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Modification to risk capital law

The law of June 15 2004 relating to the investment company in risk capital (SICAR) is currently being amended by the Luxembourg Parliament to adopt the techniques that explain the recent success of the specialised investment fund regime implemented on February 13 2007. The essential modifications may be summarised as follows.

The notion of well-informed investors will be modified to clarify the list and types of financial intermediaries that may certify the well-informed investor status of investors committing less than €125,000 ($200,000) to a SICAR. It will also exempt from such certification managers (dirigeants) and other persons who are involved in the management of the SICAR, including the management of the assets of the SICAR (that is, the personnel of an appointed investment manager or investment adviser). Such a person may therefore invest in a SICAR without being certified as well-informed investors or committing €125,000.

SICARs will be able to establish compartments corresponding to distinct parts of their assets and liabilities. Establishing compartments may be used for purposes as different as combining different investment policies, having a vintage year approach whereby investors may participate in different investment tranches over time, or to accommodate excused investor provisions by allowing for the creation of segregated compartments for assets which certain investors may not participate in.

The minimum subscribed capital of €1 million will take issue premiums into account.

Partnerships in the form of société en commandite simple are expected to be promoted by the clarification of its regime. The Chamber of Commerce has voiced the practice's desire that partnerships be given variability for their capital and that investors may finance the partnership by interest-free loan commitments, as is the case for most English partnerships.

The concept of probable realisation value estimated in good faith will be replaced by a simple reference to fair value. The articles of association must provide for the valuation methodology used to identify fair value.

The monitoring duties formerly imposed on the custodian by Article 8 Section 3 of the SICAR Law will be repealed, thus providing for more contractual freedom.

SICARs will no longer be obliged to calculate and publish a net asset value on a half-year basis. Practice had indeed proven this obligation to be irrelevant in typical private equity transactions.

Thibaut Partsch

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