15,000-20,000

ASSUMPTIONS

•EUR75millionassetsunder management

•Limiteddurationfund

•7investors

•15privateequitydeals

TheRAIF

ReadyfordistributiontoEUinvestors

PRE-MARKETING

Pre-marketingandmarketing offundstoEUinvestorsisa keyfactorinchoosingtoset upaRAIF.TheAIFMfacilitates theseservicesonbehalfof theinitiatorandthefund. Thisiswelldefinedinthekey regulationsandareservices InnpactAIFMprovides. Theseservicesmayalsoapply tonon-EUinvestors.

intheEUisregulatedasof28July2021bytheCrossBorder Directive.TheAIFMcanfilefortheinitiatorinallEUcountries thencontactpotentialinvestorsincoordinationwiththe initiator.

MARKETING

isthephasewheninvestorscansubscribe.TheAIFMfilesfor theEUmarketingpassportonacountry-by-countrybasis throughtheLuxembourgregulator.WiththeEUpassports,the AIFMsupportstheinitiatororinvestmentmanagertodirectly contacttargetedinvestors.

WhiletheRAIFisaleanandcostefficientstructure,the mandatoryserviceproviders(suchasAIFManddepositary) maystillgeneratecoststhataredifficulttoabsorbforsmaller fundswithassetsundermanagementintherangeofEUR20 to50million.

Analternativecanbetooptforasub-thresholdlightlyregulated fundintheformofaSCSpwiththeGeneralPartneracting astheregisteredAIFM.Suchstructureallowsforalighter operationalcostasnoauthorisedAIFMnoradepositary arerequired.Anauditor(althoughrecommended)isnot

Howwecanhelpyou

Innpact’sexpertteamhasstructuredandsetupmorethan30 impactfundsinvestingacrossallUnitedNationsSustainable DevelopmentGoals(SDGs),allinstruments(e.g.private equity/privatedebt,venturecapital,carboncredits,blended

DESIGNYOURIMPACTFUND

•Developyourfundconcept andrationale

•Defineyourimpactinvestment strategy

•Createyourfinancialmodel

•Designyourefficientfundstructure, governanceandoperationalsystem

•Developyourimpactmanagement framework,includingtheoryofchange, impactmetrics,SDGalignment, impactreport,andimpactincentives mechanisms

mandatoryeither,whereasanadministrativeagentwouldstill beneededtoprovideaccountinganddomiciliationservices.

Thedisadvantageofthissolutionisthatthefundwillnot benefitfromtheEUmarketingpassportandsomeinvestors maybelesscomfortablewiththelackofindirectsupervision. Foraninterimphase,however,untilthefundhasreached asufficientsize(e.g.aftersecondclosing),itisdefinitelya solutiontoconsider.

finance,…)andallregions(fromsinglecountrytoworldwide, Europeoremergingmarkets).Weguideyouinlaunchingand managingyourfund:

SETUPYOURIMPACTFUND

•Developlegaldocumentation withyourpreferredlegalcounsel

•Draftallnecessarypolicies andprocedures

•Selectrequiredserviceproviders

•EnsureSFDRcompliance

•Helpinnegotiationswith prospectiveinvestors

•Coordinateincorporation andfirstclosing

MANAGEYOURIMPACTFUND

•Actasyourthird-party authorisedAIFM

•Provideadditionalhands-onfund managementservices(suchasALM, risk,cash,FX,annualreport)

•Actasyourimpactofficerandsupport impactreportpublication

ContactourRAIFandAIFMexperts

ArnaudGillin Co-foundingPartner arnaud.gillin@innpact.com

T:+35227029373

M:+352621376473

BernardCouvreur BusinessDevelopmentManager Bernard.couvreur@innpact.com

T:+35227029319 M:+41787201582

Innpactisaleadingimpactfinancespecialist providingadvisoryandthird-partyfund managementservices.

Ourteam,basedinLuxembourgandMauritius,has unrivalledexpertiseindesigningimpactfundsand blendedfinancevehicles.

Weworkwithfundmanagers,sponsorsandinvestors aroundtheworldonimpactinvestingprojects totalingmorethan$8bntargetingtheSustainable DevelopmentGoals.

Weprovideourserviceswithmotivation,dedication andsmile,beingfaithfultoourmissionandourvalues.

CharlesKirsch HeadofLegalServices charles.kirsch@innpact.com

T:+35227029324

M:+352691236008

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