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What is a Reserved Alternative Investment Fund (RAIF)

Luxembourg provides a safe and alluring investment environment for investors from all over the world. Right in the center of Europe, it poses a perfect image of financial stability, safety regulations, and a fertile environment for innovations.

Despite being territory-wise small, Luxembourg is a significant hub for investing nowadays. Aside from being a home to the most trusted and secure financial companies and regulators, Luxembourg is also a place where many investment funds operate. A prime example is RAIF, the reserved alternative investment fund.

What is RAIF?

What is a RAIF? This concept is interpreted as a reserved alternative investment fund.
RAIFs are a type of investment vehicle that offer flexibility and diverse options for investors. RAIF was introduced in 2016 as an alternative investment fund. An appropriate authority in Luxembourg does not supervise it as it is reserved for alternative investment fund structuring. This structuring designates an authorized alternative investment fund manager or AIFM ‒ regardless of the placement of AIFM in Luxembourg or other countries of the European Union.

What is the purpose of RAIF?

The purpose of the RAIF is to match the Luxembourg fund framework with the regulatory focus that shifted from product supervision and management supervision as a result of the introduction of the AIFM Directive. The requirements of sophisticated investors were addressed by the RAIF, who felt that the double supervision layer was excessive.

Because the RAIF does not require regulatory clearance, it may be more efficient when it comes to the time it takes before a certain product enters the market. Its own management solely governs the RAIF and, in this regard, gains access to the marketing passport of the AIFM for distribution to accredited investors in the EEA.

Because it may be used for a wide range of investment strategies in accordance with the plans of its AIFM, the RAIF benefits from a quick creation procedure and offers great versatility in terms of investment strategies. For example, it allows operating with real estate, hedge funds, venture capital, and other assets.

The RAIF also provides a wide variety of legal and corporate structures that can consider tax drivers, as well as flexible corporate and operational standards. Alternatively, the RAIF might be set up as either an open-ended or closed-ended fund.

How does it work?

Following the creation or incorporation of such a business, the RAIF might well be set up as a collaboration, a corporation, or an open-ended collective investment fund. When the RAIF is established or incorporated, an offering document that contains the details investors need to make an educated approach to the investment and associated risks must be in place.

The necessary RAIF service agreements must take effect as of the organization’s founding or incorporation date.

The foundation or incorporation of the RAIF must also adhere to the necessary registration requirements, such as the recording of a notarial deed and the licensing of the RAIF within the Luxembourg trade and business registry. Additionally, the list for the RAIF is kept with this registration, together with the fulfillment of the relevant registration notifications from the AIFM for management and marketing purposes.

So, what are the key features of the reserve alternative investment fund?

Qualified investors

The RAIF is only available to knowledgeable, institutional, or professional investors and anybody who fits at least one of the following criteria:

• they deposit a minimum of EUR 125000 in the RAIF;
• they have a written statement that they accept the status of a knowledgeable investor.

Additionally, qualified investors must have a certification from a lending institution, an investment business, a UCITS fund manager, or an approved AIFM attesting to their skills, experience, and knowledge to analyze the proposed investment in the RAIF properly.

The legal regime and corporate structure

The RAIF can either take the form of a common contractual fund (an FCP) or an investment company with variable capital (a SICAV). Other appropriate legal regimes include Sarl, SA, and other forms of corporate entities, as well as legal partnerships like SCS.

The umbrella structure

The RAIF can use the umbrella structure with many sub-funds, each of which corresponds to a different portion of the assets and obligations.

Minimum investment amount

A RAIF’s net worth cannot be below EUR 1250000. This requirement must be met within a year of the organization’s founding or registration.

Requirements for risk diversification

The RAIF must abide by the laws governing risk diversification but is not susceptible to investment limitations regarding the eligibility of assets covered by the certificate of its AIFM.

Most importantly, the RAIF cannot invest more than thirty percent of its net capital or the total value of the commitments of its investors in any one asset. This limitation does not include the following:

• target funds that are subject to identical risk-spreading criteria;
• assets issued or assured by an Organisation for Economic Co-operation and Development Member State, its regional or local authorities, or by European Union’s regional, or global agencies and organizations;
• infrastructure investments that profit from a weak requirement for risk diversification.

An initial period of time to given to adhere to the aforementioned risk-spreading regulations could be beneficial for RAIFs. As you can see, risk diversification regulations do not apply to RAIFs that invest just in risk capital.

Now you know what is RAIF and how it works.

FAQ

What is a Reserved Alternative Investment Fund (RAIF)?

A Reserved Alternative Investment Fund (RAIF) is a type of investment vehicle that is regulated under the Alternative Investment Fund Managers Directive (AIFMD). It is similar to a traditional Alternative Investment Fund (AIF) but with some distinct features. A RAIF can be established as a fund structure without requiring prior approval or authorization from the regulatory authorities, making it a flexible and efficient option for investment managers and investors.

How does a Reserved Alternative Investment Fund (RAIF) differ from a traditional Alternative Investment Fund (AIF)?

The main difference between a RAIF and a traditional AIF lies in the regulatory requirements. While a traditional AIF requires direct authorization and supervision by the regulatory authorities, a RAIF does not. Instead, the RAIF is indirectly regulated through the Alternative Investment Fund Manager (AIFM) responsible for its management. This setup allows for a faster and more cost-effective establishment process, as well as greater operational flexibility.

Who can set up a Reserved Alternative Investment Fund (RAIF)?

A RAIF can be established by a wide range of entities, including investment managers, asset managers, financial institutions, and private equity firms. There are no specific restrictions on the type of entity that can create a RAIF. This flexibility makes RAIFs attractive to various market participants looking to create investment funds tailored to specific strategies or sectors.

What are the benefits of investing in a Reserved Alternative Investment Fund (RAIF)?

Investing in a RAIF offers several advantages. Firstly, RAIFs provide access to alternative asset classes and investment strategies that may not be readily available in traditional investment vehicles. Secondly, they offer a high level of flexibility in terms of fund structure and investor requirements. Additionally, RAIFs benefit from the regulatory framework established by the AIFMD, which aims to enhance investor protection and promote transparency. Lastly, the streamlined setup process and reduced regulatory burden of a RAIF make it an attractive option for investment managers seeking efficient fund establishment.

Fiduciary services at the highest level

The image and success of your financial company matter most from a long-time perspective. To maintain that image and make sure it keeps up to its good name, you need someone to be responsible precisely for that.

What is a fiduciary?

The fiduciary is a trusted person or company that accepts legal commitment for duty of care and loyalty in the beneficiary’s best interests. A fiduciary must exercise extreme caution to ensure that none of those interests are endangered by conflicts of interest.

Fiduciary relationships

A number of fiduciary relationships are practiced, and the most important of them are those between a trustee and beneficiary and between shareholders and a company’s board members.

Trustee and beneficiary relationship

In a relationship between a trustee and a beneficiary, the fiduciary is the one who legally owns and manages the assets that the beneficiary trusts them.

Because the beneficiary has legitimate ownership of the property, the trustee has a duty to act in that person’s best interests.

The trustee and beneficiary relationship is crucial to thorough investment planning. The selection of a trustee should be made with special attention.

Board members and shareholders’ relationship

A shareholder who holds a majority part of a company or who has influence over its operations can occasionally be obligated to perform fiduciary responsibilities. In the event of a violation of fiduciary responsibility, the controlling shareholder and directors may be personally liable.

Fiduciary refers to something that is provided or kept in trust. Fiduciary pledges to do what’s best for the principal interests of the beneficiary.

Suitability and the fiduciary standard

Individual and institutional customers are the focus of the financial advice provided by advisors and brokers who operate for broker-dealers. They are not, however, subject to the same laws. Investment advisers interact directly with clients and are required to put their client’s interests before their own.

However, brokers know that advice is suitable only for their clients since they are working for broker-dealers.

The standard specifies that advisers must put the interests of their customers before their own, and it defines what a fiduciary is in rather concrete terms. It entails responsibility for care and commitment. For instance, advisors are barred from making deals that might result in increased fees for them or their investment companies, and they are also not permitted to purchase stocks for their own accounts before purchasing them for clients.

Additionally, it implies that advisors must make every effort to ensure that the information used to provide investment recommendations is accurate, complete, and thorough. Being a fiduciary requires avoiding conflicts of interest. Thus, advisors are required to report any such situations. In addition, advisors must execute transactions according to the best execution standard, which requires them to trade assets with the most significant possible balance of low-cost and effective execution.

Investment advisers must adhere to strict regulations. They are permitted to advise people and organizations planning their finances for retirement, paying for education, or creating their own investment portfolios.

Offering advices that are in the best interests of their clients is a vague definition of the suitability duty that broker-dealers are required to meet.

A suitability duty simply requires the fiduciary to consider that the choices they make actually benefit their customer. Some trustees feel this is unfair since it may limit their capacity to sell investment products that boost their bottom line.

Suitability also entails ensuring that all suggestions benefit the customer and that transaction costs are reasonable.

Fiduciaries are viewed as financial middlemen that assist in connecting investors to specific investments. By connecting capital with investment products, they play a crucial part in improving market liquidity and efficiency.

One task a trader like that can complete is to sell a bond from their company’s stock of fixed-income instruments. A leading broker’s source of income is the commissions received from carrying out transactions on behalf of the customer.

There also was a short-lived Fiduciary Dute Rule issued in April 2016. According to it, the range of individuals who can be considered fiduciaries in the financial and insurance industries was considerably widened.

Risks of being a fiduciary

As a fiduciary, one agrees to act as the employer’s plan’s official investment manager. As a result, this person will have to give the beneficiary monthly fiduciary reports that include decisions about investments and fund changes and any instances in which there’s a possibility to act on those decisions.

Fiduciary risk refers to the likelihood that a trustee is not acting in the beneficiary’s best interests. This implies the danger of the trustee not getting the most outstanding value for the beneficiary, but it does not necessarily imply that the trustee is utilizing the beneficiary’s resources for personal gain.

As such, breaching the fiduciary duty either with or without such intent is the primary legal risk for fiduciaries.

Other questions about fiduciary services

Fiduciary services and duties are a vast topic that can take up thousands of words. However, you can get an even better understanding of all things fiduciary through answers to the popular questions below.

What about fiduciary insurance?

A company can insure its directors, workers, and any trustees who serve as fiduciaries for qualifying retirement plans or other significant investment plans.

Fiduciary insurance coverage is designed to fill up any gaps in the standard protection provided by director’s policies or employee benefits liability. When a lawsuit occurs over alleged financial mismanagement, a delay in transfers or payments owing to an administrative mistake, a change in benefits, or incorrect investment advice inside the plan, it offers financial protection.

This is convenient for both parties in fiduciary and beneficiary relationships. The client gets insured, being confident that their investments will grow. The fiduciary remains motivated to work efficiently in the client’s interests.

What can be an example of fiduciary duty?

Particular transactions could also fall within the definition of fiduciary actions. For instance, a fiduciary duty is used to transmit property rights in a purchase where the fiduciary is required to serve as the seller’s agent in the transaction’s execution. A fiduciary agreement is valid when a property owner wants to sell but requires someone to handle their affairs because of illness, incapacity, or other reasons.

A fiduciary is prohibited from profiting financially from the sale and is legally obligated to reveal to the prospective buyer the actual state of the asset being sold. A fiduciary duty is still valid when a property owner has passed away, and their property is a component of a more extensive property that requires administration.

Why would someone need a fiduciary?

By working with a fiduciary, you can be sure that a financial expert will always prioritize your needs before your own. As a result, you won’t need to be concerned over conflicts of interest, inappropriate incentives, or pushy sales techniques.

Working with a fiduciary secures the safety of your assets while also providing them with adequate management that protects your image.

With Thales Capital Luxembourg, you can ensure your investments and properties are appropriately structured and used only for your benefit. We deliver turn-key solutions, including fiduciary services, to help you grow your investments.

How to invest through a securitization vehicle

To repackage assets into interest-bearing securities, they are pooled through the process of securitization. The interest payments on the original assets are paid to the investors who buy the repackaged securities.

When an institution creates a tradable financial instrument by combining or pooling different financial assets, such as several mortgages, the securitization process gets started. The issuer then offers investors this collection of repackaged assets. Securitization provides investors with many possibilities and releases funds for creators, both of whom encourage market liquidity.

It is possible to securitize any financial asset and transform it into a tradable and divisible thing with monetary worth. All securities essentially adhere to this description.

Nevertheless, mortgages and other assets that produce receivables, including consumer or commercial debt, are frequently securitized. Contractual debts like car loans and debt from credit card obligations may indeed be gathered together in this process.

What are securitization vehicles and investments?

The term “Securitization Vehicle” refers to a person to whom the company or its affiliates transfer securitization assets to accomplish securitizations, or securitization investments.

A securitization vehicle is also any subsidiary explicitly created for the purpose of buying securitized resources from the corporation and other subsidiaries in transactions that are meant to be true sales. This can be done by further selling those assets to another securitization vehicle.

Cash flows are produced by the securitization vehicle from investment returns. Then, in accordance with the cash flow produced by the underlying funds and properties that are being securitized, the securitization vehicle pays investors interests or earnings.

Securitization investment, on the other hand, is any asset that becomes tradable and can be pooled together with other investments in a single package.

Which securitization vehicles can be used?

The securitization vehicle can be set either as a business or as a management company-managed fund without legal personality. One of the formats below can be used by the securitization company:

• public limited liability company (usually labelled as S.A.);
• private limited liability company (S.ar.l.);
• common limited partnership (SCS);
• special limited partnership (SCSp);
• partnership limited by shares (SCA);
• unlimited company (SENC);
• simplified joint stock company (SAS);
• cooperative company in the form of a public limited liability company (SCSA).

You could have probably seen one or more of these abbreviations in the full name of some corporations ‒ now you know what these mean.

How to invest through a securitization vehicle?

Following these five uncomplicated steps, you can launch your exchange-traded product to the market and grow revenue from securitized assets.

Step one: a thorough research

Securitization can take place on a wide variety of assets. Therefore, examining each situation and providing a unique solution is essential.

After you get in touch with us, we thoroughly analyze and gather data to determine the best course of action.

Step two: signing the engagement letter

The risk management committee then moves on to research and assess the case after the structure is already established.

This is when the engagement letter is signed, which details the terms and circumstances and the range of the tasks to be carried out by Thales Capital Luxembourg.

Step three: structuring and paperwork review

Together with the client, our legal and operational teams create the paperwork necessary to set up the exchange-traded product. We go on to the asset’s onboarding step or designate a personal portfolio manager to do that.

The structure is concluded once the investment vehicle’s key documents have been written and reviewed.

Step four: the listing phase

Securitization of assets has become real at this point. Your investment plan is now rebranded as an exchange-traded product. Now, it is essential to move forward with the listing and make distribution easier.

The securities are also created, configured to meet your goals, and supported by an investing plan that serves as collateral. This is, however, an optional phase.

Step five: the trading process

The issue and listing of the product mark the completion of the asset securitization process. The time has come for its distribution ‒ this is also when the regulators step in, which is a completely new chapter for the product.

Investors can use their strategy through their brokerage accounts with a straightforward subscription purchase of the securities from a variety of custodians and banking systems. A series of different assets are made more accessible and globalized through asset securitization in order to attract more investors. A broker-dealer, for instance, can easily and safely expand its reach into global markets by developing an exchange-traded product that gives investors more access.

Banks and sustainable investment funds in 2023 – new world, new posibilities, new risks

«Fragile and unstable » – this is the global environment in which banks will have to operate in 2023, according to the recent forecast of Deloitte. The report recommends that financial institutions review their core products, services and industries to look for new sources of value. Do they have any other choice? not really, to be entirely transparent. The storm those institutions are suffering from, would be the trigger for 3.0 and 4.0 faces they will present to the world.

“Despite the fact that most banks are in a stable position, Russia’s invasion of Ukraine, the ongoing turmoil in the supply chain and in the eĸnpeĸty, persistent inflation and monetary tightening will be felt unevenly across the industry.” Deloitte stresses, predicting a “new economic order” around the world, caused by geopolitical processes, deglobalisation and the fragmentation of payment systems.

In parallel, one major antidote to the general uncertainty clearly emerges in the future – the implementation of innovative technological solutions in all banking activities.

A different environment

Retail banking will have to cope with higher prices, inflation and lower growth at least in the near future, as clients expect an expansion of the scope of banking services to include those not traditionally associated with the tourism industry such as hotel or travel bookings.

The authors of the paper point out that digital payments need to be accelerated and transformed, and that digital identity needs to be developed as a long-term guarantee against fraud.

Analysts caution that higher interest rates may increase net interest margins for capital portfolios, inflation, the melt-down of people’s savings and a potential overall financial slowdown are capable of significantly reducing profitability. In addition, banks may and very likely will find themselves forced to raise deposit rates.

Despite a loyal client base, commercial banks are likely to face a fierce competition, to gain a larger share of corporate clients’ wallets. These require digital, data-rich solutions and personalized advice. It will likely require also that banks differentiate themselves with a new model for serving clients.

In the spheres of transactional and investment banking, it is absolutely predictable that digitalisation and development of technology platforms that can provide large volumes of information at any given time, will become increasingly important. Easy piece.

In addition to analytical purposes, technology in the banking industry should also be penetrated through innovations such as cloud-based platforms, carbon trading platforms, tokenisation of financial assets and implementation of some of the achievements in the crypto area.

Only then they will be able to open up new sources of value beyond their traditional areas of work. “Some banks have started this journey, but many may fall behind,” Deloitte warns.

The U.S. dollar continues to suffer from a general decline in risk appetite at global markets, due to growing fears of recession in the United States and globally.

Inflation will deplete the financial reserves of americans and could lead to a recession around the middle of next year, the JP Morgan Chase & Co. advised last week.

Innovation is the key

Goldman Sachs estimates a 35% chance that the Fed will be able to achieve a significant slowdown in U.S. inflation without causing a recession in the economy. “At the same time, we have a reasonable assumption that we will increasingly see a recession in one form or another,” GS executives were quoted by The Wall Street Journal.

How would this situation impact the investment funds and namely the stars of the business, ESG funds? Many sustainable funds have underperformed this year, as they have been hit by exposure to technology and other sectors under the pressure of rising interest rates. Resilient american funds declined on average by 19.8% to 31st october, running behind the S&P 500 index by roughly a percent.

One distinguishing feature is emerging: elsewhere in the market, value is overcoming growth. And size does not seem to matter: small, medium and large-cap sustainable value funds are largely beating their growth-oriented peers. And this will be a tendency in 2023 too.

Sustainable funds invest in companies that earn high performance on ecological, social, and governance measures, or ESG. Seven of the top ten ESG funds in the U.S. this year are highly valuable funds, according to Morningstar Dіrесt.

The last ten funds, based on their performance, until 31st October, are growth funds. The shift in performance reflects trends in the broader extent, where value is outperforming growth by one of the largest margins in years.

Growth funds are among the worst-performing ones

The S&P 500 Value Index is down by just 4.7% this year against a 26% decline for the S&P 500 Growth Index. Many ESG funds are suffering from under-exposure to traditional energy, the best performer this year in the broader index, up 63%.

ESG funds’ mandates often place restrictions on energy investment, excluding oil and gas producers due to their role in carbon emissions. Wind and solar energy are the preferred energy sources in the ESG space.

This type of investment schemes was also undermined due to the exposure to technologies – a traditional favourite in ESG. To a larger extent, the sector is happened to be minimally responsible for carbon emissions. Whether the latter is true or not, technology is the worst performing sector with a 26% decline in the first 10 months of 2022.

“It was a double whammy,” says Hortense Bioy, global director of sustainability research at Morningstar, referring to the blows from the energy and technology sectors. A large difference is present in the performance and separates the best and worst performing ESG funds this year.

According to Morningstar Direct the two groups of best and worst-performing ESG equity funds in 2022 are as follows:

The 10 best-performing funds:

Вауwооd Ѕосіаllу Rеѕроnѕіblе / ВVЅІХ

Соlumbіа U.Ѕ. ЕЅG Еquіtу Іnсоmе ЕТF / ЕЅGЅ

Меѕіrоw Ѕmаll Соmраnу Ѕuѕtаіnаbіlіtу / МЅVІХ

Соhо Rеlаtіvе Vаluе ЕЅG / СЕЅGХ

Воѕtоn Тruѕt Wаldеn Ѕmаll Сар / ВОЅОХ

DFА U.Ѕ. Ѕuѕtаіnаbіlіtу Таrgеtеd Vаluе Роrtfоlіо /DААВХ

Quаntіfіеd Соmmоn Grоund / QСGDХ

Рrахіѕ Vаluе Іndех / МVІАХ

Gоthаm ЕЅG Lаrgе Vаluе / GЕЅGХ

ВlасkRосk Ѕuѕtаіnаblе U.Ѕ. Vаluе Еquіtу / ВЅVКХ

The 10 worst-performing funds:

ВlасkRосk Ѕuѕtаіnаblе U.Ѕ. Grоwth Еquіtу / ВЅGКХ

Раrnаѕѕuѕ Міd Сар Grоwth / РАRNХ

Сrоmwеll Тrаn Ѕuѕtаіnаblе Fосuѕ / LІМІХ

Nuvееn Wіnѕlоw Lаrgе-Сар Grоwth ЕЅG ЕТF /NWLG

Рutnаm Ѕuѕtаіnаblе Futurе / РМVАХ

Nuvееn Wіnѕlоw Lаrgе-Сар Grоwth ЕЅG / NVLІХ

Еvеntіdе Gіlеаd / ЕТGLХ

Вrоwn Аdvіѕоrу Ѕuѕtаіnаblе Grоwth / ВАFWХ

СlеаrВrіdgе Lаrgе Сар Grоwth ЕЅG / LRGЕ

Nuvееn ЕЅG Міd-Сар Grоwth ЕТF / NUМG

So, how did the top performers come out ahead? Partly by avoiding technology, sticking to selected energy industries and old-fashioned stock picking. Remember Baуwооd SосiаllуRеѕроnѕіblе, a small fund with only 8 million dollars in assets. A fund that banks call « tiny » and 95% of them would decline the project if its promoter knocks on their door. That’s a pure business development failure if a bank pushes back such a fund.

The latter ranks as the best performer among the stable of emerging market funds this year. Managed by San Francisco-based SKVA Sarital Mаnаgеmеnt, which has 1 billion dollars in assets under management, the fund is down just 2.5% by 31st August this year.

“We’re always looking for companies that are unfairly beaten down,” says Josh Rothe, the fund’s manager. This year, eight of Baywvood’s 10 largest portfolio lines beat the market. Its largest one, Atlas (ATSO), owns two businesses: one operates container carriers, the other builds power stations.

Both segments have performed well amid rising transport and energy prices, boosting the equity profits. The company accepted a private placement offer at 15.50 dollars per share in November. Texas Raffiic Lаnd (TRL) is an even bigger winner by consolidating this offer.

The company owns 880,000 acres of land in the energy, sun, and wind-rich Permian Basin in Texas, including permanent rights to energy produced on that territory. The land has become more desirable and appetizing, as companies seek to leverage their production in the low-cost West Texas region.

As a conlusion, we can strongly foreseen a correlated future for banks and funds, globally speaking, as ones can hardly exist without the others and vice versa. Economists say that when the U.S. sneeze, Europe gets sick. Hopefully this is not what we should expect in 2023, as a resilient economy and milestones have to be reached and consolidated.

Ivaylo Markov, Managing Partner of Thales Capital

In support of energy independence – ideas for new generation funds

Europe invests 3 billion euros in clean technologies and EU authorities ensure that everybody is aware of this thick amount. Is the fund industry part of that and how funds could be part of that program? Private equity vehicles could be the big winners.

The European Commission has published a call for proposals for multi-disciplinary projects under the EU Innovation Fund (the Fund). The budget, which has been doubled to 3 billion euros, will finance large-scale efforts to deploy industrial solutions for Europe’s the decarbonization.

The goal is to reduce EU’s dependence on fossil fuels

The said budget will finance the following projects:

– Total decarbonization (budget: 1 billion euros) – for innovative projects in the field of renewable energy, energy industries, energy storage or carbon capture, use and storage, substitutes for carbon-intensive transport fuels (in particular low-carbon transport fuels, including for transport by air and sea);

– Innovative electrification in industry and hydrogen production (budget: 1 billion euros) – for innovative electrification methods to replace the use of fossil fuels in industry and for the production of hydrogen from renewable sources or the penetration of hydrogen in industry;

– Clean technologies (budget: 0.7 billion euros) – for innovative products and complete equipment for electricity and fuel cells, renewable energy, energy recovery and heat pumps;

– Medium-sized pilot projects (budget: 0.3 billion euros) – for high-investment projects in critical or disruptive technologies for deep decarbonization in all pathways acceptable to the Fund. The projects should implement the innovation in an operational environment, but they will not be expected to reach the stage of a large-scale demonstration or rapid production.

The projects will be evaluated by independent assessors on the basis of their level of innovation, their potential to avoid greenhouse gas emissions, the European Commission said. In addition, their environmental, financial and technical maturity will be monitored, as well as their potential for scale-up and cost-effectiveness. Attention to green washing tentatives again! Even though the jury selection is more than ruthless.

The program is open to projects implemented in EU Member States, Iceland and Norway, with a deadline of 16 March 2023.

Projects that have not reached the required maturity level to receive a grant, may benefit from development assistance provided by the European Investment Bank (EIB).

The European Union plans to reduce its dependence on Russian fossil fuels by 2027 and increase its capacity in renewable energy. This is in line with its ambition to become climate neutral by 2050. Is this realistic and can the European Union afford it? We take stock of the situation in figures, from the Commission, as well as from Spain, the champion of solar energy, which can play the role of main horse in that internal race.

The European Union must reduce its dependence on Russian fossil fuels and tackle climate change. The European Commission has drawn up an action plan called REPowerEU, which aims to end this dependence by 2027 and includes developing and accelerating the use of renewable energy.

This plan will cost 210 billion euros and significant investments are required. This is where InvestEU, the European Union’s flagship investment program, comes in. It operates in partnership with the European Investment Bank (EIB) and has a 26 billion euros guarantee from the Union. This reassures investors and should make it possible to mobilize more than 370 billion euros of public and private funds.

Its funding focuses on four areas: sustainable investment, innovation, social inclusion and job creation, and at least 30% of it must contribute to making Europe carbon neutral.

Spain bets on solar energy with EU support

One of the goals of the REPowerEU plan is to double Europe’s solar energy production capacity over the next two and a half years. Between Valladollid and Salamanca, photovoltaic panels dominate the landscape. On site, a set of seven solar power plants has been built since 2020, thanks in part to InvestEU.

“Of course, Spain is an ideal place to build these plants because it is one of the countries with the most hours of sunshine per year,” says Silvia Alonso Guijarro, communications manager at Solaria. “These seven photovoltaic plants have a capacity of 261 MW: this means that they produce 477 GWh of electricity per year,” she adds.

This will provide electricity to more than 120,000 homes. To finance this project, it was necessary to combine public and private financing. The EIB played a crucial role in financing the project. Of the 189 million euros, it provided 54 million in the form of a loan or guarantee facility and acted as an intermediary for further 14 million.

As a result, more than a third of the total project cost was already financed. This reassured the private investors who financed the remaining 89 million euros, as Fernando Torija, Director of the EIB’s Spanish office, points out. “We are betting on the future of these companies,” he says, “so it speaks to other investors and mainly funds who may be involved in these companies, whether they are financial or equity holders, and it allows these companies to make themselves known by highlighting the quality label that the EIB gives them.”

The crisis in Ukraine has highlighted the real needs of European countries

The original goal of InvestEU was to finance both a green and digital recovery. But with the war in Ukraine and the sanctions against Russia, this type of program can also participate, today, in the effort of European emancipation from Russian gas and oil.

“Our intention is to continue developing projects,” says Darío López Clemente, chief operating officer at Solaria, before adding, “We are also working with the EIB on more financing and a wider range of projects. I think that the crisis in Ukraine has highlighted the real needs of European countries: we are totally dependent on energy sources that we do not have in Europe, we must realize the importance of energy for us and the only way to solve this situation is with renewable energy,” he said. “It is an emergency: it is not over four or five years that we must develop all these sources – it would be too slow -, we must do it in one or two years maximum,” he insists.

Since May, the European Commission has launched its REPowerEU plan, which will have to tackle non-financial obstacles such as the granting of administrative authorizations.

More concretely, on 18th May 2022, the European Commission presented its action plan to end the European Union’s dependence on Russian fossil fuels, which are used as an economic and political weapon and cost European taxpayers 100 billion euros a year, while combating climate change. Called REPowerEU, the package focuses on strengthening energy savings, diversifying supplies, and accelerating the deployment of renewable energy. In all these areas, the municipalities are in the front line.

REPowerEU aims to reduce dependence on fossil fuel imports from Russia, while accelerating the green transition. The plan focuses on energy savings and accelerated deployment of renewable energy, including the joint adoption of a European Energy Savings Plan, a European Solar Energy Strategy, a Biomethane Action Plan, and a series of measures to improve the authorization procedures for renewable projects.

The European Commission estimates that investments of about 210 billion euros by 2027 will be needed to achieve the objectives of the REPowerEU plan. At the heart of REPowerEU is the Recovery and Resilience Facility (RRF), which will have an increased budget of 20 billion euros. Member States will also have the possibility to allocate funds under the cohesion policy and the European Agricultural Fund for Rural Development (EAFRD).

In concrete terms, municipalities can contribute to REPowerEU’s objectives through multiple levers: promotion of energy savings, investments in heat pumps to replace gas boilers, development of renewable heat networks, renovation of buildings, deployment of solar panels, local production of biomethane, development of soft mobility… Municipalities can act directly on their assets and by supporting projects on their territory. Local authorities are key players in ensuring the commitment and support of citizens and companies in the energy transition. In parallel, the investment funds could be the armed arm of the whole operation, by selecting the right projects bringing the right impact.

Ivaylo Markov, Managing Partner of Thales Capital

Unregulated investment vehicle in Luxembourg

What do business partners who want to bring to life a new ambitious project, a wealthy family which wants to save and increase its savings, and an entrepreneur who has a successful investment management experience have in common? They all need an effective and convenient tool to combine their efforts and invest capital. For example, our solutions for company formation https://thalescap.com/services/company-formation-with-banking-solutions/.

Luxembourg is the largest investment center in Europe and the second largest in the world (after the USA). Luxembourg offers investors and investment managers a structure that fully matches the above criteria – an unregulated investment fund in the form of a partnership.

What are the factors determining the choice of a structure?

An investment fund is a reliable and profitable investment tool. Its main goal is to pool the capital of individual investors into a single pool for subsequent investment and multiplication, under the management of a professional investment manager (Management Company).

The term “investment fund” often refers not only to licensed investment funds but also to certain types of legal entities (for example, holding companies or different types of trusts). To choose the most suitable option, you need to carefully analyze the essence of the planned activities of the investment fund. Compare the funds operating on the market by several indicators:

1. When choosing an investment fund, an investor should look at historical returns, the management company, and the asset structure. Not the last role in this list is played by the reputation of the company.
2. As for the fund’s profitability, a potential investor should evaluate the return of the fund from the beginning of its operation – in this way you can compare the results of the fund under different conditions of the fund market. You should look at the historical average annual return since the foundation of the fund, compare this return with the average market return for this class of funds.
3. Evaluate the structure of the fund’s investment portfolio. You should look for the presence of illiquid weakly traded securities in the structure of the fund. If you cannot get any information about the securities in which the fund has invested, then it is also better to refrain from participating in it.

Finally, if you have chosen several funds with a fairly high average annual return, a reputable management company and an understandable composition of the investment portfolio, you should compare the fees and commissions that you will have to pay when buying an investment certificate or fund shares.

Key factors of unregulated investment funds in Luxembourg

Funds can be created in the form of a partnership (societe en commandite simple, S.C.S., hereinafter referred to as “Partnerships”) or a special partnership (societe en commandite spéciale, S.C.Sp., hereinafter referred to as “Special Partnerships”).

Both forms of the Fund are tax transparent. This means that the Fund is obliged to pay corporate income tax in Luxembourg itself. The taxation of the Fund’s profits is carried out directly at the level of partners – in accordance with the rules that are applied to them under the laws of the country in which they are recognized as tax residents.

The main difference between Partnerships and Special Partnerships is that Partnerships are classic legal entities, while Special Partnerships do not have independent legal personalities, i.e. do not form a legal entity.

Fund partners are divided into two types:

• investment partner (“general partner” / “GP”);
• limited partners – investors (“limited partners” / “LP”).

Individuals and legal entities from any country (both from Luxembourg and from other countries) can act as investors and managing partners.

Investors are liable for the Fund’s obligations only to the extent of their contribution to the Fund’s capital. The Managing Partner has unlimited liability and is responsible for the obligations of the Fund with all its property – from this point of view, the managing partner of the fund, as a rule, is a limited liability company, and not an individual.

From a taxation and asset protection point of view, it may be preferable for investors to structure their investment in the Fund through a Luxembourg company applying a special regime “SPF” (“société de gestion de patrimoine familial”) – family wealth management company. SPFs are exempt from corporate income tax and are specifically designed for private wealth management.

Investors can transfer any property to the Fund’s capital: money, real estate, intellectual rights, know-how, and so on. There is no minimum or maximum capital for the Fund, but in order to avoid the obligation to obtain a license from the Luxembourg Financial Regulator (CSSF), it is necessary that the amount of assets under management of the Fund does not exceed 100 million euros.

Foundations in the form of partnerships are required to prepare financial statements annually. In some cases, a mandatory audit is required. The volume of published data for Partnerships is wider than for Special Partnerships.

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Luxembourg unregulated funds practical examples

There are 3 options:

1. Simple capital pooling.

The Client puts up investors’ funds in a common pool of projects and manages them. Investors have equal shares of profit in each project. The Client acts as a managing partner and manages the assets that investors have transferred to the Fund and which have been acquired by the Fund.

The Client may also simultaneously act as an investor and invest his own funds in the Fund’s projects along with other investors.

This version of the structure is suitable for managing family assets. In this case, family members or their personal companies can act as investors. Income from all investment projects will be distributed among all investors proportionally.

2. Segregation of investors’ rights.

The Client puts up investors’ funds in various projects. You can invest in one or more projects. The investment pool for each project and related shareholder rights are segregated from other projects.

The fund invests in two parallel projects (in reality, there can be an unlimited number of them). Investors participating in project A (for example, owning and leasing commercial real estate) are not involved in project B (investing in a venture start-up) and are not liable for the risks associated with it, and vice versa. Both groups of investors contribute to the overall costs of the Fund (eg administrative costs).

3. Pooling more capital.

This structure allows you to attract additional investors (Co-Investors) to the investment project. The Fund-controlled investment SPV attracts the investments of Co-Investors in exchange for digital assets that provide the right to income from Co-Investments.

The income from the Investment Project is divided at the SPV level between the Fund and the Co-Investors who have invested in digital assets.

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FAQ

What is an unregulated investment vehicle in Luxembourg?

An unregulated investment vehicle in Luxembourg refers to an investment structure that falls outside the scope of regulatory oversight by the Luxembourg financial authorities, such as the Commission de Surveillance du Secteur Financier (CSSF). These vehicles are not subject to the same level of scrutiny, reporting requirements, and investor protection measures as regulated investment vehicles. They are often used by sophisticated investors and institutions seeking greater flexibility and freedom in their investment strategies.

What are the key characteristics of unregulated investment vehicles in Luxembourg?

Unregulated investment vehicles in Luxembourg typically exhibit the following characteristics:

Limited regulatory oversight: Unlike regulated investment vehicles, unregulated vehicles face fewer regulatory constraints and reporting obligations. This allows investors and fund managers more flexibility in structuring their investments and strategies.

Diverse investment strategies: These vehicles often pursue a wide range of investment strategies, including alternative investments such as private equity, venture capital, hedge funds, and real estate. They can invest in complex instruments and engage in riskier activities not permitted for regulated funds.

Limited investor protection: Investors in unregulated vehicles have less regulatory protection compared to regulated funds. They often require a higher level of sophistication and risk tolerance, as there may be limited transparency, disclosure, and oversight mechanisms in place.

Who typically invests in unregulated investment vehicles in Luxembourg?

Unregulated investment vehicles in Luxembourg are commonly targeted at sophisticated investors, such as institutional investors, high-net-worth individuals, family offices, and professional investors. These investors often have a deeper understanding of complex financial products, a higher risk appetite, and the ability to bear potential losses. They are attracted to the flexibility, customization options, and potentially higher returns offered by unregulated investment vehicles.

What are the potential benefits and risks associated with investing in unregulated vehicles in Luxembourg?

Potential benefits of investing in unregulated vehicles include:

1. Flexibility and customization: Investors can tailor investment strategies to their specific objectives, allowing for greater control and potential for higher returns.
2. Access to alternative investments: Unregulated vehicles provide opportunities to invest in alternative asset classes, such as private equity and hedge funds, which may offer diversification and potential for enhanced returns.

However, there are also risks to consider:

• Lack of regulatory oversight: Unregulated vehicles operate with less regulatory supervision, increasing the potential for fraud, misconduct, and insufficient investor protection.
• Higher risk and volatility: The pursuit of more complex and risky investment strategies may result in increased volatility and potential losses.
• Limited liquidity: Unregulated vehicles often have longer lock-up periods, making it difficult for investors to exit their investments in the short term.

It is crucial for investors to carefully evaluate the risks and rewards associated with investing in unregulated vehicles and seek professional advice before making any investment decisions.