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A specialized investment fund or SIF is a type of investment fund governed by the Luxembourgish law of the 13th February 2007 replacing the law of 1991 defining the legal framework for institutional funds and enlarging the distribution scope to "informed investors". The SIF law significantly simplified the rules for setting up investment fund structures ranging from straight forward investment strategies investing in listed securities to hedge funds, real estate and private equity funds.
Characteristics[]
Legal Structures[]
The SIF may be structured as a SICAV, a SICAF or a contractual form, which must have a management company (FCP).. A SICAV or a SICAF can be set up as a public limited company (SA), a partnership limited by shares (SCA), a private limited liability company (S.àr.l.) or a cooperative organized as an SA.
These different entities may create sub-funds each with a different investment policy. The rights of investors and of creditors concerning a sub-fund or which have arisen in connection with the creation, operation or liquidation of a sub-fund are limited to the assets of that sub-fund (i.e. Protected Cell Concept), unless a clause included in the constitutional documents provides otherwise.
Eligible Investors[]
A fund created under the SIF Law may be sold to “well-informed investors”. According to the SIF law a well-informed investor is:
- an institutional investor,
- a professional investor,
- Any other type of investor who has declared in writing that he is an "informed investor" and either invests a minimum of €125,000 or has an appraisal from a bank, an investment firm or a management company.
Diversification[]
The Luxembourg regulator (CSSF) issued a circular letter 07/309 on 3 August 2007 containing guidelines on the principle of risk spreading and investment restrictions for SIF vehicles:
- In principal, a SIF cannot invest more than 30% of its assets or commitments to subscribe to securities of the same nature issued by the same issuer. However, this restriction does not apply to investments in securities issued or guaranteed by an OECD Member State or its local authorities, supranational institutions or organizations. Furthermore, it is not applicable to target UCIs, which are subject to risk diversification principles that are at least comparable to those relevant to SIFs.
- Short sales may not, in principle, result in the SIF holding a short position in securities of the same type, issued by the same issuer and representing more than 30% of its assets.
- When using financial derivative instruments, the SIF must ensure, through an appropriate diversification policy of the underlying assets a comparable level of risk spreading. Similarly, the counterparty risk in an OTC transaction must, when applicable, be limited having regard to the quality and qualification of the counterparty.
Investment Restrictions and Leverage[]
The SIF Law does not specify any detailed investment restrictions or leverage rules. It simply states that a SIF should apply the principle of risk diversification.
The CSSF may provide exemptions from these restrictions on a case-by-case basis. However, the CSSF may also request that additional restrictions are adhered to, in cases of funds with specific investment policies.
Minimum Fund Size and Dividends[]
The minimum fund size that must be reached within 12 months of inception has been set at €1.25 million.
Issued shares of a SICAV must be fully subscribed, but only 5% of the amount of the subscription must be paid up in cash or by other means of contribution. This facilitates structures such as private equity funds to make capital call over a period of time.
There are no specific restrictions on the payment of dividends. Nevertheless, such payments may not result in the size of the SIF falling below the minimum level of €1.25 million.
Valuation of the Assets[]
Unless otherwise provided for in the issuing document, the valuation of the assets must be based on fair value, determined in accordance with the procedures laid down in the management regulations (FCP) or articles of incorporation (SICAV-SICAF).
Duties and Taxes[]
The CSSF filing duty is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF. The CSSF annual fee is fixed at €2650 for a single compartment SIF and €5000 for a multiple compartment SIF.
An annual subscription tax of 0,01% on the net asset value (NAV) has to be paid to the Luxembourg government.