Luxembourg's position as a leading global hub for investment funds is not just due to its favourable regulatory environment but also to the sophisticated ecosystem of professionals and service providers that ensure these funds operate smoothly and effectively. A Luxembourg fund structure is a symphony of roles and responsibilities, each crucial for the fund's success. Let's look at the main actors who play pivotal roles in the governance, management, and operation of a fund.

AIFM (Alternative Investment Fund Manager)

The AIFM is ultimately responsible for the overall management of the fund under AIFMD. The role can  either be undertaken by a third-party or, under certain conditions, the AIF can act as its own AIFM (i.e. it is considered self-managed). Responsibilities include (even if, as the case may be, delegated) investment decisions, risk management (==the two core functions), administration, marketing and ensuring compliance with regulatory requirements. For funds under AIFMD, appointing an AIFM is mandatory, signifying its central role in the fund's ecosystem. As the AIFMD itself says, it does not regulate AIFs, it regulated AIFMs. To put it another (perhaps a bit cheeky) way, if anything goes wrong, the regulator comes knocking on the AIFM’s door.

Depositary

The depositary acts as the guardian of the fund's assets. It is a fully regulated role and  entity undertaking it is tasked with (i) asset safekeeping (i.e. custody and existence / ownership verification checks), (ii) overseeing, amongst other things, all transactions, (iii) monitoring the fund's cash flows and (iv) maintaining records as to the above. The depositary plays a crucial role in investor protection, providing an independent check on the fund's assets and operations.

Central Administration Agent & Transfer Agent

The Central Administration Agent (often just shortened to Administrator) handles the day-to-day administrative tasks of the fund, including fund accounting, NAV (Net Asset Value) calculation, and shareholder services. The Administrator ensures that the fund's financial records are accurately maintained and that its operations run efficiently. For directly / indirectly regulated funds, central administration is required to occur in Luxembourg.

The Transfer Agent role (commonly undertaken by the Administrator) is responsible for creating and maintaining shareholder records. This entails opening investment & cash accounts for end-investors and undertaking upfront + ongoing AML / KYC on (prospective) investors on behalf of the governing body of the fund (i.e. BoD / GP).

Investment Manager

While the AIFM oversees the fund's management, it may and, in fact usually does, delegate certain functions while ultimately remaining responsible; such as the portfolio management function. The investment manager, if applicable, is appointed to make the day-to-day investment decisions within the parameters set by the AIFM. This role is crucial for executing the fund's investment strategy and achieving its strategy objectives.

Board of Directors / General Partner

Depending on whether the fund is set up as a corporate entity or a partnership, it will have either a Board of Directors (BoD) or a General Partner (GP) (in turn acting through it’s BoD or Board of Members) as core components of its governance & supervisory framework. Both are bodies acting under the Law of 1915 on commercial companies (the ”Company Law”) and are responsible for (i) monitoring all appointed service providers of the fund (including the AIFM) and (ii) ensuring the fund acts in accordance with its constitutive documents.

With the introduction of AIFMD, most of the day-to-day management of the fund that have previously sat with the BoD / GP have been moved to the AIFM (with the BoD / GP remaining ultimately responsible for making sure the AIFM does its job). In this context, when AIFs choose to be internally-managed, BoD / GPs may choose to take on the AIFM role, subjecting themselves to AIFMDs requirements.

Auditor

The statutory auditor of the fund is another component of the “checks & balances” principle for funds. The auditor provides an independent assessment of the fund's financial statements, ensuring transparency and accuracy in its financial reporting. This role is vital for maintaining investor trust and for the fund's compliance with international accounting standards (for Luxembourg funds, typically under Lux GAAP).

Sponsor / Initiator

The fund sponsor / initiator takes the initial step to establishing the fund, often conceptualising the fund's investment strategy, structure and terms. The sponsor or initiator usually works closely with legal and financial advisors to bring the fund to launch and is typically the “founding” shareholder of the structure, i.e. the entity supplying the initial share capital. The role is often undertaken by either the AIFM / Investment Manager or an independent third party.

Distributors

Funds may be marketed directly by their AIFMs (or, technically themselves if self-managed). When delegated, this role is transferred to a distributor who is then responsible for marketing the fund to potential investors. This role is sometimes split into a Global Distributor (undertaken typically by the AIFM, Investment Manager or Sponsor/Initiator) and Sub-Distributors (often private banks and other wealth intermediaries). This role is critical for raising the capital necessary for the fund to pursue its investment objectives and for ensuring that the fund reaches its target investor base.

Independent Valuation Agent

The valuation agent plays a crucial role in independently (from the IM) valuing the fund's assets, particularly important for funds holding complex or real assets, therefore commonly found in investment strategies focused on infrastructure or real estate. Such independent valuation is typically done on a periodic (e.g. annual) basis.

Local Agents

While not core to the fund’s service provider panel, many funds are required to engage certain local agents to act in varying capacity to meet market practices, investor demands and local regulatory requirements. Such agents could be local representatives providing a central contact point for local investors to reach out to in case of questions / complaints. This is the case for distribution of fund shares to Swiss investors. Other such agents include local paying agents where there is investor preferences to funnel payments from / to the fund through a local intermediary (often the case for Italy or Spain). And again other such agents may be required by local law to allow for distribution into the jurisdictions by requiring local facilitation or substance on the ground.

AML / KYC Functions

In accordance with the Law of 12 November 2004 (the Lux law on the fight against money laundering and terrorist financing) transposing EU Directive 2001/97/EC every Luxembourg based fund is required to appoint two functions in relation to AML/KYC. These roles are called the “RC” (Responsable du contrôle) and the “RR” (Responsable du Respect) - both from the original French. They are typically undertaken by a mix of either single natural persons or jointly, respectively, the BoD / AIFM / independent and are responsible for the appropriate adherence to the AML/KYC law.

Counterparties

Depending on whether the fund is intending to use certain OTC derivatives (including FX), credit lines, certain securities / hedging transactions or certain cash management activities, it will likely be required to enter into bilateral counterparty relationships to support such activities.

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