Prestige Fortuna is a private investment fund centre in Europe and second only in the world behind the United States. The reason for this is a highly tuned legal and regulatory framework that combines rigorous investor protection with an unequalled degree of flexibility in fund design, a flexibility that allows products to be tailored to the needs of a specific market or client group. The availability of a wide range of specialised service providers enables fund promoters to subcontract non-core activities and hence benefit from economies of scale. Prestige Fortuna specialises in the administration and cross-border distribution of investment funds and has become the platform of choice for promoters wishing to market their investment funds worldwide.
When referring to the “management” of an undertaking for collective investment (UCI), the law means portfolio management (in line with the investment policy defined in the asset management rules and in the exclusive interest of shareholders), risk management as well as the administration and distribution of the fund.
For the purposes of this page, however, the expression “management” is taken to mean the asset allocation of the investment portfolio and risk management, while the other two aspects (administration and distribution) are covered under other headings. The rules are not the same for each.
For example, in contrast to the central administration of a UCI which must be situated in Luxembourg, portfolio management can be undertaken by an entity based in another jurisdiction. Hence a UCI investing in Japanese equities may subcontract the management of its portfolio to experts based in Tokyo rather than doing this from the fund domicile.
In Luxembourg there are active fund managers (where investment decisions are based on a rigorous asset analysis and selection process) and passive asset management (where the portfolio simply reproduces a financial index).
Prestige Fortuna offers a range of structures for undertakings for collective investment (UCI), which are subject to different levels of regulation. The choice of a structure is generally driven by the investment policy and the distribution strategy of the fund.
There are two large categories of UCI:
- undertakings for collective investment in transferable securities (UCITS), which comply with the European Directive on that subject;
- alternative investment funds, which cover all other types of fund including hedge funds, real estate investment funds and venture capital and private equity funds.
Three legal structures are available:
- the common investment fund (Fonds commun de placement – FCP), which has no legal personality and which must be managed by a fund management company;
- the investment company with variable capital (Société d’Investissement à Capital variable – SICAV), where the capital varies in response to subscriptions and redemptions made by investors;
- the investment company with fixed capital (Société d’investissement à capital fixe – SICAF).
The SICAV and the SICAF may be self-managed or they may appoint a fund management company.
All these structures can be set up as a stand alone fund, with a single investment portfolio, or they can be structured as a multiple compartment fund (also known as “umbrella fund“) which creates separate sub-funds (compartments) under the roof of a single legal entity. These sub-funds function as independent entities, each with its own investment policy, target distribution market and investor profile.
Each fund or sub-fund can, in turn, issue different classes of shares which vary, for instance, in the type and level of commissions, enabling particular shares or units to be tailored to the needs of a specific market or clientele (institutional or private).
Two structures are reserved for use by well informed investors. These are the specialised investment funds (SIF), which enjoys a high degree of freedom in its investment policy, and the investment company in risk capital (société d’Investissement en capital à risque – SICAR).
The administration of an undertaking for collective investment (UCI) includes all back-office functions in the widest sense of the term, notably:
- legal and fund management accounting services
- customer inquiries
- valuation of the portfolio and pricing of the units/shares (including tax returns)
- regulatory compliance monitoring
- maintenance of unit-/shareholder register
- unit/shares issues and redemptions
- contract settlements (including certificate dispatch)
- record keeping
Luxembourg law requires that tasks belonging to the central administration be carried out in the Grand Duchy. However, the central administration can outsource some of these functions. Luxembourg has a wide range of specialist service providers:
- transfer agents specialise in the execution of subscription and redemption orders for fund shares and units and in maintenance of the share-/unitholder register;
- domiciliation agents provide UCIs with a correspondence address and help in fulfilling legal and regulatory obligations (such as reporting, organising shareholder general meetings and board meetings, handling legal publications and sending information to share-/unitholders);
- paying agents handle the payment of dividends and other sums due to the investors.
These specialist service providers are themselves authorised and regulated by the financial sector supervisory authority, the CSSF.
It is a legal requirement for all Luxembourg UCIs, regardless of their legal form, to keep their assets with a depositary. This function includes safekeeping and surveillance of the assets in line with the law, which requires that the depositary “must know at every moment how assets are invested and where and how these assets are available”.
Finally, annual reports and other legally required reports must be certified by approved auditors.
Luxembourg is the uncontested leader in the cross border distribution of undertakings for collective investment (UCI). Three out of every four four undertakings for collective investment in transferable securities (UCITS) sold into at least three countries are domiciled in Luxembourg.
Distribution channels vary from one promoter to another. Typically, UCI are distributed by bank branch networks, independent financial advisers, life assurance companies or directly by their management company.
Equally, a UCI can hand over the distribution of its units or shares to a distribution agent. Situated in Luxembourg or elsewhere, these professional distribution agents offer a range of service levels.
If the distribution agent acts as a simple intermediary between the investment fund and the investor, its role is limited to the purchase and redemption of shares and units.
They may also offer a nominee service, acting on behalf of the investor. In this case, they take full responsibility for the relationship between the fund and the share-/unitholder, including communications with the latter.
Other distributors act as market makers and buy shares with a view to reselling them directly to their clients. In this case, the sale and repurchase of shares is transacted with the professional intermediary.
In Luxembourg, a distributor of UCIs must obtain the status of Professional of the Financial Sector (PSF).
In this context it is worth noting that the regulatory authority has published a certain number of rules concerning the marketing of investment funds, notably in the area of documentation and the sales prospectus.
A large number of Luxembourg UCIs are quoted on the Luxembourg stock exchange.