Reserved Alternative Investment Funds (RAIFS) in Luxembourg

The Reserved Alternative Investment Fund (RAIF) has become an extremely popular investment structure since its introduction in Luxembourg in 2016. Highly appreciated for its flexibility and competitive costs, it is  designed to meet the needs of fund managers and professional investors seeking a streamlined setup process and broad investment opportunities, while benefiting from a certain level of regulation and protection.

Unlike other regulated funds in Luxembourg, RAIFs are not directly overseen by the Luxembourg financial regulator (CSSF) as they are not internally managed. Instead, they must be managed by an authorized Alternative Investment Fund Manager (AIFM), who ensures the fund complies with the requirements of the EU’s Alternative Investment Fund Managers Directive (AIFMD). The success of the RAIF certainly comes from this “compliance guarantee” given by the external AIFM, without having to go through a rigorous and expensive licensing process with the CSSF.

Main Characteristics:

• Target Investors:
  RAIFs are limited to well-informed investors. This includes institutional or professional investors, or individuals who either:

  • Confirm in writing that they qualify as well-informed;

  • Invest a minimum of EUR 100,000; or

  • Receive certification from a bank, investment firm, or management company confirming their expertise.

• Legal Structures:
  RAIFs can be formed either as:

  • Common funds (FCP) or 

  • Investment companies with variable (SICAV) or fixed capital (SICAF),

                 Limited partnerships like SCS or SCSp are the most common legal forms as        they favour contractual freedom and give a predominant role to the General Partner, but the usual forms of companies limited by shares are also possible, such as the S.A, the Sarl or the SCA, the latter being a kind of partnership limited by shares..

• Broad Investment Scope:
  RAIFs are permitted to invest in virtually any type of asset, such as:

  • Private equity,

  • Real estate,

  • Hedge funds,

  • Infrastructure, and more.

• Capital Requirements:
  Each RAIF must reach at least EUR 1.25 million in assets within 24 months from launch, with 5% minimum capital subscribed at inception.

• Favorable Tax Treatment:
  RAIFs can adopt:

  • The SIF regime, which involves a low annual subscription tax (0.01% of net assets) and exemption from corporate income and wealth taxes; or

  • The SICAR regime, for funds focused solely on risk capital, offering full tax exemptions on income and gains from qualifying investments.

• Service Provider requirements :
  In addition to the AIFM, RAIFs must appoint:

  • A Luxembourg-based depositary for safekeeping assets,

  • An independent chartered auditor (réviseur d’entreprises agréé), and

  • A central administrator, also based in Luxembourg.

Other key service providers like legal advisors or distributors may also be required, depending on the fund's operations.