Anticipating the significant growth and ever-increasing importance of alternative investments as an asset class — the most recent data shows that Luxembourg saw a 17% increase in private equity fund assets under management and a 25% increase in loan funds between 2018 and 2019 — Luxembourg took the opportunity to add a number of supervised- only investment vehicles to its already widely successful range of regulated investment vehicles. The reserved alternative
investment fund (RAIF) regime, in particular, has reinforced the country’s attractiveness as a domicile for the establishment of alternative investment funds (AIFs) in general.
While only introduced in 2016, the RAIF has already attracted a great deal of interest from fund managers and has become the vehicle of choice for certain AIFMs and categories of sophisticated investors, not only in the European Union (EU), but globally.
RAIFs can be set up with different structures, and with the possibility of segregated compartments within each RAIF, thus demonstrating Luxembourg’s agility in designing a relevant and flexible toolbox to meet the needs of both investment managers and investors.
The RAIF Law also allows for RAIFs to be set up either with the aim of risk-spreading (“risk-spreading RAIF”) or with the exclusive objective of making risk capital investments (“risk capital RAIF”).
We have prepared a new publication that aims to support the investment management community in navigating through the various reporting requirements for the preparation of annual reports for RAIFs.
Its purpose is to assist you in preparing these reports under Luxembourg generally accepted accounting principles (GAAP), based on the Luxembourg legal and regulatory requirements in force as at 31 March 2020.
This guide is for private equity funds, investment managers and service providers — providing pragmatic suggestions based on observations from the RAIF landscape. We have also included several references to laws and regulations to make this a practical tool. These legal references, and the application of the articles referred to, are further discussed in accompanying explanatory notes — while general discussions on presentation, and disclosures without specific references to laws, are presented in guidance notes.
The focus of this illustrative annual report is on the two types of RAIFs that are structured as a Partnership Limited by Shares (Société en Commandite par Action): we use the terms “RAIF Risk Capital” and “RAIF Risk Spreading” to cover both. The user guide illustrates the format of an annual report for a “RAIF Risk Capital”, named BLUE RISK CAPITAL S.C.A. SICAV- RAIF, using an eCDF layout. It also includes the annual accounts format and guidance for a “RAIF Risk Spreading”. Due to the S.C.A. context, the examples provided herein may need to be adapted for entities of other legal forms organized as RAIFs, notably with regards to the General Partner function and specific disclosures.
Financial reporting is not just about technical compliance, but also effective communication. Investors continue to ask for a step-up in the quality of business reporting, so preparers should be careful not to become buried in compliance to the exclusion of relevance. In preparing their annual report, entities need to focus on improving their communication by reporting financial information in a meaningful way.
While Luxembourg GAAP provides for some flexibility, it is essential to get the balance right between compliance and transparency.
Recently, EU regulators and Luxembourg’s financial regulator, the CSSF, have introduced additional reporting requirements and, with increasing demands for transparency from both regulators and investors, financial reporting has become a differentiator of quality, especially in light of the welcome trends to include environmental, social and governance (ESG) factors in investment management process reporting.
During the preparation of this publication, we have witnessed the outbreak of Coronavirus Covid-19 globally for which stakeholders and regulators would expect some information in the annual report. We have included a guidance on valuation of investments and some suggested wording on Coronavirus Covid-19 in the activity report and subsequent events note.
