CHEVALIER & SCIALES

the specialized investment fund (sif)

§
client memorandum investment management
 client memorandum sif

summary

The implementation of the UCITS III directive

in the Grand Duchy of Luxembourg lead to
the abrogation of the existing legal framework
for undertakings for collective investment (i.e
the law of 30 March 1988 on undertakings for
collective investment) and the need to create,
before the end of the transition period, 13
February 2007 a new regulation, in particular,
for institutional investors.

On 13 February 2007, a law introduced a

new investment vehicle: the specialized
investment fund (“SIF”) (the “SIF Law”). The
SIF Law provides a more flexible framework
for specialized investment funds in the Grand
Duchy of Luxembourg by comparison with
institutional funds created under Part II of the
Law of 20 December 2002 on undertakings
2
for collective investment (the “2002 Law”)
and broadens the investor base. The SIF is a
lightly regulated and tax efficient fund. The SIF
gives fund promoters an on shore alternative
to consider (as compared to traditional offshore
jurisdictions such as Cayman and BVI) when
deciding on the jurisdiction for setting-up a fund
and the type of fund vehicle to use.

This publication has been prepared by the law firm Chevalier & Sciales and is for general guidance only. The contents
hereof are not intended to constitute legal advice and do not substitute for the consultation with legal counsel required
before any actual undertakings.

© 2010 Chevalier & Sciales

 client memorandum
i. key features
(a) large range of eligible investors
• The SIF Law offers a broader field of
application compared to the law of 1991
concerning institutional funds which it replaces
(the “Law of 1991”). Even though it is also
reserved to certain investors only (the Law of
1991 only concerned institutional investors),
there is a wider range of eligible investors,
which are included in the notion of well-informed
investor. These conditions are not applicable to
the directors and other persons who intervene
in the management of SIFs:
- Institutional investors;
- Professional investors; and
- Investors who confirm formally that they
adhere to the status of well-informed investors
and either invest a minimum of EUR 125,000
or benefit from an assessment made by
a credit institution within the meaning of
Directive 2006/48/EC, an investment firm
within the meaning of Directive 2004/39/EC or
a management company within the meaning of
Directive 2001/107/EC certifying their expertise
and knowledge to adequately appraise the
contemplated investment and the risk thereof.
Therefore, the SIF Law introduced a new
type of investors in addition to institutional
and professional investors opening the SIF to
a larger number of investors. Such qualifying
investors accept or require a lower level of
protection as a result of their status, experience
or special acknowledgement of the risks they
incur by investing into a SIF.
(b) investment flexibility
• Large scope of eligible assets and
investments are permitted in a SIF as any type
of asset can be integrated into the SIF and any
type of investment strategies can be pursued.
It includes but is not limited to equities, bonds,
derivatives, structured products, real estate,
hedge fund and private equity investments;
• The approach to risk spreading as compared
to other UCIs is more flexible. On 3 August
© 2010 Chevalier & Sciales
sif
2007, the CSSF issued a circular letter 07/309
(the “Circular”) containing regulatory guidelines
on the concept of risk-spreading.
In general, the CSSF considers that the risk-
spreading principle is complied with where the
investment restrictions of a SIF adhere to the
following guidelines:
1. In principle, a SIF may not invest more than
30% of its assets or commitments to subscribe
securities of the same type issued by the same
issuer. This restriction does not apply to:
- Investments in securities issued or guaranteed
by an OECD Member State or its regional or
local authorities or by EU, regional or global
supranational institutions and bodies;
- Investments in target UCIs that are subject
to risk-spreading requirements at least
comparable to those applicable to SIFs. For the
purpose of the application of this restriction,
every sub-fund of a target umbrella UCI is to be
considered as a separate issuer provided that
the principle of segregation of liabilities among
the various sub-funds vis-à-vis third parties is
3
ensured.
2. 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
representing more than 30% of its assets.
3. When using financial derivative instruments,
the SIF must ensure, via appropriate
diversification of the underlying assets, a
similar level of risk-spreading. Similarly, the
counterparty risk in an OTC transaction must,
where applicable, be limited having regard to
the quality and qualification of the counterparty.
In principle, these guidelines apply to all
SIFs. The CSSF may grant exemptions upon
appropriate justification (in practice not above
a 40% limit). Moreover, in case of specific
investment policies, the Luxembourg regulatory
authority (Commission de Surveillance du
Secteur Financier or CSSF) may require the
SIF to comply with additional investment
restrictions.
 client memorandum
(c) light supervision
• The SIF must be approved by the CSSF;
• The directors of the SIF must be approved by
the CSSF. However the promoter and investment
manager do not need to be approved by the
CSSF. The promoter does not need to prove its
financial ability to the CSSF by comparison to
UCITS;
• The SIF can start its activity before the CSSF
has granted approval, provided the request for
authorization is filed with the CSSF within one
month after the SIFs incorporation;
• A Luxembourg depositary bank,
administrative agent and auditor must be
appointed. However the role of the depositary
bank has been reduced. It does only need to
have knowledge at any time of how the assets
of the SIF are invested and where and how
these assets are available. The depositary bank
does not need to perform any monitoring duties
as it is the case with other Luxembourg mutual
funds (for instance ensuring that the sale, issue,
redemption and cancellation of units effected
4 are carried out in accordance with the law and
the articles of incorporation; ensuring that the
income of the fund is applied in accordance
with the management regulations or the articles
of association; etc.).
(d) flexible organizational structure
• A SIF can be created under different forms: a
FCP (fonds commun de placement (contractual
type of fund), a SICAV (corporate type of
fund) or any other legal form available under
Luxembourg law;
• Another originality of the SIF Law concerns
the capital requirement: the amount of EUR
1,250,000 must be reached within the 12
months following the authorisation by the
CSSF, compared to 6 months as for other UCIs,
governed by the 2002 Law;
• No debt-equity ratio must be respected;
• No issue, redemption or distribution
restrictions. However the net assets or the
capital may not fall below EUR 1,250,000;
© 2010 Chevalier & Sciales
sif
• Valuation of the assets based on fair value;
• No semi-annual report required (only an
annual report);
• No obligation to publish the net asset value.
(e) efficient tax regime
• An annual subscription tax of 0,01% on
the net asset value (calculated at the end of
each quarter) which is lower than the 0,05%
subscription tax applied to most other UCIs;
• No corporate income tax;
• No wealth tax;
• No capital gains tax for non-resident
investors;
• VAT exemption on management fees;
• Choice between tax transparent SIF (set-up
in the form of an FCP) or non tax transparent
SIF (set-up in the form of a SICAV).
(f) disclosure of required documents
• An annual audited report and an offering
document must be issued by the SIF. The
offering document must include the information
necessary for investors to be able to make an
informed judgment of the investment proposed
to them and, in particular, of the risks attached
thereto;
• No minimum requirements in relation to
the content of the prospectus. Nonetheless,
it is recommended that the offering document
meets all legal requirements imposed on by
prospectuses;
• SIFs are exempt from the obligation to
consolidate their accounting.
ii. conclusion and summary
of key advantages
• On shore profile;
• The SIF can be created prior to its approval;
• No requirement for approval of the promoter
 client memorandum sif

and investment manager;

• No obligation to publish the NAV;
• Large eligible investor base - no minimum
capital requirement (if conditions of the notion
of eligible investors are met);
• Fast time-to-market;
• No local directors required;
• Units / shares of SIF can be listed on a stock
exchange.

© 2010 Chevalier & Sciales

 client memorandum sif

for further information please contact:

olivier sciales , partner

Email: oliviersciales@cs-avocats.lu

rémi chevalier , partner

Email: remichevalier@cs-avocats.lu

www.cs-avocats.lu

CHEVALIER & SCIALES

LUXEMBOURG DUBAI
51, route de Thionville Twin Towers
L-2611 Luxembourg Bldg. Baniyas Road,
Luxembourg Deira, Dubai,
P.O. Box 4404, Office
Tel : +352 26 25 90 30 #217, 2nd Floor,
Fax : +352 26 25 83 88 United Arab Emirates

Tel: +971 4 2937033

Fax: +971 4 2088699

www.cs-avocats.lu

© 2010 Chevalier & Sciales