Do you want to set up a UCITS investment vehicle in Luxembourg?
What is UCITS?
UCITS are pooled investment schemes, otherwise known as investment funds or mutual funds, which meet the criteria laid down under EU Directives applicable in the field. UCITS benefit from a “European passport” which permits the underlying shares
or units to be offered for sale throughout the European Union following authorisation of the fund in one Member State. A promoter of an LU UCITS must be a regulated entity with sufficient financial resources.
The Objective of UCITS
A UCITS has three main objectives :
- Investing collectively in funds in order to diversify investment risks and to benefit from the results of the asset management.
- Conducting activities throughout the European Union and the European Economic Area (EEA) through its “European passport”, meaning that once UCITS is authorised in one EU member state, they can be sold in any other EU member state without the need for additional authorisation. That’s why UCITS can be easily marketed throughout Europe.
- Allow a broad investor base, with no investor restrictions (such as qualified investor restrictions). Certain types of investment vehicles have minimum investment requirements of € 125, 000. This is not the case with an UCITS in Luxembourg, a vehicle open to private investors, who may invest more modest amounts.
Due to the necessity to comply with a common European standard, UCITS are now regarded globally as very well regulated funds, with robust risk management procedures, a strong
emphasis on investor protection and coming from a stable environment.
They provide much liquidity to investors since no minimum holding period is required. Investors benefit from some detailed risk management framework that ensures a minimum level of diversification and limits exposure to leverage and third parties.
Furthermore, UCITS give access to a broader investor base because the management Company and the Custodian are directly accountable to investors, regardless of whether they have delegated their duties or not, which favors investor engagement without the limitations of a domicilian fund regime.
UCITS Legal Basis
UCITS operations are regulated under the Law of 17 December 2010 on undertakings for collective investment. An UCITS Luxembourg may be established in a legal form of a common fund (FCP – Fonds commun de placement) or as an investment company (SICAV – Société d’investissement à capital variable or a SICAF – Société d’investissement à capital fixe). A FCP has no legal personality and must therefore be managed by a management company.
A SICAV/SICAF can either appoint a management company or designate itself as “self-managed”. The Law of 2010 differentiates between:
- management companies managing UCITS;
- other management companies of Luxembourg UCIs;
- management companies other than those authorised by the competent authorities of another Member State, from a Member State or third countries;
- exercising activities of a management company through multilateral development banks.
These different entities may be set up as a single fund or as an umbrella fund consisting of multiple compartments, each with a different investment policy.
UCITS Fund Authorisation
A UCITS fund must be authorised by the CSSF before it can start its activities. In this respect the fund has to submit the following documents and information to the Luxembourg supervisory authority:
- articles or management regulations,
- prospectus and key investor information document as well as main agreements with service providers,
- directors of the fund or managers of the management company,
- choice of a depositary bank and an auditor,
- promoter’s experience and financial soundness.