LUXEMBOURG: CSSF FAQ concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment – version 14

Friday December 17 2021

The CSSF have updated the FAQs concerning the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment. The FAQs ) aim at highlighting some of the key aspects of the laws and regulations governing UCITS from a Luxembourg perspective.

The following question has been added to the FAQs.

Q18. Do Special Purpose Acquisition Companies (“SPACs”) constitute eligible investments for UCITS?

Investments in SPACs by UCITS are not prohibited as SPACs may constitute eligible investments for UCITS, provided 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, further clarified by the CESR guidelines.

However, SPACs may include different kind of risks such as dilution, liquidity, conflicts of interests or the uncertainty as to the identification, evaluation and eligibility of the target company. Moreover, the structure of SPACs can be complex and their characteristics may vary largely from one SPAC to another, meaning that UCITS need to carefully study the structure of each SPAC.

Consequently, before investing into SPACs, UCITS shall perform a detailed risk assessment covering all material risks to which the UCITS will be exposed to as a result of the investment. Given the risk profile of SPACs, such pre-trade assessment shall notably also comply with the provisions of article 26 (4) of the CSSF Regulation 10-4 requiring management companies, on the basis of reliable and up-to-date information both in quantitative and qualitative terms, to formulate forecasts and perform analyses concerning the investment’s contribution to the UCITS’ portfolio composition, liquidity and risk and reward profile. With regard more specifically to liquidity risk, the assessment shall ensure that, at all times, the liquidity of the SPAC investments does not compromise the ability of the UCITS to repurchase its units at the request of unit-holders.

Based on the foregoing, the CSSF is of the opinion that a UCITS’ investment in SPACs should in principle be limited to a maximum of 10% of a UCITS’ NAV, provided that such SPAC investments fulfil all applicable eligibility requirements, are appropriately disclosed in UCITS prospectuses and are captured adequately by the risk management process of the UCITS.

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