French Monetary and Financial Code
In forceI. - A fund of hedge funds is an AIF governed by Article L. 214-140 which complies with the rules set out in II and may invest more than 10% of its assets :
1° In shares or units of AIFs or investment funds governed by foreign law which meet the conditions laid down in 5° of article R. 214-32-19, including those investing more than 10% of their assets in:
a) In units or shares of UCITS covered by article D. 214-22-1 or FIAs covered by article D. 214-32-31 ;
b) in units or shares of UCITS governed by French law, or of FIAs governed by paragraphs 1, 2 and 6 of sub-section 2, sub-paragraph 1 of paragraph 1 or paragraph 2 of sub-section 3 of this section; or
c) In units or shares of FIAs established in other Member States of the European Union or foreign investment funds invested under conditions identical to those mentioned in b of 4° of article R. 214-93 ; or
d) In units or shares of FIAs or investment funds mentioned in 5° of Article R. 214-32-19 whose management objective corresponds to the performance of a financial instrument index meeting the conditions defined in I of Article R. 214-32-25 ;
2° In shares or units of specialised professional funds;
3° In shares or units of funds of hedge funds governed by Article L. 214-140 or general-purpose professional funds governed by Article L. 214-144;
4° In shares or units of UCITS benefiting from a simplified procedure under article L. 214-35 as it read prior to 2 August 2003;
5° In units of futures market mutual funds referred to in Article L. 214-42 as it read prior to the date of publication ofOrder 2011-915 of 1 August 2011 relating to undertakings for collective investment in transferable securities and the modernisation of the legal framework for asset management;
6° In units or shares of feeder UCITS mentioned in Articles L. 214-22 and L. 214-24-57 or, under conditions defined in the general regulations of the Autorité des marchés financiers, in units or shares of foreign feeder funds whose master fund meets the conditions set out in 5° of Article R. 214-32-19.
A fund of hedge funds may invest up to 100% of its assets in the units or shares mentioned in 1° to 6°.
II. - A fund of hedge funds may invest up to 10% of its assets in units or shares of the same UCITS, AIF or investment fund mentioned in 1° to 6° of I. It may also invest up to 15% of its assets in units or shares of the same UCITS, FIA or investment fund mentioned in 1° to 6° of I if the total value of these units or shares exceeds 10% of the assets but does not exceed 40% of these assets.
III. - By way of derogation from II of article R. 214-32-18, the assets of the fund of alternative funds may also include, up to the limit of 10% mentioned in the same article, shares or units of foreign investment funds which do not comply with the criteria set out in 5° of article R. 214-32-19.
IV. - By way of derogation from the penultimate paragraph of I of article R. 214-32-19 and independently of the application of 1° of I, a fund of hedge funds may invest up to all of its assets :
1° In units or shares of UCITS governed by French or foreign law, of FIAs governed by paragraphs 1, 2 and 6 of sub-section 2, sub-paragraph 1 of paragraph 1 or paragraph 2 of sub-section 3 of this section, or of FIAs mentioned in Article L. 214-24-1 or of investment funds mentioned in Article L. 214-1-1 which themselves invest more than 10% of their assets in units or shares of UCITS governed by French or foreign law ;
2° In units or shares of FIAs covered by paragraphs 1, 2 and 6 of sub-section 2, sub-paragraph 1 of paragraph 1 or paragraph 2 of sub-section 3 of this section;
3° In units or shares of FIAs established in another Member State of the European Union or investment funds governed by foreign law, where the following conditions are met:
a) Fees and commissions relating to direct or indirect investment in investment funds, UCITS or FIAs are subject to transparency rules defined by the general regulations of the Autorité des marchés financiers ;
b) The fees and commissions referred to in a) will continue to be passed on to the fund of hedge funds covered by this IV.
The application of I and II to a fund of hedge funds covered by this IV is carried out at the level of the undertakings or funds in which the fund of hedge funds is indirectly invested.
