Initial fund structures are often established in the EUFM’s home country. While these domestic vehicles initially meet local investors’ expectations, Luxembourg structures increasingly come into play when international investors start to show interest.

There are, however, situations where Luxembourg fund structures are considered from initial fund vintages. This may be the case where the EUFM’s home jurisdiction lacks a workable fund vehicle, or where the EUFM seeks early recognition from international investors.

Luxembourg structures show traction as international investors generally require a tax-neutral, limited partnership-type of fund vehicles that provides limited liability and sufficient flexibility to accommodate internationally recognized fund economics and governance structures. These investors also value mature regulatory oversight and robust anti-money laundering frameworks, both of which enhance the credibility of the fund. Luxembourg is uniquely positioned to deliver on all these fronts.

Admittedly, setting up and managing a Luxembourg fund on a cross-border basis comes with a price tag. Luxembourg vehicles require ongoing maintenance by local fund service providers, contributing to the total organizational cost and operating expense. This is the price of international expansion. The actual cost and compliance burden will largely depend on the EUFM’s size, ambitions, and distribution strategy. For instance, a Luxembourg fund structured for pan-European distribution will involve greater complexity than one distributed to a limited number of investor-friendly jurisdictions. Selecting the right marketing plan, Luxembourg vehicle, and structuring cross-border management efficiently is key to keeping costs proportionate to AUM growth.

Whatever the path, Luxembourg fund vehicles eventually become relevant for any EUFM with scaling ambitions. Our upcoming content will dive deeper into each of these factors, along with many other considerations fund managers face when using Luxembourg as a strategic fund domicile.

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