Holding of ancillary liquid assets by UCITS
On 3 November 2021, the CSSF published an updated version of its Frequently Asked Questions concerning the Luxembourg law of 17 December 2010 relating to undertakings for collective investment in transferable securities (the “UCITS FAQ”) providing clarifications on the holding of ancillary liquid assets by UCITS. In that regard, six new questions were added, with the aim of clarifying the circumstances and the extent to which UCITS are allowed to hold ancillary liquid assets.
To these questions, the CSSF provided following answers:
- Ancillary liquid assets that UCITS may hold pursuant to Article 41(2)(b) of the law of 2010 consist of bank deposits at sight, such as cash held in current accounts with a bank accessible at any time. The holding of such ancillary liquid assets is limited to 20% of the net assets of a UCITS. The 20 % limit may only be temporarily breached where exceptionally unfavourable market conditions so require and where such breach is justified by the interests of investors.
- Bank deposits, money market instruments or money market funds that meet the criteria of Article 41(1) of the law of 2010 are eligible assets for UCITS and cannot be included in the ancillary liquid assets under Article 41(2)b).
- A UCITS is only authorised to invest in bank deposits, money market instruments or other eligible assets listed under Article 41(1) of the law of 2010 if this is clearly provided for in its investment policy. In case a UCITS invests in a category of assets that is not foreseen in its investment policy, the provisions of CSSF Circular 02/77 apply.
- Margin accounts do not qualify as bank deposits under Article 41(1)(f) of the law of 2010, neither do they qualify as ancillary liquid assets under Article 41(2)(b) of the law of 2010.
- The 20% limit on deposits made by a UCITS with a same body under Article 43(1) of the Law of 2010 applies to ancillary liquid assets.
- The 20% limit on deposits made with a same body under Article 43(1) of the Law of 2010 does not apply to margin accounts.
Investments in Special Purpose Acquisition Companies by UCITS
On 17 December 2021, the CSSF published an updated version of the UCITS FAQ. This time, only one question was added and it aims at clarifying investments in Special Purpose Acquisition Companies (“SPACs”) by UCITS.
The CSSF points out that SPACs are eligible investments for UCITS, but only if they qualify, at any point of their life cycle, as transferable securities within the meaning of Article 1(34) and Article 41 of the law of 2010 and Article 2 of the Regulation 2008 (Grand-ducal regulation of 8 February 2008 relating to certain definitions of the amended law of 20 December 2002 on undertakings for collective investment). Nevertheless, due to different kinds of risks that SPACs may present and due to the complexity that their structure might have, UCITS shall perform a detailed risk assessment covering all material risks that these investment could bring about.
Pursuant to Article 26 (4) of the CSSF Regulation 10-4, the CSSF also highlights that such an assessment shall comply with the requirement that management companies should formulate, on the basis of reliable and up-to-date information both in quantitative and qualitative terms, forecasts and perform analyses concerning the investment’s contribution to the UCITS’ portfolio composition, liquidity and risk and reward profile.
In light of the foregoing, the CSSF ultimately considers that a UCITS’ investment in SPACs should in principle not exceed a maximum of 10% of a UCITS’ NAV, provided that such SPAC investments fulfil all applicable eligibility requirements, are adequately disclosed in UCITS prospectuses and are subject to the risk management process of the UCITS.
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