SICAR amendments are good news for GPs

With the 2004 SICAR law Luxembourg introduced a private equity fund vehicle fully customised to the needs of the industry: the SICAR was a key driver in putting Luxembourg "on the map" of the world-wide private equity community.

Five years on, the SICAR has had a face list, featuring two key innovations:

The sub-fund SICAR
SICARs can now adopt so-called "umbrella" structures with multiple subfunds. Technically, each subfund has its own assets and liabilities which are totally segregated from those of the other subfunds, thus achieving a ring-fencing between the net assets of the different subfunds which can be launched and liquidated fully independently of each other.

Private equity houses will now be able to implement several investment programmes and accommodate different investor groups with dissimilar requirements in dedicated subfunds within a single SICAR. Each subfund can have different advisers, carried interest schemes, draw-down mechanisms or valuation methodologies.

Luxembourg LP-SICAR
The updated SICAR law now allows SICARs set-up under the legal form of a Société en Commandite Simple (SCS), the equivalent of the UK LP scheme or the German KG, to have variable capital. Provided the new variable capital option is used, the amendments to the SICAR law also stipulate that these entities are no longer obliged to publish in the official trade register certain information on limited partners while provisions that could have required them to return distributions to the fund in certain circumstances are no longer applicable.

Several additional improvements
1- Investments in SICARs are reserved for so-called well-informed investors. While the General Partner of a SICAR set-up as a limited partnership and of a corporate partnership limited by shares was already excluded from the eligibility requirements, the amended SICAR law now extends this exemption to any manager or any person involved in the management of the SICAR, regardless of its legal form.

2- The SICAR law now clearly stipulates that any share premium paid in addition to the subscribed capital is taken into account to compute the minimum capital requirements of €1m that the SICAR must reach within the first 12 months following authorisation by the CSSF , whatever the form of the equity contribution.

3- The prospectus made available to investors does not need to be published. While the annual report and relating auditor's report need to be made available to investors within six months of year-end, the annual report does not need to be published in its entirety provided certain publication requirements are complied with.

4- The SICAR law no longer mentions NAV and consequently no longer requires its computation and communication to investors. The computation of a NAV, as well as the frequency of calculation, can however be included in the SICAR's prospectus.

5- While the original SICAR law referred to the "foreseeable sales price estimated in good faith" which is not as clear as the term "Fair Value", the amended SICAR law now refers to "Fair Value". The articles of incorporation should provide further information on the valuation methodology that the SICAR will apply to determine the Fair Value of its assets and may refer to the International Private Equity & Venture Capital Valuation Guidelines published by EVCA, BVCA and AFIC.

6- The details of the precise monitoring duties of the custodian has been removed from the SICAR law. The duty of the custodian remains the oversight of the SICAR's assets, which mainly consists of knowing, at all times, where the PE fund's assets are invested and located. This modification should not significantly change or impact the duties fulfilled in practice by the custodian of a SICAR.

7- The law now requires that any SICAR includes the words "SICAR" or "Société d'investissement en capital à risque" in its legal denomination.

In conclusion, the improvements to the SICAR law endeavor to make a best practice PE structure available to practitioners and increase not only the attractiveness of Luxembourg as a structuring hub for PE but also the European private equity and venture capital industry at large.

Alain Kinsch, partner, is the head of private equity of Ernst & Young Luxembourg