Luxembourg Private Asset Strategies: Operational Insights that Matter

As a fund domicile, Luxembourg offers managers plenty of advantages: Its location within the European Economic Area makes the Grand Duchy a natural fit to access capital from the institutional investors in the region.  Private asset funds are among those looking to set up shop in the domicile, with the region’s pensions, endowments and the like receptive to the value and returns offered by the asset class.  An experienced service provider can help fund managers steer course when setting up in the jurisdiction throughout each stage of the process.

For fund managers, charting new territory can prove to be a balancing act.  Luxembourg offers managers a sensible regulatory environment that is complemented by the stability of the EU, as well as the economic bloc’s own regulatory guideposts.  Nonetheless, establishing funds, honing investment strategies and raising capital necessitates decision-making and forging key partnerships.  All the while, those functions such as staying within regulatory guidelines and structuring funds, even though they take place in the background, are critical.

Asset managers looking to set up in Luxembourg need to strike a balance of making inroads in their jurisdiction of choice while continuing to satisfy the fundamental requirements of fund operations and governance.  Failing to meet those standards can add unforeseen costs, fines, risks and time to market.  An adviser familiar with the rules of a new jurisdiction can guide fund managers past these potential obstacles and create operational and regulatory scaffolding to make for a successful fund launch and beyond.

A checklist for private asset fund managers to consider when launching a fund

• Launching a private asset fund can require coordination with regulators, stakeholders, advisors and service providers.  Especially when setting up in a new domicile, general partners (“GPs”) can benefit from a third-party service provider with the experience necessary to know what goes into a successful fund launch.  Typically, these services entail:
• Across the Maples Group, we can review all relevant paperwork to verify that agreements are in place and regulatory measures have been satisfied;
• Assessing legal documentation and limited partnership agreements, including from a fund operational standpoint;
• Ongoing coordination among regulators, fund managers, custodians, auditors and any other key stakeholders;
• Full third-party alternative investment fund manager (“AIFM”), which can provide services to a full range of asset classes, including private assets;
• Full fund administration and client / fund accounting services, including establishing the general ledger;
• Reporting functions using integrated technology that can be tailored to the needs of general partners and limited partners (“LPs”);
• Handling due diligence and compliance requirements such as anti-money laundering (“AML”) and Know Your Client (“KYC”) verification, including on LPs.

AML / KYC services for private credit fund managers in Luxembourg and the EU

Luxembourg, as a top jurisdiction for alternative investment fund domiciling and formation, has a thorough regulatory structure in place.  Among such rules is the Law of 12 November 2004, which lays out requirements on AML / counterterrorism (“CTF”) and covers all investment vehicles.  Supervised investment funds are also subject to the implementation of the EU AML Directives and additional guidelines set out by respective regulatory bodies.  In helping our private assets clients remain compliant with Luxembourg law, we offer a set of services that can be tailored to managers’ needs:

• Provide an experienced and suitably qualified AML professional to act as the “Responsible du contrôle du respect des obligations” (“RC”), money laundering reporting officer (“MLRO”) or deputy MLRO;
• Deliver / facilitate AML training;
• Identify investors in accordance with applicable AML requirements;
• Obtain and retain appropriate Know Your Client documentation;
• Upon appointment and on an annual basis, conduct a comprehensive assessment of an entity’s AML / CTF policies, procedures and risk framework and propose amendments;
• Periodically conduct a comprehensive assessment of relevant service providers, AML policies and procedures, and prepare a report outlining the results of our assessment;
• Act as an ongoing liaison with local regulators, competent authorities or other regulatory or investigative agencies;
• Provide updates on developments in the legal and regulatory environment, including AML / CTF best practices; and
• Provide annual AML reporting to evaluate the AML / CTF framework and effectiveness of controls.

What private asset managers in Luxembourg should know about AIFM services

Fund managers looking to raise funds from professional investors in the European Economic Area (“EEA”) are subject to the Alternative Investment Fund Managers Directive (“AIFMD”) regulatory framework. AIFMD rules cover transparency and distribution of alternative assets, including to whom those asset classes can be sold and who can sell them.  Specifically, any alternative investment fund (“AIF”) or AIFM from outside of the EU looking to market within said economic bloc fall under the rules of the National Private Placement Regime (“NPPR”).  This set of regulations applies on a country-by-basis, with some jurisdictions having more stringent rules than others.

EU-based AIFs with an EU-based AIFM can avail of a pan-EU marketing passport which can, however, simplify marketing to multiple EU countries.  Non-EU fund managers looking to avail of the EU marketing passport need both an EU-authorised AIF and an EU-based AIFM.  A third-party AIFM offers a ready solution to those fund managers that might lack the scale or desire to set up an EU-regulated AIFM on their own.  The ideal third-party AIFM should be a skilled service provider with firsthand knowledge of the capital raising and alternative asset management environment across the EU, including Luxembourg. Maples Fund Management Ireland (“MFM”) is a fully authorised AIFM and Undertakings for Collective Investment in Transferable Securities (“UCITS”) Management Company, or ManCo, providing a full suite of AIFM services in Ireland and Luxembourg.

A third-party AIFM can assist with each stage of the distribution cycle, from pre-marketing (before a fund is authorised) through to the marketing and fund registration phase.  At a minimum, a partner needs to be able to provide strong knowledge and guidance, but may also provide solutions and assistance with the following:

• Assistance with pre-marketing to gauge investor interest;
• Chaperone services, in which the AIFM contacts and sets up meetings with potential investors;
• Distribution support;
• Distributor due diligence if a third-party distributor is appointed;
• Registration of fund in regions where required;
• Appointment of local representatives and paying agents where required; and
• EU facilities agent appointment where required.

Private asset and EU domiciling: The Maples Group experience

The EU market offers fund managers vast opportunities for capital raising and expanding their footprint and brand.  The Maples Group is a longstanding partner to the world’s leading asset management firms.  Bringing some 60 years of tested experience, we work with nine of the 10 world’s largest private assets managers.

We were recently appointed by a major asset management firm to provide KYC assistance when launching their latest private credit strategy fund.  Domiciled in Luxembourg, the fund seeks to build on the success of its predecessor fund, employing an active management strategy in selecting credit opportunities.  The team at the Maples Group is providing a host of services to this fund, including KYC / AML support for their most important LPs.

In addition to fund administration and compliance / regulatory services, the Maples Group provides a suite of client services spanning middle- and back office, fiduciary, and regulatory and compliance and legal services.  We can provide support for the entire lifecycle of a fund, from legal setup, through to regulatory guidance, along with full fund servicing capabilities, including AIFM / ManCo offerings.  We also offer a broad complement of fund support services, including advisement on fund structuring for capital raising, company secretarial and board support, entity formation and global registration services.

With staffing and offices across multiple time zones, the Maples Group brings stability, round-the-clock service and global experience to the client experience.  When a new client joins us, we take a collaborative approach, sitting down with the client to discuss goals and needs.  From that conversation and future touchpoints, we develop a service solution customised to each client’s needs.  As the fund in question develops, we can draw from our extensive in-house resources and recommend legal, fiduciary and fund administration services as the need arises.  Each client is assigned a single point of contact for the duration of the relationship, ensuring ease of communication.

Luxembourg and the European market offer great opportunity for growth and access to what are among the world’s foremost institutional investors.  The team at the Maples Group can make this move a smooth journey to success.

For legal and regulatory disclosures please visit: maples.com/legal-notices.