Private Equity vehicles in Luxembourg are either non-regulated companies or structures that are supervised by the Luxembourg Commission de Surveillance du Secteur Financier (“CSSF”).
The CSSF regulates SICARs and SIFs. SIFs are regulated under the provisions of the law dated 13 February 2007 on the specialized investment funds (the “SIF Law”) while SICARs are regulated under the provisions of the amended law of 15 June 2004 (the “SICAR Law”). Both SICARs and SIFs are registered on official lists maintained by the CSSF.
The CSSF also regulates back-office services, among which:
- Registrar agents
- Custodians (depositary banks)
- Professionals providing fund transfer services
- Company domiciliation agents
- Client communication agents
- Administrative agents of the financial services industry
- IT systems operators of the financial services industry
- Professionals providing company management services.
As of 30 June 2011, 315 entities with the status of a Financial Services Professional (“PSF”) were registered and provided employment to 11,500+ employees.
Overview of Luxembourg Private Equity structures
Unregulated vehicles The most common non-regulated Private Equity vehicle in Luxembourg is the SOPARFI. SOPARFIs are subject to the amended Luxembourg law of 10 August 1915 (the “1915 Law”) and by the amended law of 20 December 2002 (the “2002 Law”).
The SOPARFI is not a corporate structure specifically designed for Private Equity investments. As an ordinary company subject to the 1915 Law the SOPARFI is not subject to risk-spreading requirements and can invest in any asset class.
SOPARFIs are used to invest and manage financial participations in Luxembourg or foreign countries. SOPARFIs can also undertake commercial activities which are directly or indirectly connected to the management of their holdings including the debt servicing of their acquisitions.
Amidst an international regulatory environment seeking to increase transparency and oversight the SICAR and the SIF are Luxembourg’s two tried-and-tested regulated Private Equity vehicles. The legal framework applicable to SICARs and SIFs offers the combination of a flexible and accessible regulatory infrastructure with strong investor protection. The CSSF oversees both vehicles.
They can only be subscribed to by “well-informed” investors (see the glossary for a more detailed definition)
SICARs are investment vehicles designed specifically to suit the needs of Private Equity and Venture Capital. SICARs allow direct or indirect contributions of assets to be made to entities in view of launches, development or listing on a stock exchange.
SICARS are not subject to risk-spreading requirements. Almost 260 such vehicles had been created in Luxembourg as of June 2011.
In response to industry suggestions the SICAR law was amended in 2008 in order to allow for more flexibility and to evolve with investors needs. In particular SICARs now allow for the compartmentalization of investments within the same legal entity.
SIFs were created to replace older legal frameworks which were not adapted to meet new market trends and requirements. In particular, the increased use of hedge funds and other sophisticated strategies required a vehicle featuring a faster approval process and a more flexible approach to the range of investor s allowed to invest in a fund.
Although not specifically designed for Private Equity the SIF Law offer s an attractive alter native to the SICAR. The SIF Law provides greater fl exibility regarding the choice of investment policy and a more flexible regulator y regime regarding a fund’s eligible assets but imposes a minimum investment diversification.
With the exception of the SIF set up in the for m of a unit trust (fonds commun de placement or“FCP”) all SIF structures are set up as corporate entities in the legal forms of S.C.A., S.A., S.à r.l. or S.C.S., the latter being closest to a limited partner ship for m resembling the UK partner ship model or the Ger man GmbH & Co KG.
Private Equity structures may, under certain specific circumstances , also be set up in the for m of Securitization.
Vehicles under the Law of 22 March 2004 and as Under takings in Collective Investments (“UCI”), qualifying under the Law of 17 December 2010.
Examples of typical structures
Luxembourg structures typically consist of either a SOPARFI, a SICAR or SIF or a combination of the latter two with one or more special pur pose vehicles . In most cases they are complemented by a limited lia bility company (“S.à r.l.”) as a General Partner.
On a case by case basis an additional (inter mediate) Luxembourg holding company can be used to efficiently structure an acquisition.
In the case of an FCP-SIF qualifying as a tax transparent structure the use of inter mediate companies is usually recommended to benefit from the double tax treaties and EU directives that companies can benefit from, unlike an FCP.
Investors' can invest either directly into the Luxembourg vehicle or indirectly via an additional Luxembourg-based or non-Luxembourg-based feeder vehicle. In the opposite sense, various cases exist where the Luxembourg vehicle is the feeder vehicle, investing in a non Luxembourg master fund.