CSSF FAQ on UCIs: investment in SPACs

On 17 December 2021, the CSSF updated its FAQ on the UCI Law (question 18) with information on the possibility for UCITS to invest in SPACs.  

The CSSF position on the conditions under which SPACs may be eligible investments for UCITS may be summarized as follows:

• the SPACs must qualify, at any point of their life cycle, as transferable securities¹ ;
• due to the different kind of risks that SPACs may carry, their potentially complex structure and the fact that their characteristics may vary largely from one SPAC to another, the structure of each SPAC needs to be carefully analysed;
• a detailed pre-trade risk assessment covering all material risks to which the UCITS will be exposed to as a result of the investment in SPACs must be performed. Such pre-trade risk assessment shall:
  • comply with the provisions of article 26 (4) of the CSSF Regulation 10-4 requiring management companies to formulate forecasts and perform analysis concerning the SPAC’s contribution to the UCITS’ portfolio composition, liquidity and risk and reward profile;
  • ensure that, at all times, the liquidity of the SPAC investments does not compromise the ability of the UCITS to repurchase its shares/units at the request of shareholder/unitholders.
• investments in SPACs should in principle be limited to a maximum of 10% of a UCITS’ NAV;
• investments in SPACs should be appropriately disclosed in UCITS prospectuses.

UCITS management companies should ensure that if the UCITS they manage invest or intend to invest in SPACs, the above conditions are or will be complied with.