A Luxembourg AIF must appoint a fund manager. For EUFS, it can either be their in-house authorised alternative investment fund manager (Authorised AIFM) if the EUFS avail of one, or an authorised “host” AIFM in Luxembourg (Host AIFM). Host AIFMs come with a price tag, which explains partially the increased costs of Luxembourg fund structures. 

However, for EUFS that wish to avoid the costs of a Host AIFM, the set-up with a Luxembourg registered AIFM could be a viable solution. The registered AIFM route is however only open to EUFS managing unleveraged closed-ended AIFs provided the asset under management in such AIFs are, on a group wide basis, below EUR 500 million. In case of leverage or open-ended AIFs the cap drops to EUR 100 million. The registered AIFM set-up is generally referred to as the “small manager” route. Typically, the general partner of the Luxembourg fund assumes the registered AIFM role, although this role may also be performed by another Luxembourg entity controlled by the EUFS.

The set-up and maintenance costs of a registered AIFM are limited, the registration process with the CSSF is generally efficient, and the reporting burden is light. The structure also avoids the costs of a depositary. Although there is also no legal requirement for the registered AIFM to appoint an auditor for the fund, investors will generally request audited financial statements.

An AIF managed by a registered AIFM does not benefit from a marketing passport and will need to rely on national private placement rules instead in the relevant EU member states, if available. Therefore, it is important to assess whether these private placement rules are accessible for a registered AIFM and are workable for the intended fundraising strategy.

For AIFs that anticipate strong investor demand, for instance the ones that rely on a strong spin-off team with ample investor connections this marketing hurdle is usually less of a concern. The type of investors these managers are after is generally agnostic on whether the AIFM is authorised or merely registered. In addition, offering an AIF managed by a registered manager to Luxembourg based investors is easy, and exactly Luxembourg is where the important cornerstone allocators to such funds are generally found.   

Although setting up in Luxembourg comes with a price tag, the small manager route offers a cost-efficient entry point. In that sense, the small manager set-up is considered a stepping stone to future Luxembourg products that rely on a marketing passport. 

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