Luxembourg Alternative Investment Fund (AIF) as a Special Limited Partnership (SLP)

‍Introduction

The Luxembourg Alternative Investment Fund (AIF) structured as a Special Limited Partnership (SLP), or Société en commandite spéciale (SCSp) in French, is a go-to vehicle for European hedge fund managers. Operating under the Alternative Investment Fund Managers Directive (AIFMD) framework, the AIF combines flexibility, tax efficiency, and Luxembourg’s stellar reputation to offer a streamlined solution for innovative investment strategies, including tokenized funds.

Key Characteristics of the Luxembourg AIF

1. Quick and Simple Setup
   The AIF can be established in just a few weeks with only a notification to Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier (CSSF). No prior regulatory approval is required, making it one of the fastest fund setups in Europe.
2. Broad Investment Flexibility
   This vehicle can invest in any asset class, from digital assets and stocks to commodities, private equity, and loans. It can also act as a feeder fund, enabling integration with larger structures.
3. Minimal Compliance Burden
   The AIF is an unregulated vehicle, requiring no financial audit or depository bank, reducing operational costs. However, anti-money laundering (AML) audits are mandatory, and fund managers must report to the CSSF on AML compliance and on-going assets under management (AUM) volumes.
4. Tax Transparency
   The AIF is tax-exempt in Luxembourg and not subject to VAT, making it highly tax-efficient for investors and managers.
5. Luxembourg’s Premier Reputation
   Luxembourg is globally recognized as a leading hub for investment funds, offering a stable, sophisticated, and trusted financial environment that enhances the AIF’s appeal.
6. Perfect for Tokenized Funds
   The AIF is an excellent fit for tokenized investment funds. Subscriptions and redemptions can be processed in-kind using stablecoins or other digital assets, and the shareholder register can be managed on-chain via smart contracts for transparency and efficiency.

Limitations of the AIF

The AIF comes with a few constraints:

• Professional Investors Only: It is restricted to professional investors under MiFID II, defined as those with the expertise and financial capacity to handle complex investments, such as institutional investors or high-net-worth individuals.
• AUM Threshold: The vehicle is capped at $100 million in AUM. Exceeding this triggers additional regulatory requirements for the fund manager.

Why Opt for the AIF?

The AIF is a versatile, cost-effective, and reputable option for hedge fund managers. Its tax transparency, minimal regulatory overhead, and compatibility with digital assets make it particularly attractive for tokenized fund operations. To explore how Fume can help you leverage the AIF-SLP for your investment goals, get in touch here.