On August 24th 2016, the CSSF published the second version of its Frequently Asked Questions (“FAQs”) concerning the Luxembourg Law of December 17th 2010 relating to undertakings for collective investment (the “UCI Law”). The second version adds ten new questions and answers to the first version of the FAQs dated December 8th 2015, discussed in our newsletter of January 2016.
The second version of the FAQs provides clarification on the following matters:
Eligible assets for UCITS
First, the FAQs confirm that a UCITS master fund can invest in funds or be a fund of funds provided that its target funds are eligible under article 41(1)(e) of the UCI Law.
Further, in relation to the investments made by UCITS in open and closed-ended UCIs, the FAQs provide definitions for open and closed-ended UCIs: open-ended UCIs are UCIs with units which are, at the request of holders, repurchased out of such UCI’s assets, even if their constitutional documents provide for limitations on the exercise of redemption rights. On the contrary, closed-ended UCIs are those UCIs whose constitutional documents do not provide for the right of investors to request any redemption.
In the same section, the FAQs set out the conditions that institutions shall fulfil in order to qualify as eligible counterparties in the context of OTC derivative transactions or of efficient portfolio management techniques.
Diversification rules applied to UCITS
The FAQs further explain that, pursuant to the principle of risk-spreading, it would not be acceptable for a portfolio of a UCITS to contain different structured transferable securities not embedding derivatives that are all linked to the performance of the same underlying asset. In this context, the FAQs highlight that the application of a 20% limit of the net assets to each underlying asset of such transferable securities has to be respected, providing the possibility that this limit may be raised up to 35% for a single underlying asset.
Moreover, according to the FAQs, UCITS may derogate from the investment limits provided under articles 43, 44, 45 and 46 of the UCI Law for a period of six months following the date the UCITS is entered on the CSSF list. In case the date of inscription to such list differs from the effective launching date of the UCITS, the effective launching date shall be taken into consideration as the starting date provided that the latter date has been notified to the CSSF.
Delegation to third parties
With regard to the delegation of the investment management function, the FAQs mention that a UCITS may delegate such function pursuant to article 110 of the UCI Law to an investment fund manager which is either authorised or registered and subject to prudential supervision, and, in the case of a third country manager, as long as cooperation between the CSSF and the supervisory authority of such country is ensured.
"The FAQs further underline that investment fund managers located in the EEA or an OECD country and subject to prudential supervision of an authority are considered to fulfil the above criteria."
If such entities are located in another country the CSSF shall accept them in principle, provided that it has signed a Memorandum of Understanding covering UCITS with the relevant supervisory authority.
Public-interest entities
The FAQs finally define the meaning of public-interest entities (“PIEs”): PIEs include entities whose transferable securities are listed on a regulated market of any Member State. Thus, a UCITS will be considered as a PIE if its units are admitted to trading on a regulated market. A list of the main implications of Directive 2006/43 on audits of annual accounts and Regulation 537/2014 on specific requirements regarding statutory audits of PIEs is also included.
