On 19 December 2025, the CSSF released a new circular 25/901 (the Circular) which consolidates and simplifies the regulatory framework applying to SIFs (specialised investment funds), SICARs (investment companies in risk capital) and Part II UCIs (Part II undertakings for collective investment). The Circular repeals and replaces several long-standing circulars - either in full or in part - applicable to SIFs, SICARs, and Part II UCIs.

While the Circular covers SIFs, SICARs and Part II UCIs, it is to be expected that the new regulatory framework will boost even further the Part II UCI fund regime, which has experienced a successful re-emergence over the past few years in the context of the democratisation of alternative investment funds.

The issuance of the Circular is supplemented by a glossary on the general concepts underlying the Circular, with the objective of enhancing clarity and supporting exchanges with the CSSF.

The Circular does not apply to funds or compartments which are closed-ended and authorised before the entry into force of the Circular, or such funds or compartments authorised under the ELTIF, MMF, EuVECA or EuSEF regimes. It also includes a grandfathering provision for funds and compartments authorised by the CSSF before this date.

With the Circular, the CSSF ensures a flexible risk calibration tailored to the type of targeted investors (differentiating between unsophisticated retail investors and well-informed or professional investors), thereby achieving suitable and balanced investor protection. It also allows the CSSF to grant derogations based on a duly motivated justification.

The Circular retains the core principles of prior guidance while acting upon practical experience gained since their publication. Through its simplification efforts, the CSSF aims to bolster the attractiveness and competitiveness of Luxembourg investment funds.

In this contribution, we break down the key takeaways from the Circular to help you confidently navigate the new regulatory landscape.

1) Investment limits for SIFs and Part II UCIs

1.1 Diversification

The Circular provides enhanced flexibility with respect to diversification requirements applicable to SIFs and Part II UCIs, noting that the CSSF may grant further derogations to the following limits based on a duly motivated justification.

  • for funds/compartments marketed to unsophisticated retail investors: 
    • 25% limit per single issuer/entity/asset (previously not aligned/codified across all vehicle types).
    • 50% limit for single infrastructure investments (new provision).
  • for funds/compartments reserved for well-informed or professional investors:
    • 50% limit per single issuer/entity/asset (previously not aligned/codified across all vehicle types).
    • 70% limit for single infrastructure investments (new provision).
1.2 Ramp-up and wind-down periods

The Circular introduces practical guidance on ramp-up and wind-down periods (during which investment limits do not yet apply or no longer apply).

Ramp-up periods:

  • For UCITS-eligible assets: up to 12 months from launch.
  • For private investments: up to 4 years from launch (extendable by 1 year in exceptional circumstances with CSSF approval).

Wind-down periods:

  • For UCITS-eligible assets: N/A.
  • For private investments: investment limits may cease to apply during wind-down.

2) Concept of security representing risk capital with respect to SICARs

The circular consolidates and expands upon Circular 06/241 with a more comprehensive framework. It codifies, without altering the legal framework, the current market practice and interpretation, while maintaining and clarifying the risk and development criteria. It also explicitly addresses exit strategies, thereby formalising an existing CSSF practice.

3) Investment techniques

For SIFs and Part II UCIs, the Circular provides guidance on the use of portfolio management techniques such as repurchase or reverse repurchase agreements, securities lending or borrowing, or other types of arrangements. For Part II UCIs, this new framework introduces greater flexibility compared to previous requirements under Circulars 02/80 and 91/75, shifting from a detailed list of conditions to a more balanced approach focused on (i) investor interests and (ii) the economic appropriateness of the techniques.

4) Borrowing

New borrowing limits for SIFs and Part II UCIs have been established in the Circular, which represent a greater flexibility for Part II UCIs:

  • for funds/compartments marketed to unsophisticated retail investors: maximum 70% of assets or subscription commitments.
  • for funds/compartments reserved for well-informed or professional investors: N/A, own maximum borrowing limit to be set.

This is without prejudice to the leverage requirements that remain applicable to alternative investment funds.

5) Disclosures and transparency requirements

The Circular calls for comprehensive disclosures in sales documents (i.e., prospectus or offering document, as applicable), with a view clarify certain information to be specified in mandatory disclosures (such as under article 23 of the AIFMD to be expanded under AIFMD 2) and documents. These include: (i) detailed investment policies, risk factors, and conflict of interest disclosures; (ii) a clear description of subscription terms and redemption rights and procedures; (iii) the maximum borrowing limit; and (iv) additional information, particularly for funds or compartments marketed to unsophisticated retail investors.

Conclusion 

By codifying key market practices, the Circular delivers much-needed clarity and enhanced flexibility, for SIFs, SICARs and Part II UCIs. This evolution strengthens legal certainty for all vehicles and their sponsors, while RAIFs also stand to benefit as SIF and SICAR requirements serve as benchmarks for a more adaptable framework.

Although not binding, the accompanying “key concept” guidelines will prove valuable ahead of AIFMD 2 implementation - particularly for categorising semi-liquid evergreen structures that blend features of open-ended and closed-ended funds.

The appeal of Part II UCIs, already boosted by the modernisation of Luxembourg’s fund toolbox in July 2023 and the recent introduction of e-Identification, is set to grow further under the Circular. The combined effect of relaxed diversification and leverage requirements - tailored to investor profiles - will likely fuel sponsor interest and reinforce Part II UCIs as the go-to structure for fundraisings targeting high-end retail and private wealth investors.