Since 2016, my team has been supporting international projects in Europe, Asia and the CIS: from registration of legal entities and obtaining financial licenses to building AML/sanctions compliance systems and providing full operational support. Over that time I have seen how acutely entrepreneurs and managers need clear and fast tools to enter the EU market. In the investment segment, such a tool has become the Luxembourg RAIF: Reserved Alternative Investment Fund. In this article I will lay out why establishing a RAIF in Luxembourg today is one of the most rational ways to launch an alternative fund, how RAIF registration in Luxembourg works in practice, and which solutions COREDO usually builds into the architecture of fund structures to accelerate time-to-market and reduce regulatory and tax risks.
Why choose a RAIF in Luxembourg for funds?
The 2016 law on RAIF in Luxembourg offered a simple yet elegant compromise: the fund does not undergo prior authorization by the regulator, but operates under the supervision of an authorized AIFM and within the AIFMD ecosystem. This model sharply reduces time-to-market when launching a RAIF and makes rapid fund registration in Luxembourg an achievable goal without sacrificing the quality of risk management. In practice we observed first subscriptions already 10–12 weeks after the project start.
RAIF registration: the fastest way to enter the European field of alternative investments if the team is ready to operate under AIFMD rules and maintain a strong compliance framework for AML/KYC, risks and reporting. The regulatory advantages of RAIF include access to AIFMD passporting (through an AIFM), flexibility of investment strategies and the absence of limits typical for retail products.
The comparison of RAIF and SIF most often comes down to two points: speed and supervision. SIF requires prior approval from the CSSF, while RAIF does not; instead RAIF relies on an AIFM as a «supervisory filter». For sponsors who already have relationships with a licensed AIFM, the choice is obvious. For new teams, COREDO helps select an AIFM with the right mandate and strategy experience (private equity, real estate, credit, infrastructure, hedge) to ensure both compliance and quality.
How to quickly open a RAIF in Luxembourg
Legal support for RAIF registration relies on a clear checklist. I advise starting with the target strategy, investor profile and distribution geography, and then moving on to the vehicle, providers and documents. The COREDO team in a typical project runs all tracks in parallel to shorten calendar timeframes and eliminate bottlenecks before they arise.
Key registration stages and the RAIF checklist under the supervisory Commission CSSF are as follows:
- Preliminary architecture: strategy, mandate, investor profile (qualified/professional), liquidity, leverage, valuation policy.
- Choosing the fund’s legal form: FCP (contractual) or corporate (SICAV in the form of SA/SCA/SARL, as well as SCSp/SCS as flexible structures). For private equity and real assets SCSp most often prevails.
- AIFM authorization and duties: choosing an authorized AIFM in the EU (often Luxembourg-based), agreeing delegation of investment management and risk management, RMP, conflicts of interest policy, AIFMD reporting.
- Depositary and administrator for the RAIF: appointment of a depositary (bank/investment firm in the EU), selection of administrator and NAV calculation agent, transfer agent, registrar, auditor.
- Documents for RAIF registration: investment memorandum/subscription memorandum (PPM), LPA for SCSp, constitutional documents, AML/KYC and sanctions policy, valuation policy, risk management, SLA and service agreements.
- Notarization and Legal review of the constitutional documents, registration in the Luxembourg Trade and Companies Register (RCSL), account opening, subscription organization.
- Setting up distribution: AIFMD passporting and marketing in the EU, distribution channels, placement agent and agency agreements, Reverse Solicitation policy and legal risks.
The speed of fund registration in the EU via RAIF depends on the readiness of documents and providers. Our experience at COREDO has shown that a parallel draft of the PPM/LPA, preliminary verification with the AIFM and an early term sheet with the depositary save up to 4–6 weeks, and SLAs and operational requirements are fixed before the first subscription launch.
The PPM is the living DNA of the fund, not a formality. At COREDO we ensure that the investment memorandum and the Limited Partnership Agreement reflect the economics of the deal (management fee, performance fee, carried interest, clawback), liquidity (gates, suspension), the fund’s strategy and risk policy. The subscription memorandum and the LPA for the RAIF form a single framework together with valuation policies and risk management.
Documenting side agreements (side letters) for anchor institutional investors is a separate track. I insist on a concession matrix: preferences regarding the commission schedule, MFN, reporting, key personnel are written transparently so as not to breach equality between share classes. COREDO’s practice confirms that a well-thought-out MFN procedure reduces legal risks and facilitates subsequent closings.
Anti-money laundering policy for funds, AML procedures / KYC for institutional investors, sanctions compliance and GDPR: mandatory elements. We build checklists to verify the integrity of RAIF investors, UBO disclosure and data storage in accordance with GDPR. This improves the quality of AML and KYC for RAIF and accelerates onboarding.
Administrator, NAV calculation and depositary
The fund administrator and NAV calculation create the RAIF’s «operational metronome». SLAs and service agreements with providers should set NAV timing, cut-off for subscriptions/redemptions, reporting format, errors and remediation. Operational Due Diligence (ODD) providers and an independent audit at the start add discipline and trust from institutional investors.
The role of the depositary and its responsibilities are defined by AIFMD: safekeeping of assets (custody), oversight of subscriptions/redemptions, monitoring of cash liquidity and compliance with the investment mandate. The depositary bears strict liability for the loss of certain assets. In COREDO projects we pre-agree accounting models for illiquid assets and nominee arrangements to eliminate discrepancies with the bank’s policy.
For cross-border placement of RAIF units, payment and transfer agents are often engaged, as well as clearing and settlement system operators when listing certain share classes on LuxSE with settlements through Euroclear/Clearstream. Where listing is not required, settlements are made through custodial banks and administrators with strict AML/KYC and sanctions controls.
RAIF Structure: forms, SPV, substance
The FCP fund form and corporate forms (including SICAV) set the legal mechanics. For closed-end strategies I more often choose SCSp and SCS as flexible structures: the partnership logic of an LPA, GP/LP separation, a clear waterfall model and carried interest. Differences between SICAV and SIF compared to RAIF are secondary here: the flexibility of the LPA and speed of launch matter more.
SPV structures for RAIF support investments in specific assets and jurisdictions. SOPARFI “holdings” often become intermediate companies for private equity and real estate thanks to the network of double tax treaty agreements and the efficiency of dividend/sale flows. For infrastructure we add project SPVs and contractual covenants with lenders.
Substance in Luxembourg for a RAIF fund: not a checkbox, but a managerial reality. I put in place local directors with the necessary experience, a place to hold documents, local meetings, agreements with key providers, and the economic rationale for expenses. Requirements for economic substance and presence are intensifying against the backdrop of BEPS risks and the practices of EU tax authorities. Additionally we take into account the UBO register and beneficiary disclosure obligations.
Taxation of RAIF and Investors
Taxation of RAIF in Luxembourg is built on the principle of tax neutrality of the fund structure. As a rule, a RAIF does not pay corporate tax and VAT on investment activities, but pays a subscription tax (subscription tax) of 0.01% of net assets, with exceptions for certain asset classes (for example, private assets through specialised substructures). Tax optimisation through a RAIF is achieved by a combination of the fund + SPV (SOPARFI) to access the DTT network.
International tax planning and BEPS risks require a measured approach to leverage, tranche loans and interest limitations. I recommend coordinating the financing model with the AIFM and auditors to take into account ATAD restrictions and thin capitalisation rules in the target jurisdictions. For global investors, CRS exchange of financial information for funds and FATCA compliance for US investors are important — these tracks are best started from day one.
Income distribution policy, carried interest and tax consequences depend on the jurisdictions of the LP and GP. COREDO configures carried vehicles, waterfall and clawback to minimise ‘surprises’ on exits and ensure transparency for the auditor and investors.
Passporting of RAIF and AIFM under AIFMD
AIFMD and RAIF passporting: a powerful mechanism for the cross-border distribution of RAIF units within the EU. The AIFM sends notifications to the regulators of the host countries, after which marketing to professional investors becomes possible. International distribution of RAIF units in the EU is combined with local rules, so COREDO prepares marketing blue books and checklists for each market.
AIFM authorization and duties include risk management, leverage limits, Annex IV reporting, supervision of the delegation of investment management and control of the valuation function. Delegation of RAIF management and oversight require clear contracts, KPIs and regular monitoring. AIFM conflict of interest management and internal compliance are enshrined in a policy available to investors on request.
Reverse solicitation and legal risks: a topic where I always urge caution. Relying on the “investor’s initiative” without proper documentation is dangerous. It is better to build correct marketing and placement for RAIFs by engaging licensed placement agents and agency agreements than to risk a distribution ban and fines.
Risks, compliance (AML/KYC, sanctions, ESG)
Risk policy, VaR and stress tests, not only for hedge funds. The AIFM is obliged to assess market, credit, operational and liquidity risk, regularly conduct stress testing and monitor covenant breaches on loans of portfolio companies and funds of funds. Restrictions on the use of leverage are set out in the PPM, and risk reporting and regular stress testing are in the AIFM calendar.
Asset valuation policy and an independent valuer are especially important for illiquids. I recommend documenting the methods (DCF, comps, NAV bridge), the valuer’s independence criteria and escalation procedures in case of discrepancies. An independent audit and the annual report confirm the accuracy of the NAV and add confidence for LPs.
Sanctions compliance and sanctions screenings, AML/KYC procedures for investors and ESG compliance are essential pillars of trust. Integration of ESG criteria and reporting strengthens the commercial appeal of a RAIF to investors, especially in the Netherlands, Scandinavia and Germany. AIFMD supervision and internal compliance are complemented by GDPR and the protection of investors’ personal data.
RAIF for funds and real estate
RAIF for private equity is often structured as an SCSp with a GP at the Luxembourg level, SPV (SOPARFI) for deals and a well-thought-out waterfall model. Structuring of carried interest and tax consequences are discussed in advance, including clawback and escrow on partial exits. Entry terms for institutional investors set a minimum ticket size, side letters and MFN.
RAIF for real estate relies on SPVs with limited recourse and bank financing. Liquidity of units, redemption gates and suspension are governed by the mandate; for closed-ended funds, planned distributions and investor exit strategies.
RAIF for a family office is often used as an “umbrella” with several sub-funds for different asset classes. Family office use cases of RAIF allow consolidation of administration, improved risk control and documentation of investment mandates for succession. Restrictions on retail distribution and compliance remain: RAIF is addressed to qualified/professional investors.
Fund economics: fees and expenses
Fee structure: the management fee and performance fee should correspond to the strategy and market benchmarks. For PE it is typically 2/20 with a hurdle and catch-up; for real estate: 1–1.5% management fee and 15–20% performance fee on a project basis. Operating expenses, management fees and carried interest are included in the PPM transparently, including administration, depositary, audit, legal and placement expenses.
Annual expenses and fees of a RAIF depend on the providers, the number of sub-funds and NAV frequency. I recommend modelling three scenarios of AUM, subscriptions and expenses taking into account distribution layers (placement fee), so investors can see the fund’s financial model and ROI forecast. Key performance metrics (IRR, TVPI, PME) and their sensitivity to fees and deal timing help validate the economics.
Liquidity management, covenants and covenant breaches: an area of heightened attention for credit and infrastructure RAIFs. The AIFM and the administrator should monitor payment schedules, compliance with leverage limits and timely escalate deviations to the investment committee.
COREDO Cases and Time-to-Market
In one of its recent projects the COREDO team implemented the launch of an SCSp RAIF for a lower mid-market PE strategy with a geography covering the EU and the UK. We simultaneously closed the AIFM, depositary and administrator tracks, synchronized the LPA with the carried interest tax model and the side letters of anchor LPs. Time-to-market was 11 weeks to first close; passporting under AIFMD took another 3 weeks.
Another case: a RAIF for real estate focused on logistics parks in Western Europe. The solution developed at COREDO included a SOPARFI level, standardization of lease agreements, bank covenants and an independent valuator. We set up ESG and energy-efficiency reporting, which broadened the pool of institutional investors and simplified marketing in Germany and the Nordics.
Third example, a market-neutral hedge strategy. COREDO’s practice confirms that for such funds the key to success is an SLA for NAV T+3, VaR risk limits, the administrator’s clear error policy and automation of Annex IV reporting. We also set up sanctions monitoring and enhanced KYC flows for investors from several Asian markets.
RAIF Life Cycle
After first close, the routine but critical phase of the fund’s life begins: reporting, audit and investor relations. An independent audit and the annual report confirm the NAV and policy compliance, while risk reporting and regular stress testing sustain LP confidence. Marketing and placement for the RAIF continue under the AIFMD passport and local rules.
Liquidity of units, redemption gates and suspensions are determined in advance in the PPM and LPA. Investor exit strategies and winding-up procedures include appointing a liquidator, communicating with the depositary and administrator, calculating final distributions and closing entries in the RCSL. Liquidation and exit from the RAIF proceed smoothly if all operational documentation has been kept up to date and SLAs with providers have been observed.
On the secondary market for RAIF interests, transfers of LP interest are possible under the LPA procedures with GP consent and in compliance with AML/KYC. Regulation of private markets and the secondary market for interests impose disclosure requirements and sanctions checks – COREDO runs these processes as separate mini-projects.
RAIF launch checklist and common mistakes
Over the years I have compiled a short working checklist that saves weeks and money. Each item is accompanied by an internal procedure and a responsible person at the sponsor and the provider.
- Structure and mandate: SCSp for PE/real assets; clear leverage and liquidity limits.
- Providers: preliminary term sheet from the AIFM/depositary/administrator before the PPM draft.
- Documents: PPM/LPA aligned with valuation, risk, AML/KYC and sanctions policies.
- Taxes: RAIF + SOPARFI + DTT model, BEPS/ATAD assessment and a substance plan.
- Marketing: AIFMD passport, placement agents, a distribution plan and control of reverse solicitation.
- Operations: SLAs for NAV and operations, provider ODD, Annex IV roadmap and audit.
- ESG and GDPR: a KPI and reporting matrix, data retention, data subject rights.
Typical mistakes: late selection of the AIFM and depositary, underestimating side letters and MFN, insufficient substance, excessive use of reverse solicitation and insufficient detail in the valuation policy. Our lawyers at COREDO usually address these risks already at the term sheet stage.
When RAIF is not suitable, pros and cons
The advantages of RAIF are obvious: speed, strategic flexibility, access to the AIFMD passport, tax neutrality of the fund structure and broad applicability — RAIF for private equity, RAIF for real estate, RAIF for hedge funds, as well as RAIF for family offices and institutional investors. The commercial appeal of RAIF to investors is enhanced by Luxembourg’s transparent regulatory framework and strong infrastructure.
There are downsides too. Restrictions on retail distribution of RAIF close off access to the mass market. The presence of an AIFM and a depositary adds ongoing costs. Strict AML standards/KYC, sanctions, AIFMD reporting and ESG expectations require a mature operational team. If the goal is a retail UCITS product line, RAIF is not the right instrument.
How COREDO supports the launch of a RAIF
COREDO handles the structural architecture, legal drafting and coordination of providers. We prepare the PPM, LPA, side letters, AML/KYC and sanctions policies, valuation policy, risk framework and governance documents. We also select the AIFM, depositary, administrator and auditor, agree SLAs, and arrange notarisation and registration with the RCSL.
A separate area is the tax model: tax optimisation through the RAIF, SPV structuring, use of the network of double tax treaties, CRS/FATCA assessment, substance and UBO. For international distribution of RAIF interests we prepare distribution packages, marketing materials and compliance control procedures.
At the operational level the COREDO team sets up AIFMD oversight and internal compliance, risk reporting and regular stress testing, GDPR procedures, sanctions monitoring and ESG reporting. Cross-border structuring and jurisdictional risks are covered by legal memoranda and the ODD of key providers.
Conclusions
RAIF is a mature and flexible platform for launching alternative funds in the EU with a unique balance of speed and regulatory quality. When the strategy, documents and providers are aligned, RAIF time-to-market is measured in weeks, not quarters. At the same time the rules of the game are clear: AIFM supervision, robust AML/KYC and sanctions framework, well-considered valuation and risks, and transparent economics for investors.
Over the years I have become convinced: a properly structured RAIF addresses several pain points of entrepreneurs and managers at once, from quick registration and cross-border distribution to tax neutrality and institutional investors’ trust. If you are planning a fund for private equity, real estate, infrastructure or market strategies and are targeting qualified investors in the EU and beyond, RAIF should be on your short list. The COREDO team is ready to walk the whole way with you – from the idea and financial model to the first closing, reporting and sustainable scaling.