The COREDO team has implemented dozens of structures in Luxembourg, the Czech Republic, Cyprus, Estonia, the United Kingdom, Singapore and Dubai. When entrepreneurs and chief financial officers from Europe, Asia and the CIS come to me with the task of quickly and cleanly launching a fund for professional investors, we often choose the Reserved Alternative Investment Fund: RAIF Luxembourg. It is a tool that combines private-market flexibility, AIFMD compliance, tax efficiency and predictable RAIF fund launch timelines.
Why a RAIF in Luxembourg is advantageous
Luxembourg provides a stable legal environment and predictable law and regulation for RAIF. The RAIF was established by Luxembourg’s 2016 RAIF Law; at the same time the fund does not require direct supervision by the CSSF: the CSSF’s role and oversight are exercised through a licensed management company — an AIFM for the RAIF — which significantly speeds up RAIF registration in Luxembourg and the first closing. This structure allows use of the AIFMD passport for cross-border distribution of the RAIF and marketing the RAIF in the EU to professional investors.
In our practice COREDO uses the launch of a Reserved Alternative Investment Fund for private equity deals in Central and Eastern Europe, direct real estate funds (core/core-plus, value-add) and hedge strategies involving derivatives. The flexibility of the investment mandate and the rapid time-to-market save months and directly support raising AUM.
Regulatory framework: what you need to know
RAIF is managed by an external AIFM authorized in the EU; this is the AIFMD compliance “anchor” for the RAIF. The manager assumes risk management and portfolio management, liquidity control, conflicts of interest policy and the RAIF’s ESG and SFDR compliance. The professional investor requirement precludes retail distribution: the RAIF is intended for well-informed and professional investors under MiFID; RAIF minimum investment thresholds typically start at EUR 125,000, and, upon competence certification, at the AIFM’s discretion.
Capitalization — clear and achievable: RAIF capital requirements: reach a minimum of EUR 1,250,000 within 12 months from launch. Implementation deadlines and monitoring are set out in the fund documentation and are overseen by the administrator and the AIFM.
RAIF structure and investment strategies
The choice of legal form depends on strategy and tax objectives. Most often I recommend SCSp (an unincorporated limited partnership) with an LPA agreement and rights of Limited Partners, where the carried interest remuneration structure and the profit distribution waterfall model can be configured flexibly. For hedge strategies corporate forms with a board of directors and independent directors are convenient – RAIF governance and independent directors increase LPs’ confidence and improve audit.
- RAIF for private equity: growth and buyout deals, possibility of a master-feeder RAIF structure for different classes of investors and currencies.
- RAIF for a hedge fund: RAIF pricing and NAV, often monthly, side-pocketing of illiquid assets is allowed for stressed assets, redemption gates and suspension of redemptions for risk management.
- RAIF for real estate: valuation methodologies for real estate and illiquid assets, an independent valuer and a clear valuation policy and frequency of NAV (quarterly/semi-annually).
Providers and contractual architecture
The solution developed by COREDO to speed up the launch is a “block” of contracts and providers with ready-made SLAs. In such a scheme:
- Registration of the AIFM management company: we take an external EU-authorised AIFM or register a new one (longer and more expensive). Delegation of RAIF management is structured through a management agreement and agreements with the investment consultant.
- Depositary and custodian for the RAIF: RAIF depositary duties include cash flow monitoring, safekeeping and oversight. The depositary agreement is agreed together with the administrator.
- RAIF fund administrator services: maintaining the register, NAV calculation, financial reporting, subscription/redemption of shares (RAIF subscription and redemption procedure), KYC/AML operational processes. registration agent RAIF performs transfer agent functions.
- Independent auditor and NAV audit: annual audit of financial statements and valuation procedures.
- Asset valuation — independent valuer: for real assets and complex private debt portfolios.
- corporate governance: governance committee and investment committee with clear mandates; conflict of interest and disclosure policy – a mandatory element of AIFMD.
Operational AML and KYC procedures
AML KYC requirements for RAIF comply with AIFMD standards and Luxembourg rules. We set up AML risk assessment and control policies together with the AIFM and the administrator, including PEP screening and enhanced Due Diligence, sanctions monitoring and EU sanctions, as well as transactional monitoring of suspicious operations. Investor due diligence for RAIF covers KYC/KYB for institutional investors of the RAIF, source of funds analysis and the beneficial owner and UBO of the RAIF.
Taxes, substance and cross-border structuring.
The tax residency status of a RAIF fund depends on its form. In a “SIF-like” regime the fund is usually exempt from corporate tax and does not claim benefits under double tax treaties; to reduce taxes in portfolio jurisdictions we set up an SPV layer and substance requirements and economic substance (substance documents: office lease, employees, local directors). For private equity and real estate, transfer pricing and the RAIF affect loan and service agreements; we check compliance with the “arm’s length” principle and the TP documentation.
Marketing and distribution: compliance
Thanks to the AIFM, RAIF marketing in the EU uses the AIFMD passport for professional investors, and marketing registration in the EEA is carried out centrally. For a number of markets pre-marketing is used, and, for non-EU jurisdictions, private placement is done under local NPPR. We comply with the public advertising restriction and distribution rules: no retail communications, clear legends and geographic filters.
Liquidity and risk management
RAIF risk and liquidity management: the AIFM function and a documented LRM policy. In closed PE/RE structures, liquidity terms and lock-up periods are specified, as well as the schedule of capital calls and distributions. In open strategies, redemption gates and suspension of redemptions are used as a rare-event tool, and the fund’s liquidity stress-testing is performed against market shock and outflow scenarios.
Currency risks and hedging for RAIF are implemented at the share-class or portfolio level: forwards, NDFs, swaps with counterparty limits. The valuation policy takes into account RAIF pricing and NAV, including FX, fair value and methods for illiquid assets; an independent auditor reviews the approach and the frequency of NAV calculation.
Documentation and procedures
Preparing the offering memorandum for the RAIF sets the rules of the game: description of the strategy, limits, valuation, risks, subscription and redemption procedures of the RAIF, fees, ESG, SFDR disclosures. The management agreement clarifies delegation and AIFM oversight; the depositary agreement and the agreements with the administrator and the registrar/transfer agent establish the control points. Side letters and investor preferences are permitted within the bounds of fairness between classes and without breaching the prospectus.
Timelines and costs — guidance
Our experience at COREDO shows that the launch timeline for a RAIF fund with a finalised strategy and an AIFM in place is 8–12 weeks to soft-close. This includes structuring, opening accounts with the depositary, negotiating agreements, registering in the registers and publishing the offering memo. If registration of the AIFM management company from scratch is required, the timeline is extended by 4–6 months.
The cost of launching a RAIF in Luxembourg depends on the mix of providers and the complexity of the structure. In a typical project the setup and first-year budget comprises legal support for the RAIF, fees for the AIFM, the depositary and administrator, an independent auditor, a registration agent, a valuer (if required), D&O insurance and marketing expenses. As a reference, formation and first-year ongoing charges for COREDO clients typically fall within the average range for institutional RAIFs, and the unit burden quickly decreases as AUM grows. I determine specific pricing after receiving a term sheet on the strategy and operating model.
Timeline and project launch checklist
To ensure process transparency and save time, I use a step-by-step checklist:
- Strategy, RAIF fund structure, choice of form (SCSp/corporate), tax regime.
- Economic term sheet: classes, fees, carried interest, waterfall and exit waterfall.
- Providers: AIFM, depositary and custodian, administrator, auditor, registration agent, independent valuer.
- Fund documentation: offering memorandum, LPA/articles of association, management agreement, depositary agreement, distribution/placement agreements, subscription agreement.
- Policies: valuation policy and NAV frequency, risk and liquidity management, AML/KYC, sanctions, GDPR and IT security, ESG and SFDR.
- Marketing and cross-border distribution of the RAIF: registration in the EEA, private placement outside the EU, restriction on public advertising.
- Substance: office, local directors, meeting calendar, recruitment compliance for the management team.
- Reporting and audit: annual audit, audit approval and annual general meeting, CSSF notification via the AIFM.
- Finance: transaction costs and ongoing charges, currency policy, hedging, banking and brokerage agreements.
COREDO case studies: solutions in practice
Recently the COREDO team launched a RAIF for private equity with a focus on buyouts in the EU industrial sector. We selected an SCSp, set out carried interest with a European waterfall, and implemented a master-feeder for multi-currency fundraising. For liquidity management we provided capital calls by deal stages, and for tax purposes – an SPV in contractual jurisdictions with substance and TP documentation. The investors’ committee received independent members, and the AIFM adopted a risk policy and SFDR disclosures under Article 8.
For a hedge strategy with liquid instruments, the solution developed at COREDO included daily pricing of key assets by a price provider, monthly NAV and strict counterparty limits. We built in liquidity stress-testing, FX hedging of classes and a suspension policy for extraordinary conditions. LPs received a transparent reporting pack and a clear fee model.
Secondary sales and investor exit
Exit strategies of RAIF investors depend on the structure. In closed-ended funds this is a waterfall distribution after exit from the portfolio; in open-ended funds: redemptions according to the rules and frequency described in the prospectus. If necessary, a secondary-market sale of a stake is permitted: transfer of an LP’s interest with the consent of the GP and AIFM and updating the registers with the administrator. We add these mechanics in advance to the LPA and subscription agreements so as not to restrict the transferability of interests.
Where difficulties most often arise
Benefits of RAIF for the investor
Benefits of RAIF for investors consist of three components. First, Luxembourg’s legal regime, the stability of the legal environment in Luxembourg, and AIFMD compliance through an AIFM with clear roles for the depositary, auditor and administrator. Second, flexibility of the remuneration structure (carried interest and waterfall), governance and independent directors, committees and clear LP rights (LPA, side letters within the framework of fairness). Third, tax efficiency at the fund and SPV level, well-considered currency hedging and predictable Ongoing charges.
Why I recommend RAIF and COREDO
RAIF is an instrument that combines speed to market, the AIFMD distribution passport, a flexible structure for private equity, hedge funds and real estate, and a transparent compliance regime. In COREDO projects this is expressed in a controlled timeline, a clear budget, predictable regulatory steps and investor trust even before the first closing.