Eternity Law International News Overview of a Luxembourg investment fund: main peculiarities

Overview of a Luxembourg investment fund: main peculiarities

August 26, 2022

An EU member-state, Luxembοurg is an essential hub with a highly developed regime for investments. With over EUR 5,5 billion in managed net assets, the jurisdiction is the biggest financial hub in the EU and the world’s 2nd ranked after the USA. This is the world’s biggest distribution hub for mutual contribution schemes, with its funds proposed in 65+ countries across the globe: Luxembourg investment fund has a lion’s share in both the institutional and retail markets in EU, and is a first-choice instrument in many Asian, Latin American and Middle-East territories.

Overview of the sector of finances

In this country, the firms for mutual money contributions are under the remit of the Supervisory Commission regulating the sector of finances. It should be mentioned that the financial domain is the most representative for the country’s GDP, as it constitutes 25% of the total GDP indicators.

Strong positions of this jurisdiction in the international financial industry are due to implementation of 3 simple concepts: transborder focus, transparency and stability. Being an AAA-rated economy, the country has proper public finances and political stability. Over the time, this backdrop has gathered thousands of investment firms and financiers, who mutually contribute best of the best comprehension and skills to the foreign players, whether they operate from Luxembοurg or other country. The business-friendly framework of the jurisdiction provides a broad variety of investing options, and, in particular, builds on the strength of 3 pillars: responsible investments, UCITS funds, and alternatives.

The most often set-up kinds of funds in the jurisdiction

As already mentioned, the most widely used types of funds are as follows:

  • alternatives, which can be formed as hedge funds,and many other opportunities are also available in this regard;
  • sub-funds– they are formed as umbrella instruments the core feature of which is that the investing parties canapply many investing strategies simultaneously;
  • UCΙTS(funds for mutual contributions in bonds and related instruments which are regarded as the safest instruments) – for the first time, legal framework for this type of contribution was introduced in Luxembοurg, making this jurisdiction a pioneer in this domain;
  • funds for mutual contributions– these are in the remit of the law famous as the UCI Law.

Organizational and legal forms for funds

Nonresident business people can organize their funds in one of several organizational and legal forms with different features and conditions when forming a vehicle as funds for mutual investing. Hence, the investing parties may decide on such variants of legal entity forms as:

  • the common funds – that is not a legal person;
  • the investment firms the resources of which are fixed – these can have 3 business forms, including the PLC;
  • the open-ended investment firms, where partners are in charge of their contributions.

Additionally, there are other mutual funds for investments:  for example, risk investing or specialty investing options can also be organized, although they are generally used by financiers with broad experience given the high risks.

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