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

Why rent a sub-fund in Lexembourg?

Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg also has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

What are the advantages of renting a sub-fund in Luxembourg?

Renting a sub-fund has many advantages:

The first one being time-to-market.

1. Using an established provider helps launch the fund quickly. The fund manager does not have to go through a separate setup process, nor negotiate terms with service providers, since these platforms are pretty much plug and play options.

2. Costs also play a big part, especially for first-time fund managers. Plugging into an existing ecosystem has its advantages in costs, as opposed to setting up a fund outright.

3. The third is choice. Fund managers can choose the level of supervision they require, depending on the class of assets that the fund will invest in, and the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).

4. A Luxembourg sub-structure 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. Besides, this is a well-established practice, being tried and tested for many years.

5. Distribution options are also available. For instance, the sub-fund could be passported on the basis of the UCITS or AIFMD framework.