This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/special-purpose-acquisition-company-spac-options-in-luxembourg

What are Special Purpose Acquisition Companies, or SPACs?

A SPAC is an acquisition vehicle typically created by experts in specific sectors, for example, in technology.

The primary objective of an S PAC is to acquire an existing entity that is in the early stages of filing for an Initial Public Offering, or IPO.

The acquisition is funded by the capital that the S PAC raises from it’s own Initial Public Offering. This capital is then kept in escrow until the target company has been identified. Once done, the process can be completed quickly, hence giving the target entity a quicker and hassle-free route to an IPO.

If an SPAC fails to locate an acquisition, it would have to be liquidated.

The advantage to investors is that they get to seize opportunities quickly, within the protection of a listed entity with all the required adherence to regulation and transparency.

The advantage for the target company is that they get to list quickly, through the merger process.

Because of the nature of it’s operation, S PACs are often called “blank-cheque” companies.

Why establish an SPAC in Luxembourg?

Luxembourg offers many solutions to establish S PACs. The country is a leading jurisdiction for setting up of investment funds and holding companies.

In fact, Luxembourg is the second-largest fund domicile in the world, and the largest in Europe, managing over EUR 5.1 trillion dollars.

Funds setup in Luxembourg can be distributed through the European Union, under the AIFM directive.

A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/green-funds-and-sustainable-finance-options-in-luxembourg

What are social impact funds?

Social impact and green funds are investment funds that have integrated environmental, social and governance factors (ESG) into their investment process. These ESG funds invest into businesses that are environmentally friendly and have a positive impact in society.

The sustainable and impact investing asset class has recently emerged as a new and growing class of investments. There are different forms of investing to create a social impact, and these include environmentally friendly businesses such as solar or wind energy, start-ups with an ESG agenda or investments in a blue-chip company that largely fulfils ESG criteria.

This sector has seen a considerable growth, as institutional investors and sovereign wealth funds have been under increasing pressure by governments worldwide, to integrate ESG criteria into their investment allocations.

Why set up an ESG fund in Luxembourg?

Luxembourg has been at the forefront of social impact investing and has a long-established track record as a domicile of choice for ESG funds. Luxembourg is also ideally positioned for fund managers to make use of the European passporting rights to distribute the fund across the EU, and also to other markets worldwide.  Also, most globally-recognised service providers have a presence and offer services in Luxembourg.

In fact, Luxembourg has a documented strategy for growing the impact investing sector, and this includes focus on leveraging Luxembourg’s expertise in asset management, alternative funds and sustainable finance. As a result, the country has seen a total market share of over 30% of all social impact investment funds in Europe, over 62% of European impact funds, over 65% of global microfinance assets, as well as being amongst the top four jurisdictions globally, for Islamic funds.

The Luxembourg Government, the Luxembourg Stock Exchange and the European Investment Bank have together established LuxFlag, an independent association for the labeling of funds that invest in the ESG sector.

This episode is a podcast-only feature!

Do also visit us at https://10leaves.ae/publications/difc/new-difc-venture-capital-funds-regime

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of Public, Exempt and Qualified Investor Funds. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/cost-of-setting-up-a-holding-company-in-the-adgm

Consolidation and management of assets is one of the key points of concern for investors worldwide, and even more so in the GCC. A growing investor ecosystem, coupled with the high density of family wealth in the region, call for robust structures that can help high net worth individuals manage their investments. One such structure is an ADGM holding company. This article contains details for an operational holding company, that is, a holding company that actively manages the assets under it. This holding company is eligible for visas and hence can employ staff to carry out their operations.

For a passive holding company, where the objective is to hold shares, Intellectual Property or Real Property, you can read our article on Special Purpose Vehicles in the ADGM.

Why setup a holding company in the ADGM?

The ADGM is an upcoming financial center in the region for business and fintech. ADGM holding companies can be used to hold assets within the UAE, the GCC, or anywhere else in the world. These include real property and shares in other companies in the UAE and worldwide. 

The maximum number of visas you can apply for will depend on both the type of business you plan on setting up as well as the size of the premises you lease in the ADGM.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/guide-to-the-adgm-category-3c-fund-manager-license

Firms interested in managing funds from the ADGM are required to submit applications to the Financial Services Regulatory Authority, or FSRA.

The FSRA has a fast-track process for Fund Manager licenses, which come under Category 3C. The Fund Manager, if approved, can manage domestic professional (Exempt and Qualified Investor Funds) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

Exempt Funds:

Exempt Funds are open only to Professional Clients (as defined by the ADGM). The other features of an EF are:

Qualified Investor Funds:

Qualified Investor Funds are open only to Professional Clients (as defined by the ADGM). The other features of a QIF are:

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-licensing-categories

Firms interested in carrying out financial services from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The type of business that the applicant wishes to engage in defines the category of Licence that is required. For example, a firm undertaking low-risk activities such as advising or arranging will require a DIFC Category 4 Licence, while a discretionary portfolio manager will require a DIFC Category 3C Licence. An STP broker, dealing on a matched principle basis will require a DIFC Category 3A Licence, whereas a market maker or provider of credit provider will require a DIFC Category 2 Licence. Full-fledged banks, that accept deposits, will come under a DIFC Category 1 License.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-crowdfunding-business-license

Firms interested in carrying out crowdfunding activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises the crowdfunding business as a Category 4 entity, with the primary activity of “Operating a Crowdfunding Platform”. The base capital required for a DIFC Crowdfunding license is US$ 140,000.

The DFSA offers three types of crowdfunding licenses:

a. Investment-based Crowdfunding Platform

b. Loan-based Crowdfunding Platform

c. Property-based Crowdfunding Platform

DIFC Crowdfunding Platforms are able to cater to retail clients, with certain additional requirements to ensure retail client protection. For instance, retail investors will only be allowed to invest upto US$ 50,000 in a single calendar year.

Due to the nature of the license, and the recent issuance of crowdfunding regulations, the DFSA places slightly higher entry-level requirements and restrictions on the license itself.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/hedge-funds-in-luxembourg

Luxembourg funds and the GCC

Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM)also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.

Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.

Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.

Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.

United Arab Emirates – 64% of foreign funds are Luxembourg funds

Saudi Arabia – 50%

Kuwait – 75%

Bahrain – 75%

Oman – 99%

Qatar – 98%

What is a hedge fund?

Hedge funds got their name from investors in funds holding both long and short positions, to ensure that they made a profit despite market fluctuations. This practice is called hedging.

Hedge funds have moved onto many different kinds of structures with different assets and securities, and nowadays mean that the fund manager uses a combination of complex investment strategies and leverage to aim for higher returns. Contrast that to a equity fund or a property fund, which, as the name suggests, invests in listed equities or property assets.

As the first money manager to combine short selling, the use of leverage shared risk through a partnership with other investors and a compensation system based on investment performance, Alfred Winslow Jones earned his place in investing history as the father of the hedge fund.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/debt-funds-in-luxembourg

Why set up a debt fund in Luxembourg?

Luxembourg is a leading jurisdiction for investment funds and the second largest investment fund centre in the world after the United States. It is the largest fund jurisdiction in the European Union, with more than Euro five trillion of assets under management.

The country is a politically and financially stable EU country with a AAA-Rating. As a jurisdiction within the European Union, debt funds established in Luxembourg can be more easily distributed within the EU on the basis of existing passporting rights for EU funds.

What are the key advantages of setting up debt funds in Luxembourg?

1. The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, hedge funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).

2. A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

3. Distribution options are the next major advantage. A Luxembourg fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.

(i.)Then there are the tax benefits.

a.There is a choice of tax treatment according to the choice of investment vehicle. Debt funds can be fully taxable and have access to Luxembourg’s double tax avoidance treaties network, or can choose to be tax exempt, but with very limited access to double tax treaties.

b. Debt funds can also be tax neutral with either legal or no legal personality. In this event,  the partners of the fund will become taxable, and not the debt fund itself.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/adgm-foundations-regime

ADGM Foundations Regime provides a viable alternative to trusts for legacy planning and financial structuring. ADGM offers foundations incorporated under Common-Law for the first time in the region.

A foundation is governed by its Charter, which is a publicly available document, and By-laws, which are private to the Foundation. The affairs of an ADGM Foundation are managed by the members of a Council and may be supervised by a Guardian.

Foundations provide a mechanism to consolidate holdings of various assets (shares, real property, intellectual property, royalties, etc.) into a single holding entity. This allows for clarity on the transfer of assets during a succession process.

Foundations operate like common law trusts, with an important distinction – they are legally incorporated with a distinct legal personality. In effect, they have features common to a company. They can hold assets, but cannot issue shares or carry out commercial activities.

Foundations are operationally and tax-efficient. Much like a ‘Letter of Wishes” in a trust vehicle, a Foundation’s Charter and By-Laws help make the succession process much less challenging.