Independent Directors for RAIFs, GPs and SCSps in Luxembourg
A RAIF, its general partner and an SCSp do not necessarily have the same governing body or the same legal responsibilities. An independent director appointment should therefore begin by identifying where governance and decision-making authority actually sit.
Executive Summary
In a Luxembourg partnership structure, the independent director is commonly appointed to the board of a corporate general partner rather than to the SCSp itself. The board must nevertheless understand the RAIF, the partnership agreement, the allocation of authority between the GP and AIFM, the delegated operating model and the interests of investors. The value of independence lies in connecting these layers and ensuring that decisions are taken by the correct body on adequate information.
Why the Legal Structure Matters
References to the “fund board” can conceal several legal and operational layers. A Luxembourg RAIF may be constituted as a corporate vehicle or as a partnership. An SCSp has no legal personality separate from its partners, while a corporate general partner has its own governing body and responsibilities.
The appointed AIFM has distinct regulatory duties concerning portfolio management, risk management, valuation governance, conflicts, delegation and reporting. The administrator, depositary and investment manager also perform functions that affect the information available to the GP board.
An independent director should therefore understand both the legal entity to which the mandate relates and the broader fund structure in which that entity operates.
The RAIF Governance Layer
A reserved alternative investment fund is not subject to direct product approval and ongoing prudential supervision by the CSSF in the same way as a SIF or Part II UCI. It remains governed by the RAIF Law and must operate within an AIFM framework.
This places particular importance on the quality of the governance architecture. The governing body should understand the fund’s investment policy, risk profile, offering terms, valuation arrangements, conflicts framework and the services performed by the AIFM and other providers.
Board question: Does the governing body receive enough information to understand whether the RAIF is operating consistently with its constitutional and offering documents?
The General Partner Board
Where an SCSp is managed through a corporate GP, the GP board is often the principal forum for decisions attributed to the general partner under the limited partnership agreement. Its members act for the GP as a legal entity while exercising the GP’s management authority in relation to the partnership.
The board should distinguish decisions reserved to the GP from functions assigned to the AIFM or delegated to other service providers. It should also understand any matters requiring investor consent, advisory committee involvement or another approval under the partnership agreement.
An independent director can help the GP board test whether sponsor proposals are consistent with the partnership terms, supported by adequate information and considered in the interests relevant to the entity and structure concerned.
Board question: Is each proposed decision being taken by the correct body and under the correct authority?
The SCSp and the Location of the Mandate
An SCSp does not have legal personality and does not usually have a board in the corporate sense. Its governance is largely contractual and operates through the partnership agreement, the general partner and any committees or delegated bodies established by the structure.
For that reason, describing someone as an “independent director of the SCSp” may be imprecise if the legal appointment is in fact to the board of the corporate GP. Appointment documents, board materials and public descriptions should identify the actual entity and role accurately.
This distinction is not merely technical. It affects the source of authority, the relevant constitutional documents, the applicable conflicts process, the entity whose interests must be considered and the records that should evidence the decision.
Interaction With the External AIFM
The AIFM’s regulated responsibilities do not remove the need for effective GP or fund governance. Equally, the GP board should not attempt to duplicate the AIFM’s functions. The objective is a clear allocation of responsibility supported by appropriate reporting, challenge and escalation.
Board materials should make it possible to understand material investment developments, risk, valuation, liquidity, leverage, compliance, delegation, conflicts and service provider issues. Where information originates from a delegate, the board should know how it has been reviewed and which matters remain open.
Board question: Can the GP board explain what it decides, what the AIFM decides and how concerns move between the two bodies?
Where Independence Adds Particular Value
- Related party transactions involving the sponsor or affiliates.
- Valuation judgements and overrides for illiquid portfolio assets.
- Allocation of investments, costs or opportunities between vehicles.
- Extensions, amendments and waivers under the partnership agreement.
- Financing arrangements involving the fund, GP or portfolio companies.
- Conflicts between investor groups or between the sponsor and the fund.
- Selection, review or replacement of key delegates and service providers.
- Material incidents requiring escalation, remediation and documentation.
Questions Before Making the Appointment
- Which legal entity will appoint the director?
- Which powers does that entity exercise under the partnership agreement?
- How are responsibilities divided between the GP, AIFM and investment manager?
- Which conflicts are inherent in the sponsor and service-provider model?
- What financial and asset-class experience should complement the board?
- What meeting schedule, transaction activity and workload should be expected?
- Which information rights, insurance and indemnification arrangements apply?
- How will independence and capacity be reassessed during the mandate?
Primary Sources
- Luxembourg Law of 23 July 2016 on reserved alternative investment funds.
- Guichet.lu guidance on the Luxembourg SCSp.
- CSSF Circular 18/698.
- Directive 2011/61/EU on alternative investment fund managers.
Related Prudentia Resources
- Independent Director Services in Luxembourg
- AIFM Governance in Luxembourg
- Fund Board Services in Luxembourg
- How to Appoint an Independent Director
- Compare RAIF, SIF, SCSp and Other Luxembourg Structures
Author: Prudentia Advisory
This publication is provided for general information only and does not constitute legal, tax, regulatory or investment advice. The allocation of responsibility depends on the precise legal form, documents and operating model concerned.
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