The ability of Chapter 15 management companies to manage FCP-RAIFs was controversial due to diverging readings of the RAIF Law. Also, the RAIF Law did not expressly provide for the possibility of conversion of an FCP-RAIF into the form of a SICAV-RAIF. Both of these have now been expressly confirmed in an omnibus law of 16 July 2019 (the Omnibus Law)1.
Confirmation that UCITS management companies can manage FCP-RAIFs
Article 8 of the RAIF Law provided in its original version that an FCP-RAIF must be managed by a Luxembourg management company ‘meeting the conditions referred to under article 125-1 or 125-2 of the law of 17 December 2010 on undertakings for collective investments, as amended’ (the UCI Law). This was understood by some market players as requiring management companies of FCP-RAIFs to be expressly authorised pursuant to article 125-1 or 125-2 of the UCI Law (i.e. as Chapter 16 management companies), whereas most market players read the provision in a way that the management company had to merely comply with the conditions of those articles.
The first reading led to the rather odd conclusion that UCITS management companies governed by Chapter 15 of the UCI Law (so-called ‘UCITS management companies’), while being able to manage FCPs governed by other fund laws (UCITS, Part II UCIs and SIFs), were not permitted to act as management companies of FCP-RAIFs. Further, UCITS management companies that held an additional AIFM authorisation (so called ‘Super ManCos’) were – and this is free of any doubt – able to act as external AIFMs of FCP-RAIFs, but not as management companies of the same structure
according to a strict reading of article 8 of the RAIF Law.
The second, more liberal and pragmatic approach, relied on the fact that UCITS management companies are at least as regulated as Chapter 16 management companies and thus comply with the conditions of article 125-1 or 125-2 of the UCI Law. There was no objective justification to exclude UCITS management companies from the management of FCPRAIFs. It was rather a technical imperfection of the original RAIF Law.
These diverging views understandably led to uncertainties in the market. The Omnibus Law puts an end to the controversy by amending the RAIF Law to clarify that FCPs can be managed by Luxembourg management companies authorised under Chapter 15, 16 or 18 of the UCI Law. However, it should be stressed that – as was the case under the original RAIF Law – the management company of an FCP-RAIF must always be a Luxembourg management company. It is therefore (still) not possible for non-Luxembourg AIFMs to take on this role. Non-Luxembourg AIFMs wishing to manage FCP-RAIFs will always have to interpose a Luxembourg management company which may then be able to appoint a non-Luxembourg AIFM as an external (authorised) AIFM.
Conversion from FCP-RAIF into SICAV-RAIF
Contrary to the UCI Law2 and the SIF Law,3 the RAIF Law was silent on the change of legal form from FCP-RAIF into SICAV-RAIF.
Since the adoption of the Omnibus Law, it is clear that an FCP-RAIF can be converted into a SICAV-RAIF, subject to a two-thirds majority being reached at a general meeting of unitholders and regardless of the portion of capital represented. However, the new provision only clarifies the conditions upon which the conversion is authorised but not the conditions under which the conversion should operate. Since the law is silent (and there is no generally applicable regime) as to the legal continuity of the entity and thus of the continuity of existing agreements entered into by the FCP-RAIF, the reasonable conservative view would be that: (i) the transformation triggers or implies the incorporation of a new legal entity with legal personality, similarly to what is provided for in respect of the conversion of an SCSp into a company with legal personality; and (ii) it is advisable to novate or reiterate existing agreements. Unitholders who would be called to vote on this type of transformation should also assess the potential impact on their taxation.
Immediate application
The Omnibus Law was published on 18 July 2019 in the official gazette and entered into force on 22 July 2019.
Footnotes
- While the Omnibus Law primarily aims at implementing certain EU regulations (the EuVECA Regulation, the EuSEF Regulation, the ELTIF Regulation, the MMF Regulation and the Securitisation Regulation), it also addresses these controversial issues.
- See article 180 (2) of the UCI Law.
- See article 70 (2) of the SIF Law.
