Governance for companies and investment vehicles in Luxembourg
Luxembourg has maintained its solid reputation as a top destination for numerous investment funds. Both legal and regulatory environments are continuously being enhanced to provide investment managers with the finest resources for structuring their investments and safeguarding investors’ interests.
Protecting the fund’s investors is the primary goal of fund governance. The board must make decisions that benefit the fund itself rather than just one specific investor.
What types of collective investment vehicles are available in Luxembourg?
There are two main types of collective investment vehicles available in Luxembourg.
The first is UCI which stands for Undertakings for Collective Investment. Whatever kind of investment fund someone chooses to create, all Luxembourg investment funds have one thing in common: they’re all built as institutions that invest their assets collectively in line with the idea of risk diversification.
UCI is a pooled investment of money collected from people to invest in accordance with the idea of risk distribution.
Undertakings for Collective Investment in Transferable Securities, or UCITS, are a class of funds that adhere to the standards established by European Union rules and are thus eligible for the European Passport. This implies that UCITS, having a European Passport, can be marketed to the general public in all other European Union Member States after being approved by the regulatory entity in Luxembourg.
A Contractual Fund, also known as FCP, an Investment Company with Variable Capital, or SICAV, or an Investment Company with Fixed Capital, also known as SICAF, are just a few of the several legal forms that UCITS can take.
Additionally, UCITS must be open-ended in order for investors to exchange their interests at any time. In order to maintain the required liquidity of the investment portfolio and allow investors to redeem their shares, they are subject to strict criteria regarding the assets they can invest in as well as the diversification rules with that they must adhere.
It’s also important to remember that UCITS can be established as a standalone or as an umbrella fund with a variety of compartments, each with its own investing strategy. They are not subject to income tax, net wealth tax, or municipal business tax. There is also no withholding tax on dividend payments, with the exception of situations where the European Union Savings Directive is in effect. They do, however, pay a non-significant yearly subscription tax.
Large investments management structure in Luxembourg
A variety of arrangements are available in Luxembourg to allow undertakings for collective investment, which are governed at various levels. The fund’s investing philosophy and distribution plan typically influence the structure choices.
Three legal structures are available ‒ FCP, SICAV, and SICAV. Let’s learn a bit more about each of these.
Since the common investment fund lacks a legal entity, a fund management business is required to oversee it.
The SICAV and SICAF can be self-managed or handled by a fund management company.
By working with highly valuable and experienced board members, you can expect their expertise in managing and developing investment vehicles to work in your interests.
A board member’s and director’s mandate include several obligations:
- a proper representation of the business
- accountability for the taxes and financial statements
- pursuing the interests of the business, its stakeholders, and shareholders
For investors, this cooperation guarantees their assets’ safety and stability. For asset managers, a well-managed governance structure is key to wrangling multiple assets.
UCITS funds are limited to investing in specific asset classes and must be established in compliance with European Union regulations. Investors can buy UCITS securities in any European country in which they are allowed to sell them as well as in a number of other areas and continents, including some Asian nations, where they are legal.
The fund management structure can work in two forms:
- A standalone company that has a single investment portfolio and government.
- An umbrella company that incorporates a few sub-funds. Each of these sub-funds is allowed to plan its own investment strategy.
You can learn even more about investment companies’ fund structuring from our experts. All you have to do is sign up for a fund structuring consultation with Thales Capital Luxembourg.