The introduction of the new amended SIF law on March 26, 2012 and its forthcoming alignment to the Alternative Investment Funds Managers Directive (“AIFMD”) is expected to bring huge rewards for Luxembourg's fund industry and its fastest growing fund vehicle - the SIF. Asset Management experts Johnny Yip and Nicolas Hennebert, from Deloitte Luxembourg, explain why these regulatory changes can only spell good news for the Luxembourg Funds industry.

Luxembourg's reputation as a major financial center (it's the world's second largest fund domicile) is well established, largely thanks to the success of the UCITS brand and its cross border distribution. Since 2007, a new successful fund vehicle is boosting the Luxembourg fund industry: the Specialised Investment Funds.

Opening the door of innovation

SIFs are unique vehicles which invest in actively managed portfolio of assets. And here, the definition of assets goes beyond the usual portfolio of securities and expands to a wide range of eligible investments such as funds of funds, alternative investments (hedge funds or funds of hedge funds), real estate and private equity and other tangible assets (infrastructure debts, structured products, tailor-made assets portfolios, etc.).

Designed for well informed investors (institutionals, professionals of the financial sector and high net worth individuals) investing a minimum of 125,000 euros, SIF s are widely considered to have opened the door of innovation to the world of regulated asset management vehicles.

“Each month 10 to 20 new SIF are created in Luxembourg and more than 1,400 SIF have been launched since the introduction of the SIF law,” said Nicolas. Assets under management are in excess of 250 billion euros and continuously growing. Altogether some 400 SIF promoters are in operation and the vehicles are administered through more than 75 central administrations and custodian banks.

With the recent regulation update on SIF and its coming alignment to the AIFMD, experts Johnny Yip and Nicolas Hennebert, who have headed up a SIF Task Force at Deloitte Luxembourg, believe it will continue attracting new promoters, new products and new service providers.

Luxembourg ahead of the game

Both experts believe that this growth will be further fuelled by Luxembourg's new modified regulations on SIF, which aim to make the vehicles ready for the Alternative Investment Fund Managers' Directive, EU legislation to develop a European single market for Alternative Investment Funds Managers and Funds, among other things.

Under the new modified SIF law, the major changes affecting SIF cover:

• the activities of the vehicles dedicated to active portfolio management performed by a regulated asset manager;

• the pre-approval of the Luxembourg regulator, the CSSF, before the launch of the vehicle;

• the authorisation to produce constitutional documents in English only where it was not possible previously;

• the disclosure and supervision of delegated activities;

• the setup of risk management and conflict of interest policies and appropriate monitoring;

• the reporting requirements and timing towards the investors and the CSSF.

Challenging times

Naturally though, implementing those changes will not be without its challenges as the SIF market is driven by all size houses that will each have to adapt to those new requirements. “We are confident the Luxembourg market will adopt and adapt those regulatory changes quickly, and our SIF taskforce is already helping our clients in that field!” said Nicolas and Johnny.

Concluding, the two experts believe that the introduction of the new SIF law, the forthcoming AIFMD new regulatory framework coupled with the well-known organisation and flexibility of the Luxembourg Asset Management industry, its skilled workforce and proven cross-border experience in the UCITS world, will further enhance the development of the SIF industry going forward.