CSSF Streamlines SIFs, SICARs and Part II UCIs Regulations – with an Indirect Impact on RAIFs

The Luxembourg supervisory authority, the CSSF,¹ released circular 25/901 relating to SIFs,² SICARs³ and Part II UCIs⁴ (the “Circular”)⁵ on 19 December 2025, together with a compilation on key concepts and terms used for certain private funds (the “Compilation”).⁶ The Circular aims to modernize, clarify, simplify and consolidate the regulatory practice of the CSSF for SIFs, SICARs and Part II UCIs and provides a single and consistent set of rules that is more comprehensive and easier aligned with European regulations. Even though the Circular does not apply to RAIFs⁷ since they are not regulated by the CSSF, the Circular can serve as guidance for RAIFs, notably in respect of risk-spreading requirements. The Circular abolishes long-standing circulars like CSSF circular 07/309, which introduced the 30% risk spreading rule for SIFs, and CSSF circular 06/241, which defines the assessment criteria on risk capital for SICARs.

The Circular is introducing the ‘unsophisticated retail investor’ to distinguish from the ‘well-informed investor’ required for SIFs, SICARs and RAIFs. In addition to professional investors, the well-informed investor category encompasses retail investors who confirm they agree to being categorized as well-informed investor in writing and invest at least EUR 100,000 in relevant fund. The unsophisticated retail investor does not need to fulfill these two conditions.⁸ The CSSF requires stricter risk-spreading requirements and borrowing limits in case unsophisticated retail investors are targeted by a Part II UCI.

Furthermore, the Circular is resetting the risk spreading requirements for SIFs and Part II UCIs that are not ELTIFs.⁹

In respect of SICARs, the Circular is consolidating the regulatory practice of the CSSF on the assessment of the concept of risk capital by adding the exit strategy contemplated by the SICAR as a criterion to distinguish SICARs from mere holding companies, in addition to the commitment to develop the underlying investments and to be exposed to a specific risk.

Scope of the Circular and the Compilation

The Circular only applies to SIFs, SICARs and Part II UCIs that are not regulated as ELTIFs, money market funds (“MMFs”),¹⁰ EuVECAs¹¹ and EuSEFs.¹² The Circular entered into force on 19 December 2025, but also clearly states that its provisions do not apply to closed-ended funds or compartments that were authorized by the CSSF before 19 December 2025.

As noted above, although the Circular does not directly apply to RAIFs and other alternative investment funds (“AIFs”) that are not regulated by the CSSF,¹³ the Circular will in practice serve as guidance in respect of risk spreading requirements for ordinary RAIFs and in respect of the concept of risk capital for RAIFs that are exclusively investing in securities representing risk capital (“Risk Capital RAIF”).¹⁴

The Compilation is neither a regulation nor a circular. Unlike regulations and circulars that have some level of binding effect on market participants and the CSSF, the Compilation is not legally binding. The Compilation is consolidating, in a single document released to the public, the general internal thoughts of the CSSF on key concepts and main terms applying to all type of AIFs that are not regulated as MMFs. The Compilation serves as guidance to aid understanding, for instance, of what the CSSF expects that an investment policy should cover, on how intermediary vehicles can be used or what type of subscription and redemption models can be implemented. The scope of the Compilation is wide, and we expect that third party alternative investment fund managers (“AIFMs”) are going to use the Compilation when reviewing fund documents of RAIFs and other non-regulated Luxembourg AIFs.

Risk Spreading Requirements for SIFs and Part II UCIs Under the Circular

For Part II UCIs that are not regulated as ELTIFs but that can be marketed to unsophisticated retail investors, the CSSF considers that the principle of risk-spreading is met if the Part II UCI, or any compartment thereof, limits subscription in the same entity or asset to 25% of that entities assets or commitments. The 25% limit is increased to 50% in case of investments or exposure to infrastructure.

For SIFs and Part II UCIs that are not regulated as ELTIFs and that are not marketed to unsophisticated retail investors (but that can be marketed to well-informed investors), the CSSF considers that the above-mentioned principle of risk-spreading can be set to 50% of the assets or commitments of a single entity or asset. The 50% limit is extended to 70% in case of investments in or exposure to infrastructure. The risk spreading limit of 30% for SIFs is abandoned with the repeal of CSSF circular 07/309.

The above-mentioned limits do not apply to securities issued or guaranteed by an OECD member state or its regional or local authorities or by EU, regional or global supranational institutions and bodies. The limits also do not need to be applied to other undertakings for collective investment if comparable or stricter risk-spreading is provided in the sales document of the latter (or the laws and regulations applicable to it).

Risk-spreading requirements generally do not apply during the ramp-up period where the portfolio is built-up. The CSSF considers that if the fund or compartment is investing in assets that would be eligible for a UCITS, the ramp-up period should in principle not be longer than 12 months.

If the fund or compartment is invested in private assets, the ramp-up period can be longer, but should in principle not exceed four years. In exceptional cases the ramp-up period may be extended, provided this extension is duly justified to and accepted by the CSSF. In principle, such an additional extension should not be longer than one year. The fund documents may also provide for a wind-down period. The duration of the ramp-up period and of the wind-down period shall always be reasonable and consistent with the investment policy.

Even though RAIFs are not within the scope of the Circular, the above-mentioned rules may serve as guidance for RAIFs that are not exclusively investing in securities representing risk capital.

Concept of Security Representing Risk Capital for SICARs Under the Circular

SICARs are generally designed for private equity and venture capital investments that would generate income during the life of the fund or compartment. An ordinary Luxembourg company would be paying taxes on that income. The SICAR, however, is tax exempt because of its status as a SICAR. It is therefore important that all parties (manager, CSSF and auditor) agree on the status of the fund as a SICAR.

In addition to the two criteria to assess risk capital that were already provided for in CSSF circular 06/241 that is repealed by the Circular (namely the commitment to develop the underlying investments and the exposure to specific risks related to the underlying investments), the Circular is formalizing the regulatory practice of the CSSF to also consider the exit strategy contemplated by the SICAR as an additional criterion. The Circular lists the following criteria as those needing to be considered as part of the assessment of the concept of risk capital:

• Concept of development: The SICAR shall not adopt a passive approach by keeping an investment to sell it with the intention to realize a gain or to collect income during the holding period. Steps must be taken to create value at the level of the underlying investment.
• Exposure to specific risk: The Circular reiterates that the specific risk must go beyond mere market risk. Several aspects may be considered in this context, and a case-by-case analysis may be necessary to prove the risk capital criterion.
• Exit strategy: The SICAR must have the intention to sell the investment when the latter matures or upon the investments’ development by the SICAR. The Circular does not impose or recommend a timeline – it is the ultimate intention to realize the profit upon the exit that prevails.

The Circular clarifies that mezzanine financing is an eligible form of financing, provided that the underlying investment meets the eligibility criteria for risk capital, for instance, by being a non-listed company. The Circular furthermore clarifies that a SICAR can hold cash on a temporary basis, including in the form of money market instruments or MMFs, provided that such cash is awaiting investment, reinvestment, distribution to investors or for paying expenses or reimbursing debts.

Even though Risk Capital RAIFs are outside the scope of the Circular, the above-mentioned criteria may serve as guidance for Risk Capital RAIFs.

Borrowing Limits for SIFs, SICARs and Part II UCIs Under the Circular

If a Part II UCI is marketed to unsophisticated retail investors, borrowing for investment purposes must, in principle, not exceed 70% of the assets or commitments of the Part II UCI. Where the marketing is reserved for well-informed investors, as is the case for SIFs and SICARs, or professional investors, this limit does not apply and the borrowing limit can be freely determined in the fund documents, provided the requirements for calculating leverage are respected, notably those set under AIFMD.¹⁵

Aligned with AIFMD, the Circular clarifies that temporary borrowing arrangements that are fully covered by capital commitments of investors are not regarded as borrowing. The same applies, in principle, to any debt security that is issued by the fund or compartment and whose proceeds are linked to the performance of the assets in the portfolio of the fund or the relevant compartment (e.g., such as profit participating loans).

Transparency Requirements for SIFs, SICARs and Part II UCIs Under the Circular

The Circular lists what the CSSF requires to be disclosed in the fund documents for SIFs, SICARs and Part II UCIs and, in certain cases these disclosure requirements go beyond what is required under article 23 of AIFMD. The disclosure requirements are calibrated on the investment policy and strategies as well as the targeted type of investors. For instance, if a fund of funds is investing more than 25% in a single underlying fund, the fund documents must explicitly disclose this possibility and specify in the fund documents that risk spreading is applied at the level of the underlying fund that is at least comparable to the one applicable to the fund of funds.

For open-ended funds or compartments, the Circular requires that the redemption frequency, the notice and settlement period, the applicable terms and conditions, the available liquidity management tools (“LMTs”), the way redemption orders are executed and the treatment of the non-executed part of the redemption orders should be specified in the fund documents.

Concept of Investment Policy, Investment Strategies and Asset Classes and the Use of Intermediary Vehicles in the Compilation

The Compilation specifies what the CSSF is expecting to be included in an investment policy of any AIF that is not an MMF.

The investment policy should include (i) the fund’s investment objectives and strategies, (ii) the composition of its portfolio and the asset classes in which it may invest, the possible preferred geographical areas or sectors, (iii) the possible applicable restrictions applied to the investment policy, (iv) the contemplated investment methods, (v) the techniques that may be used, and (vi) the targeted investment horizons. Moreover, the investment policy must include the potential borrowing possibilities and restrictions.

Furthermore, the CSSF considers that the fund documents must consider possible conflicts of interest since the investment policy must be developed and implemented in the best interest of the fund and the investors.

The Compilation provides meaningful information on investment strategies and key criteria to determine and distinguish asset classes.

In case of the use of intermediary vehicles, the Compilation reiterates that it is permissible to apply a look-through approach to assess compliance with the investment policy and investment strategy, effectively mirroring the approach adopted by ESMA.¹⁶ The Compilation also clarifies that intermediary vehicles may take different forms including securitization vehicles.

Irrespective of whether the intermediary vehicle is majority-owned by the fund, the fund and its AIFM must be able to fulfil their respective legal or contractual obligations. Therefore, they must have some control over the intermediary vehicles. Specifically, inter alia, to (i) ensure that the investments belong to the intermediary vehicles and (ii) monitor the risks associated with these investments on an ongoing basis.

Concept of Subscription and Redemption Models and Use of LMTs in the Compilation

The CSSF distinguishes in the Compilation between the fully funded or paid-up subscription model and the commitment model, and describes what it considers as essential in each of these models.

Furthermore, the CSSF distinguishes between open-ended and closed-ended funds. For open-ended funds, it refers to the definition provided by Commission Delegated Regulation (EU) 694/2014.¹⁷ According to the CSSF, other models are also possible, including funds with no limited term, whose redemption options are left at the discretion of the fund or its AIFM. However, such funds are generally not suitable for marketing to unsophisticated retail investors.

The Compilation provides a description of LMTs that is aligned with Annex V of AIFMD.

To ensure fair treatment of investors, the CSSF reminds market participants that LMTs apply in principle in the same way to all the investors in the fund, but that redemption terms and conditions may be applied to different categories of shares or units, provided (i) that this does not result in a significant overall disadvantage for the other investors, in particular retail investors, and (ii) that this is not prohibited under any European regulations which may apply to the fund or compartment.

The Compilation provides a description of LMTs which is aligned with Annex V of AIFMD.

To ensure fair treatment of investors, the CSSF reminds market participants that LMTs apply in principle in the same way to all the investors in the fund, but that redemption terms and conditions may be applied to different categories of shares or units, provided (i) that this does not result in a significant overall disadvantage for the other investors, in particular retail investors, and (ii) that this is not prohibited under any European regulations which may apply to the fund or compartment.

Conclusion

While alleviating and clarifying points, this is an evolution rather than a re-writing of the rules. For SIFs, SICARs and Part II UCIs, the CSSF will require the application of the Circular and follow the Compilation. For RAIFs and, to a certain extent other non-regulated Luxembourg AIFs, the Circular and the Compilation will serve as a guidance. Managers setting up new funds or compartments should take these considerations into account.