Ring-fencing for Partnerships – Luxembourg Bill Envisages Compartments for SCS/SCSp That Are Not Governed by Specific Luxembourg Fund Product Laws 

On 30 July 2026, the bill of law n°8814 (Bill of Law) was tabled to the Luxembourg Parliament to amend the Luxembourg AIFM Act¹ to extend the option of the umbrella form with ring-fenced compartments to common limited partnerships (SCS)² and special limited partnerships (SCSp)³ that are not governed by Part II of the UCI Act,⁴ the SICAR Act,⁵ the SIF Act⁶ or the RAIF Act⁷ (the Fund Product Laws).

Background

Until now, an SCS or SCSp could only have compartments if it was governed by one of the Fund Product Laws because the possibility of separating assets and liabilities in ring-fenced compartments – which bind investors as well as creditors – is set out in those Fund Product Laws. The Luxembourg Companies Act⁸ is silent on the creation of separate portfolios of assets and liabilities within the same entity.

Currently, an AIF⁹ that takes the form of an SCS or an SCSp and that is not subject to one of the Fund Product Laws can contractually determine in its limited partnership agreement to create separate portfolios and allocate specific assets and liabilities to these portfolios, generally designated as ‘pools’ or ‘tracking classes’. Unlike the compartments established pursuant to the Fund Product Laws, where ring-fencing is based on statutory provisions in the applicable law, pools and tracking classes are created by private contractual provisions that are subject to challenge by third parties. This adds complexity when parties are trying to negotiate a lending arrangement and its related security package to such a pool or tracking class. In practice, it is often concluded that it would be easier and more robust to create a separate SCS or SCSp.

Many Luxembourg private funds adopt the form of an SCSp without being subject to one of the Fund Product Laws, especially SCSps investing alongside offshore funds as parallel investment funds for European investors. While this generally works well for a simple SCS or SCSp with few changes required, the same is not the case when the parallel fund is itself compartmentalized (e.g., a series LLC). The Bill of Law is consequently a further step to enhance the Luxembourg fund structuring toolbox.

Amendment of AIFM Act

Rather than amending the Companies Act, the Bill of Law proposes amending the AIFM Act by introducing a new article 28bis in chapter 5. Article 28bis provides that an SCS or SCSp that qualifies as an AIF and is managed by an AIFM authorized in the European Union can avail of the umbrella structure with ring-fenced compartments. Under Article 28bis, compartments are not available to AIFs managed by sub-threshold or third-country AIFMs, nor to an SCS or SCSp acting merely as a holding entity. The possibility of creating compartments has not been extended to AIFs using legal forms other than the SCS or SCSp, given that AIFs adopting a corporate form will rarely fall outside one of the Fund Product Laws.

Article 28bis is largely derived from the provisions on compartments in the Fund Product Laws and can be summarized as follows:

• The possibility of creating compartments must be set out in the limited partnership agreement.
• Rights and claims from investors and creditors in respect of one compartment cannot be enforced against another compartment unless specifically determined in the limited partnership agreement – assets and liabilities of one compartment are consequently ring-fenced to those of other compartments by statutory rule.
• Compartments can be liquidated separately without causing the dissolution of the SCS or SCSp, if at least one compartment remains – the SCS or SCSp will automatically enter liquidation with the liquidation of the last compartment in the umbrella fund.
• Separate annual reports can be established for each compartment.
• One compartment can invest in another compartment, provided the target compartment does not, in turn, invest in the investing compartment; voting rights attached to the relevant interests are suspended for as long as they are held by the investing compartment.

Practical Use of Compartments

The introduction of ring-fenced compartments by the Bill of Law can serve multiple purposes for an SCS or SCSp that is not subject to one of the Fund Product Laws.

Compartments can be created for different vintages, for pursuing different investment strategies or applying different leverage limits. Compartments within the same SCS or SCSp can also be dedicated to co-investments.

Unlike an SCS or SCSp that is subject to the SIF Act or the RAIF Act,¹⁰ no risk spreading is required within the compartment. Compartments can be created for single investments, which is helpful for structuring deal-by-deal funds.

Next Steps

The Bill of Law is making its way through the legislative process. As a next step, the State Council and the Chamber of Commerce will release their opinions – and further amendments may be made – before the Bill of Law can be voted by the Parliament.