CSSF Circular 25/901: Consolidation, Recalibration, and Clarification of Luxembourg’s Framework for SIFs, SICARs, and Part II UCIs

On 19 December 2025, the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg published Circular 25/901 (the Circular), setting out updated supervisory guidance applicable to CSSF-regulated alternative investment funds. The Circular applies to specialised investment funds (SIFs), investment companies in risk capital (SICARs), and Part II undertakings for collective investment (Part II UCIs), as well as their compartments when structured as umbrella funds. 

The Circular does not apply to European long-term investment funds, money market funds (MMFs), European venture capital funds, European social entrepreneurship funds, or closed-ended funds or compartments the CSSF authorised prior to 19 December 2025.

In its communiqué, the CSSF explains that the Circular responds to the significant capacity for innovation of SIFs, SICARs, and Part II UCIs — which has led the existing regulatory framework to no longer fully reflect certain current market practices and investor expectations — and situates the Circular within a broader effort toward modernisation, clarification, and simplification.

The Circular repeals CSSF Circulars 02/80, 07/309, and 06/241, as well as Chapters G and I of Circular IML 91/75. In addition, the provisions of CSSF Circular 08/356 and Chapter H of Circular IML 91/75 no longer apply to Part II UCIs. The Circular consolidates and replaces these instruments while preserving their core principles and adapting them to market developments and supervisory practice gained over time.

This update provides welcome clarification of several existing rules and introduces a limited number of targeted innovations. In substance, the Circular (i) recalibrates quantitative prudential limits by reference to the investor base targeted rather than by product label alone; (ii) codifies established CSSF supervisory practice on ramp-up, wind-down, and intermediary vehicles; (iii) explicitly recognises commitment-based calculation methodologies for concentration and leverage metrics; and (iv) formalises and tightens the analytical framework applicable to the concept of risk capital for SICARs. It will be of particular interest to sponsors and managers pursuing their strategies through regulated Luxembourg vehicles, especially those addressing a broad investor base, because it brings increased clarity, consistency, and predictability to the regulatory framework.

A nonbinding document titled “Compilation of key concepts and terms used in the field of investment funds other than UCITS and MMFs and explanations on how the CSSF understands them” (the Compilation) accompanied the publication of the Circular. The Compilation focuses on private investments and is intended to support the practical application of the Circular by clarifying a shared vocabulary and general concepts relating to investment funds. The Circular indicates that the Compilation is intended to evolve over time in line with supervisory practice.

Both documents are in line with Luxembourg’s approach to the regulation of alternative investment funds. Together, they provide a clearer and more predictable supervisory framework while preserving the flexibility that characterises the CSSF’s approach, with documentation quality and internal justification emerging as key determinants of supervisory flexibility. 

The following summary highlights the key features of the revised supervisory framework that CSSF Circular 25/901 introduced and is complemented by a comparative schedule of selected changes. 

For the purposes of this note, references to a fund shall be understood to include, where applicable, any compartment of such fund, unless the context requires otherwise.

I. Revised Framework for Retail-Facing Part II UCIs

A key development the Circular introduced is the express recognition of the concept of an unsophisticated retail investor, defined as a retail investor that does not qualify as a well-informed investor within the meaning of the Luxembourg fund regimes.

This Luxembourg-specific approach provides a pragmatic national adjustment consistent with the political agreement reached at EU level on the retail investment strategy package, which aims to allow more retail investors to opt up to professional client status. Without creating a new product category or extending the EU passport, the Circular refines the application of certain prudential rules by reference to the investor base targeted rather than by product label alone, while differentiated treatment is introduced for Part II UCIs not marketed to unsophisticated retail investors, as set out in Section II below.

As a result, Part II UCIs marketed to unsophisticated retail investors are subject to enhanced transparency requirements and specific prudential safeguards, including the following:

• Transparency- and liquidity-related disclosures: A new disclosure obligation is included in sales documentation where investors have redemption rights and/or where the investor category targeted requires it. The sales documentation must include the redemption frequency, the applicable notice and settlement periods, any other relevant terms and conditions, the liquidity management tools available to the fund, the way redemption orders are executed, and, where applicable, any quantitative limitations on redemptions. In addition, the documentation must describe the treatment of the nonexecuted portion of redemption orders — including whether such portion is automatically cancelled or carried forward to the next redemption date. Where relevant, the documentation should also describe wind-down mechanics and any suspension of investment limits during such period.
• Risk-spreading: Historically, Part II UCIs marketed to retail investors could not invest more than 20% in a single asset. Diversification is now ensured if up to 25% of assets or commitments are invested in a single entity, vehicle, or asset. The Circular expressly confirms that these limits may in principle be calculated by reference to assets or commitments to subscribe or by reference to another appropriate calculation basis, provided that the CSSF duly justifies and accepts such basis, which is particularly relevant for closed-ended and private market structures.
• Funds of funds: The Circular further provides that the single-target-fund risk-spreading limits set out above for retail-facing Part II UCIs do not apply where the target fund or vehicle itself is subject to an equivalent or stricter risk-spreading rule, as evidenced by its constitutive documents or applicable regulatory framework. This does not amount to an increase of the applicable diversification thresholds but rather operates as a substitution or look-through mechanism, pursuant to which compliance with diversification requirements is assessed at the level of the target fund rather than at the level of the investing fund. As a result, reliance on this mechanism requires enhanced due diligence and appropriate disclosure in the offering documents regarding the target fund’s diversification regime and supervisory status.
• Infrastructure investments: A retail-facing Part II UCI may invest up to 50% of its assets in one infrastructure asset. 
• Borrowing limits: Funds marketed to unsophisticated retail investors are subject to a maximum borrowing limit of 70% of fund assets or commitments for borrowing used for investment purposes. This limit and the applicable calculation methodology must be disclosed in the sales documentation.
• Intermediary vehicles: The Circular expressly recognises that retail-facing Part II UCIs may invest through intermediary vehicles, irrespective of their legal form. Where such vehicles are used, the applicable risk-spreading limits apply to the underlying investments made through the intermediary vehicle and not to the vehicle itself. This implies a look-through approach and requires sufficient transparency and control to allow compliance with diversification requirements to be monitored and disclosed appropriately.
• Ramp-up and wind-down periods: The Circular provides for a practical ramp-up period, during which investment limits may be suspended to allow portfolio construction, reflecting the realities of illiquid investment strategies. For Part II UCIs primarily investing in assets eligible under the UCITS Directive, the ramp-up period is generally limited to twelve months. During the ramp-up period, the fund must not be exposed to excessive or previously undisclosed risks or conflicts of interest, and any temporary cash holdings must be managed prudently and in accordance with the disclosed investment policy.

The CSSF retains discretion to require additional prudential safeguards or disclosure requirements for retail-facing Part II UCIs as well as to assess on a case-by-case basis whether any deviation from the standard framework is justified in regard to the specific investment policy and target investor base of the fund.

II. SIFs and Nonretail Part II UCIs

The Circular aligns the risk-spreading logic applicable to SIFs and Part II UCIs more closely, with differences driven primarily by investor eligibility rather than by regime classification. For SIFs (which are reserved to well-informed investors) and Part II UCIs not marketed to unsophisticated retail investors, the Circular modernises applicable thresholds and codifies longstanding CSSF supervisory practice, building on the framework described in section I above, including the following:

• Risk-spreading
  The cap is 50% per single entity, investment vehicle, or other asset applies to SIFs and Part II UCIs not marketed to unsophisticated retail investors.
  For SIFs, this replaces the historical 30% concentration limit developed under prior CSSF Circulars and supervisory practice.
  For Part II UCIs, this higher threshold reflects the introduction of a differentiated regime, under which higher concentration is permitted where the fund is not marketed to unsophisticated retail investors, in contrast with the 25% limit applicable to retail-facing Part II UCIs described in section I.
  Economically linked assets may be treated as a single “other asset,” and investments made through intermediary vehicles are assessed on a look-through basis.
• Funds of Funds
  Investments exceeding the 50% concentration limit in a single target fund or vehicle are permitted where the target fund or vehicle itself is subject to an equivalent or stricter diversification regime, as evidenced by its constitutive documents or applicable regulatory framework. This applies the same substitution or look-through logic as described for retail-facing Part II UCIs in section I, pursuant to which compliance with diversification requirements is assessed at the level of the target fund.
• Infrastructure Investments
  Concentration limits are aligned with the Part II framework, allowing exposure of up to 50% for a single infrastructure investment and up to 70% where the fund is reserved to well-informed investors and does not target unsophisticated retail investors. This replaces prior CSSF supervisory practice, under which SIFs investing in infrastructure were generally expected to hold at least two infrastructure investments and limit exposure to no more than 75% of assets in a single project.
• Borrowing Limits
  Unlike retail-facing Part II UCIs (see section I), SIFs and Part II UCIs not marketed to unsophisticated retail investors are not subject to a prescribed quantitative borrowing cap. Instead, they may set their own maximum borrowing limits, which must be clearly defined and disclosed together with the applicable calculation methodology in the sales documentation.
• Intermediary Vehicles
  The Circular expressly recognises the use of intermediary vehicles. Where such vehicles are used, the applicable risk-spreading limits apply to the underlying investments made through the intermediary vehicle and not to the vehicle itself. This implies a look-through approach and requires sufficient transparency and control to allow compliance with diversification requirements to be monitored.
• Ramp-up and Wind-down Period
  For funds pursuing private investment strategies, the Circular provides for a practical ramp-up period, during which investment limits may be suspended to allow portfolio construction. The ramp-up period may in principle extend up to four years from launch, with a possible one-year extension in exceptional circumstances subject to CSSF acceptance. In addition, for such strategies, investment limits may cease to apply during the wind-down phase, provided this is expressly foreseen in the fund documentation and approved by the CSSF. In all cases, including during ramp-up and wind-down periods, the fund must not be exposed to excessive or previously undisclosed risks or conflicts of interest, and any temporary cash holdings must be managed prudently and in accordance with the disclosed investment policy.

The CSSF may grant case-by-case derogations from the above requirements based on a duly motivated justification and may, where appropriate, impose additional restrictions having regard to the specific investment policy of the fund.

III. SICARs: Risk Capital and Eligible Assets

For SICARs, the Circular does not fundamentally alter the scope of eligible risk capital investments as developed under former CSSF Circular 06/241. Private equity and venture capital strategies remain at the core of the regime, and certain debt financing strategies targeting nonlisted companies continue to be permissible.

Although the SICAR-related provisions of the Circular are more concise than those of former Circular 06/241, this reflects a change in regulatory technique rather than a relaxation of the regime. In particular, the Circular replaces detailed narrative guidance with a more structured, criteria-based assessment framework, coupled with heightened documentation and justification expectations vis-à-vis the CSSF. Several supervisory expectations that were previously applied through practice and case-by-case analysis are now formalised and articulated more explicitly.

1. Risk Capital Requirements

The Circular clarifies the scope of risk capital, which continues to cover private equity and venture capital strategies, but it may also encompass debt financing strategies targeting nonlisted companies. Capital contributions may take the form of equity investments, loan origination, bond subscriptions, bridge financing, or mezzanine financing.

To assess compliance with the risk capital requirement, the CSSF now expressly relies on the following three cumulative assessment criteria, which must be analysed together and documented in the SICAR’s authorisation file and sales documentation:

• Development: The concept of development continues to be understood as steps taken to create value for the target undertaking. The Circular clearly states that purely passive holding is not acceptable. Compared with Circular 06/241, the Circular strengthens and formalises the expectation of an active development or value creation thesis, supported by an appropriate degree of supervision or control over the target entity, it being understood that active intervention is not necessarily required in all cases where other factors demonstrate compliance with the risk capital criteria. This expectation is particularly emphasised in indirect investment structures, in which the SICAR must be able to demonstrate that invested amounts are effectively used to support the development of the underlying undertaking.
• Specific risk: The Circular distinguishes between general market risk and the specific risk inherent in risk capital investments, which must go beyond mere exposure to market fluctuations. Geographic exposure alone does not necessarily suffice to characterise risk capital. This criterion largely reflects existing CSSF practice, but it is now articulated more explicitly. The assessment may require a case-by-case analysis considering factors such as the number and type of target entities, their activities and markets, their stage of development, and the envisaged holding period.
• Exit strategy: The exit strategy is now elevated to a distinct and explicit assessment criterion, separate from the holding period. This constitutes a notable evolution compared with Circular 06/241, under which exit considerations were relevant but not expressly identified as a stand-alone test. The Circular introduces explicit documentation expectations, including disclosure of envisaged exit routes and the expected holding period in both the authorisation file and the SICAR’s sales documentation. The CSSF expects a description of compliance with the above criteria to be included in the authorisation file — including in the context of applications for new compartments of an existing multicompartment SICAR — and to be reflected consistently in the sales documentation and other investor-facing disclosures, as applicable.

2. Eligible and Ineligible Assets

The Circular sets out a structured and more granular list of eligible and ineligible assets covering securities, cash, debt instruments, derivatives, real estate and infrastructure assets, commodities, and investments in other funds. While the overall perimeter of eligible assets has changed little compared with Circular 06/241, the Circular provides clearer boundaries and reinforces the requirement that all such investments must ultimately satisfy the risk capital criteria.

• Securities: Securities may qualify as eligible investments, including where they are listed, provided that the investment is linked to a specific development project of the target entity. Merely listing a portfolio company does not necessarily trigger a disinvestment obligation. Asset-backed securities (ABS), collateralised debt obligations (CDOs), and similar instruments are ineligible. 
• Cash: A SICAR may hold cash to meet its liabilities and may temporarily invest cash awaiting deployment in low-risk liquid instruments. The Circular emphasises that such temporary investments must be made with due care to preserve capital and may not become a structural component of the investment policy.
• Debt: Mezzanine financing remains an eligible form of risk capital, provided the target entity satisfies the risk capital criteria. Mezzanine financing of listed companies is eligible only where it forms part of a specific development project, such as a delisting. Investments in existing mezzanine or distressed debt may also be eligible where the objective is to create value through restructuring.
• Derivative instruments: Derivative instruments may continue to be used solely for hedging purposes or where necessary to implement the investment policy. The Circular confirms that investments in derivatives may not constitute the object of the SICAR’s investment policy because derivatives are not considered to create value or to contribute to the development of the target undertaking. In this respect, the Circular largely restates the principles developed under the prior SICAR framework.
• Real estate or infrastructure assets: The Circular reaffirms that direct investment by a SICAR in real estate or infrastructure assets is not permitted and that such exposure may only be obtained through intermediary vehicles or dedicated real estate or infrastructure funds. The Circular further confirms that the underlying assets must themselves satisfy the risk capital criteria, reflecting the approach previously developed under the SICAR regime. This clarification reinforces existing supervisory practice.
• Commodities: As before, the CSSF assesses investment policies involving commodities on a case-by-case basis by reference to the risk capital criteria. The Circular maintains the distinction between indirect exposure to commodities (for example through investments in operating companies), which may be acceptable where linked to development, and direct investments in commodities, which remain prohibited. This approach is consistent with the prior SICAR framework.
• Investment vehicles and intermediary structures: Where investments are made through undertakings for collective investment or other investment vehicles, such vehicles must pursue objectives that are consistent with the SICAR’s investment policy. In this respect, the Circular confirms that private equity, venture capital, and certain real estate or infrastructure funds may be acceptable target vehicles where their investment policies restrict them to assets qualifying as risk capital, while hedge fund strategies remain in principle incompatible with the SICAR regime. At the same time — and as a necessary corollary to the use of such structures — the Circular reinforces supervisory expectations regarding monitoring and control, requiring SICARs to ensure funds flowing through intermediary vehicles are effectively deployed in risk capital investments. 

IV. Crosscutting Clarification on Fund Duration

The Circular provides that the term of a SIF, SICAR, or Part II UCI may be extended by up to one year up to a maximum of three times, provided that such extensions are expressly provided for in the fund documentation. Any extension beyond these limits requires a duly motivated derogation granted by the CSSF on a case-by-case basis. This formalises and constrains prior supervisory practice, under which duration extensions were assessed more flexibly and primarily through supervisory dialogue.

V. Key Takeaways and Supervisory Outlook

The Circular represents an important consolidation and clarification of the CSSF’s supervisory framework for regulated alternative investment funds. While it introduces limited new numerical thresholds, its principal contribution lies in enhancing consistency, transparency, and predictability across regimes.

For sponsors and managers, the Circular confirms the CSSF’s continued openness to innovative and private-market strategies while signalling higher expectations in terms of upfront structuring, disclosure quality, and internal justification of investment approaches.

Last, although reserved alternative investment funds (RAIFs) remain formally out of scope of the Circular, the updated articulation of the concepts of risk-spreading and risk capital is expected to continue to influence market practice for SIF-like and SICAR-like RAIFs, in line with the long-standing legislative intent that RAIFs mirror the corresponding regulated regimes.

Overview of Key Changes Introduced by CSSF Circular 25/901

Topic	Pre-Circular Framework	CSSF Circular 25/901
Relevance of investor base (all funds)	Investor categorisation is relevant in practice but not consistently reflected in numeric prudential limits	Explicit differentiation between unsophisticated retail investors and well-informed and/or professional investors, with calibrated prudential thresholds
Risk-spreading, single asset or entity (SIFs and Part II UCIs)	SIFs: Generally 30% per issuer or entity (Circular 07/309 + practice) Part II UCIs (retail): Generally 20% per issuer or entity (Circular 02/80 + practice)	25% where marketed to unsophisticated retail investors 50% where reserved to well-informed and/or professional investors Limits may be calculated by reference to assets or commitments
Risk-spreading, infrastructure investments (SIFs and Part II UCIs)	SIFs: Under CSSF supervisory practice, higher concentration is tolerated, generally requiring at least two infrastructure investments and limiting exposure to no more than 75% of assets in a single project Part II UCIs: Reliance on practice rather than harmonised rules	Explicit caps introduced for SIFs and Part II UCIs: 50% per infrastructure investment (unsophisticated retail investors) 70% where reserved to well-informed or professional investors
Risk-spreading, funds of funds (SIFs and Part II UCIs)	Investments in a single target fund generally subject to the same concentration limits as direct investments; no express substitution mechanism	Single-target-fund limits do not apply where the target fund is subject to an equivalent or stricter risk-spreading rule Formal substitution or look-through mechanism
Borrowing or leverage limits (all funds)	SIFs and SICARs: Borrowing limits set in fund documentation, subject to CSSF scrutiny Part II UCIs: Strategy-driven limits developed through practice	70% of assets or commitments where marketed to unsophisticated retail investors (borrowing for investment) No numeric cap otherwise, but mandatory disclosure of a maximum borrowing limit and methodology
Liquidity and redemption arrangements (Part II, retail)	Liquidity and redemption features addressed through product laws, AIFMD disclosures, and CSSF practice, without a harmonised or prescriptive disclosure framework specific to alternative Part II UCIs	Enhanced and more prescriptive disclosure requirements for funds offering redemption rights, including redemption frequency, notice and settlement periods, applicable liquidity management tools, execution of redemption orders, and the treatment of nonexecuted redemption requests Formalisation and standardisation of disclosure expectations rather than a substantive change to liquidity mechanics
Intermediary vehicles (all funds)	Use recognised in practice; look-through applied inconsistently depending on structure	Explicit recognition of intermediary vehicles across regimes, with look-through expectations for concentration and compliance monitoring
Ramp-up or wind-down (SIFs and Part II UCIs)	Ramp-up and wind-down flexibility recognised in practice, particularly for private assets, but not codified	Codified ramp-up (up to four years for private strategies and 12 months for liquid strategies, with possible exceptional extension) and wind-down flexibility
Duration extensions (all funds)	Duration extensions assessed case by case without explicit numeric limits	Duration may be extended by up to one year up to three times if provided for in documentation; further extensions subject to CSSF derogation
Risk capital framework (SICAR)	Circular 06/241 relied on narrative guidance focusing on development, risk, and holding duration	More concise but more structured framework, relying on three explicit cumulative criteria: development, specific risk, and exit strategy
Development criterion (SICAR)	Active development assessed case by case; passive holding discouraged but not expressly excluded	Passive holding expressly excluded; stronger emphasis on active value creation and supervision, particularly in indirect structures
Exit strategy (SICAR)	Exit considered indirectly (e.g., holding period as indicator)	Exit strategy elevated to an explicit assessment criterion, with enhanced disclosure requirements
Derivatives (SICAR)	Derivatives permitted only for hedging or implementation; not an investment objective	Same rule confirmed; derivatives cannot create value or substitute risk capital investments
Real estate or infrastructure exposure (SICAR)	Direct investment prohibited; indirect exposure assessed under risk capital criteria	Same approach reaffirmed, with greater emphasis on compliance at underlying-asset level
Commodities (SICAR)	Direct investments prohibited; indirect exposure assessed case by case	Same approach maintained
Investment vehicles (SICAR)	Private equity or venture capital funds acceptable if aligned with risk capital; hedge funds generally incompatible	Same perimeter confirmed, with reinforced expectations regarding monitoring and control of intermediary structures
Disclosure and transparency (all funds)	Disclosure obligations spread across product laws and AIFMD; level of detail varied	Expanded and harmonised disclosure expectations (investment policy, liquidity, leverage, and exit strategy)
RAIFs	SIF-like and SICAR-like RAIFs aligned with CSSF concepts by legislative intent and practice	RAIFs remain out of scope, but Circular expected to continue influencing interpretation and market practice

  We would like to thank Thaïs du Ché and Ivânia Semedo Tavares for their assistance with this alert.

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