The principal legal vehicles used to set up alternative funds in Luxembourg are the following.

• Undertakings for collective investment, governed by Part II (“Part II UCI”) of the Law of 17 December 2010 (the “UCI Law”), which may be constituted in the form of a common fund (fonds commun de placement; FCP), an investment company with variable capital (société d’investissement à capital variable; SICAV) or an investment company with fixed capital (société d’investissement à capital fixe; SICAF). An amendment to the UCI Law in 2023 broadened the corporate forms available for a Part II UCI. They may now be established as SICAVs in the form of a partnership limited by shares (société en commandite par action; SCA), a common limited partnership (société en commandite simple; SCS), a special limited partnership (SLP; société en commandite spéciale, or SCSp) or a co-operative society (société coopérative) organised as a public limited liability company (société anonyme; SA) or a private limited liability company (société à responsabilité limitée; Sàrl), as opposed to just an SA. Part II UCIs are supervised by the Commission de Surveillance du Secteur Financier (CSSF) which is the supervisory authority in Luxembourg. The main advantage of these funds is that they are open to all types of investors, including retail.
• Specialised investment funds (SIFs; fonds d’investissement spécialisé), governed by the Law of 13 February 2007 (the “SIF Law”), which may be constituted as an FCP, SICAV or SICAF. While SIFs have the advantage of having almost no restrictions in terms of what they can invest in, they are only open to well-informed investors. As with Part II UCIs, they are supervised by the CSSF.
• Investment companies in risk capital (sociétés d’investissement en capital à risque; SICARs), governed by the Law of 15 June 2004 (the “SICAR Law”), which may only be constituted as a corporate or partnership entity (ie, they cannot be FCPs). SICARs have the advantage of having no investment diversification rules, but they must invest in risk capital. As such, this vehicle is generally used for investments in venture capital and private equity. SICARs are supervised by the CSSF and are only open to well-informed investors.
• Reserved alternative investment funds (RAIFs; fonds d’investissement alternatif réservé), governed by the Law of 23 July 2016 (the “RAIF Law”), which may be constituted as an FCP, SICAV or SICAF (in the case of a SICAV or SICAF, any of the available corporate or partnership forms can be chosen). RAIFs can choose to follow the SIF or SICAR regime in terms of the type of assets invested in. The particular advantage of this vehicle is that it is not subject to the supervision of the CSSF and, as such, a RAIF can potentially be brought to the market more quickly than supervised entities. Unlike Part II UCIs, SIFs and SICARs, a RAIF is always obliged to appoint an authorised external alternative investment fund manager (AIFM).
• The Luxembourg SLP, which is an unregulated and unsupervised entity. The SLP is characterised by its contractual freedom and is not subject to any investment or diversification constraints unless it takes the form of a European venture capital fund (EUVECA), European social entrepreneurship fund (EUSEF) or ELTIF.

RAIFs, Part II UCIs, SIFs, SICARs and SLPs that have designated an AIFM established in the European Economic Area (EEA) can market their shares, units or limited partnership interests to professional investors throughout the EEA, pursuant to the specific notification procedure provided for by the Alternative Investment Fund Managers Directive (AIFMD).

Each Part II UCI, SIF, SICAR and RAIF may be established as an umbrella fund, allowing the creation of multiple compartments. This option is not available to the unregulated SLP.

Vehicles set up in the form of an FCP issues units. Those in corporate form issue shares, and those in the form of partnerships issue limited partnership interests.

The Part II UCI, the SIF and the SICAR are subject to authorisation by the CSSF prior to establishment. An application file must be submitted to the CSSF consisting of at least the following documents (there are certain ancillary documents, and the CSSF may always request further information):

• an offering document;
• a constitutive document;
• agreements with key service providers including the depositary, the AIFM, any delegated portfolio manager and the central administration agent;
• information on the directors or managers, who must be of sufficiently good repute and be sufficiently experienced;
• a packaged retail and insurance-based investment products key information document (PRIIPs KID) if retail investors are targeted; and
• application forms.

The RAIF is not subject to approval by the CSSF, but the following documents will still be required:

• an offering document;
• a constitutive document; and
• agreements with key service providers including the depositary, the AIFM, any delegated portfolio manager and the central administration agent.

The SLP is frequently structured as an unregulated AIF, which is not authorised and not regulated by the CSSF unless it is an ELTIF, EUVECA or EUSEF. There is no requirement to have an offering document, though one is frequently prepared for marketing reasons. The limited partnership agreement is the key document for an SLP. Given that there is no approval process at the CSSF, the set-up time is shorter for the RAIF and the SLP.

However, for all vehicles, time for due diligence performed by the service providers, as well as time to complete bank account opening processes, needs to be factored into the establishment process.

The largest set-up costs are generally legal costs, though service providers also sometimes charge a set-up or onboarding fee. In addition, there are fees payable to the CSSF for regulated funds. For a Part II UCI, SIF or SICAR, the CSSF charges an examination fee and an annual fee for its supervisory activity. The fee amount differs depending on whether the fund is a standalone fund or an umbrella fund, and on whether or not it is self-managed. For example, the examination fee for a standalone Part II UCI, SIF or SICAR is EUR4,650, whereas for an umbrella fund it is EUR9,250.

The liability of an investor is generally limited to its commitment or subscription to the fund. In the case of an AIF in the form of an SCA, SCSP or SCS, there will always be an unlimited partner, which is generally an entity controlled by the fund initiators and usually referred to as the general partner. The general partner has unlimited and joint and several liability for all the obligations of the fund.

For a Part II UCI, SIF, RAIF or SICAR, a prospectus or offering document and an audited annual report must be made available to investors. A PRIIPs KID must also be made available if the fund is to be marketed to retail investors. The Part II UCI must also prepare a semi-annual report.

For an SLP, unless it is an ELTIF, EUVECA or EUSEF, there are no specific disclosure requirements unless it has appointed a fully authorised AIFM.

For those funds managed by a fully authorised AIFM, certain disclosures must be made to investors in the offering documents (subject to some changes following the implementation of the Draft Law (as defined in 4.1 Recent Developments and Proposals for Reform), and such funds must also prepare audited annual accounts.

In addition, regulated vehicles (SIFs, SICARs and Part II UCIs) are subject to periodic reporting to the CSSF for statistical and oversight purposes.

Finally, any AIFs managed by an AIFM will be indirectly subject to the Annex IV reporting requirements, with reports to be submitted to the CSSF pursuant to the AIFMD – it being noted that some changes to these reporting obligations will arise following the implementation of the Draft Law.

There has been increased demand for access to AIFs in recent years. Well-informed and institutional investors represent the majority of the investors in AIFs in Luxembourg, though there has been a trend towards retailisation of AIFs.

The legal structure used by alternative fund managers in Luxembourg will depend on the type and location of the investors, as well as the nature of the investment. SIFs, SICARs and RAIFs are intended for well-informed investors, and Part II UCIs are often used if there is an intention to target retail investors.

Increasingly, unregulated RAIFs or SLPs (managed by an authorised AIFM) are used as they offer more certainty in terms of time to market.

SIFs, SICARs and RAIFs are restricted to investment by well-informed investors. The Part II UCI can be marketed to both professional and retail investors in Luxembourg. There are no restrictions under Luxembourg law on who the limited partnership interests of an SLP can be sold to. However, for marketing in other jurisdictions, the AIFMD marketing passport will only allow marketing of the interests in an SLP to professional investors.

Pursuant to the Law of 12 July 2013 on AIF managers (the “AIFM Law”), authorised AIFMs established in Luxembourg, in another EEA member state or in a third country are authorised to market AIFs they manage to retail investors in Luxembourg, provided certain conditions are met, as follows.

• The AIFs must be subject in their home state to permanent supervision in order to ensure the protection of investors.
• The AIFs must be subject in their home state to regulation providing investors with guarantees of protection at least equivalent to those provided by Luxembourg laws governing AIFs authorised to be marketed to retail investors in Luxembourg. The home state supervision must also be equivalent to that provided in Luxembourg.

The regulatory regime applicable to an AIF differs depending on the type of fund. All AIFs are indirectly subject to the provisions of the AIFM Law. The extent to which the AIFM Law is applicable depends on whether they are managed by a fully authorised AIFM or a registered AIFM.

The Part II UCI is subject to investment restrictions and risk diversification rules arising from the UCI Law and various implementing CSSF circulars. For example, generally, a Part II UCI cannot:

• invest more than 10% of its assets in securities that are not listed on a stock exchange and are not traded on another regulated market that operates regularly and is recognised and open to the public;
• acquire more than 10% of the same type of securities issued by the same issuing body; or
• invest more than 20% of its net assets in securities issued by the same issuing body.

These general investment restrictions do not apply to Part II UCIs that are fund-of-fund structures if the investment funds in which the Part II UCI shall invest are open-ended and themselves subject to similar general investment restrictions. In addition, these general investment restrictions do not apply to Part II UCIs that are mainly investing in venture capital or real estate, or are pursuing alternative investment strategies.

Part II UCIs may in principle borrow the equivalent of up to 25% of their net assets without restriction as to the intended use thereof.

Part II UCIs that are mainly investing in real estate may borrow the equivalent of up to an average of 50% of the valuation of all their properties.

Borrowings of Part II UCIs that are mainly pursuing alternative investment strategies (hedge funds) may be up to 400%.

For SIFs, there are no asset restrictions, but the SIF may not invest more than 30% of its assets or commitments in securities of the same type issued by the same issuer. A RAIF that has chosen the SIF regime is subject to similar rules.

A SICAR is obliged to invest its funds in assets representing risk capital but is not subject to any diversification rules. A RAIF that has chosen the SICAR regime is subject to the same rules.

In general, an SLP is not subject to any investment restrictions or risk diversification rules. AIFs may choose one of the EU labels, such as EUVECA, EUSEF or ELTIF, in which case they will also be governed by the rules applicable to those regimes.

Luxembourg AIFs may be managed by an AIFM based in a member state of the EEA. If an AIFM established in another member state intends to market units or shares of an EEA AIF that it manages to professional investors in Luxembourg, the competent authorities of the home member state of the AIFM must transmit the notification file to the CSSF.

For RAIFs, SIFs, SICARs and Part II UCIs, the depositary must either have its registered office in Luxembourg or have a branch there if its registered office is in another EU member state. The central administration of these entities must be located in the Grand Duchy of Luxembourg.

CSSF Circular 22/811 clarified that foreign investment fund managers with the appropriate licence may act as administrator for non-regulated funds in Luxembourg (eg, SLPs).

Part II UCIs, SIFs or RAIFs established in the form of an FCP must appoint a Luxembourg AIFM.

AIFs in corporate or partnership form can appoint an AIFM established anywhere in the EEA. To manage a Luxembourg fund, such AIFMs must provide a notification to their home supervisory authority, who will transmit it to the CSSF.

The portfolio management of Luxembourg AIFs can be delegated to managers situated in third countries, provided that in the case of regulated funds such delegation is subject to the prior approval of the CSSF.

AIFMs that intend to delegate to third parties the task of carrying out functions on their behalf must notify the supervisory authorities of their home member state before the delegation arrangements become effective.

The approval process usually takes between three to six months and is dependent on several factors. These include:

• the completeness of the initial application;
• the speed with which the CSSF’s queries are answered;
• whether it is a first-time fund; and
• the nature of the investment policy.

Pursuant to the AIFM Law, an AIFM established in another member state that is pre-marketing, or intending to pre-market, an AIF to professional investors in Luxembourg must notify the supervisory authority of its home country (the CSSF in the case of Luxembourg AIFMs), (i) specifying in which countries and during which periods the pre-marketing is taking or has taken place; and (ii) providing a brief description of the pre-marketing, including information on the investment strategies presented and, where relevant, a list of the AIF(s) and compartments of AIF(s) that are or were subject to pre-marketing.

Information presented to potential professional investors in the context of pre-marketing cannot:

• be sufficient to allow investors to commit to acquiring units or shares of a particular AIF;
• amount to subscription forms or similar documents, whether in draft or final form; or
• amount to constitutional documents, a prospectus or offering documents of a not-yet-established AIF in final form.

The AIFM must ensure that professional investors do not acquire units or shares in an AIF through pre-marketing, and that investors contacted as part of pre-marketing may only acquire units or shares in that AIF after the formal marketing notification.

Any subscription by professional investors, within 18 months of the AIFM having begun pre-marketing, to units or shares of an AIF referred to in the information provided in the context of pre-marketing, or of an AIF established as a result of the pre-marketing, shall be considered to be the result of marketing and shall be subject to the applicable notification procedures (see 2.3.8 Marketing Authorisation/Notification Process).

AIFMs marketing AIFs in Luxembourg must comply with the provisions of the AIFMD. Where another firm is marketing in Luxembourg, it could be considered to be carrying out an activity of the financial sector and should thus be licensed or otherwise authorised to do so pursuant to the Law of 5 April 1993 on the financial sector. Firms from other EU member states with the appropriate licence pursuant to the Markets in Financial Instruments Directive (MiFID) would be authorised to carry out distribution activities in Luxembourg.

All marketing communications will need to comply with the requirements of Article 4 of Regulation 2019/1156 on facilitating cross-border distribution of collective investment undertakings. CSSF Circular 22/795 stipulates that Luxembourg AIFMs must provide the CSSF with information regarding marketing communications, and the CSSF will conduct testing to verify their compliance with the applicable requirements under Article 4.

SIFs, SICARs and RAIFs are reserved for and can only be marketed to well-informed investors in Luxembourg. Well-informed investors are institutional investors, professional investors or any other investors who meet the following conditions:

• they have confirmed in writing that they adhere to the status of well-informed investor; and
• they invest a minimum of EUR100,000, or have been the subject of an assessment made by an entity such as a bank, management company or AIFM certifying their expertise, experience and knowledge in adequately apprising an investment in a fund.

Part II UCIs can be marketed to any type of investor (both retail and well-informed investors).

In addition to the foregoing restrictions, EEA AIFs managed by an authorised AIFM can be marketed to professional investors in Luxembourg pursuant to Article 32 of the AIFMD.

As previously discussed, in certain circumstances authorised AIFMs may market non-Luxembourg AIFs to retail investors in Luxembourg.

EUVECAs and EUSEFs, governed by Regulation (EU) No 345/2013 and Regulation (EU) No 346/2013, respectively, can be marketed to professional investors and other investors, provided that each investor (noting that such funds could take one of the available forms of fund in Luxembourg like SICAR or SIF):

• commits to investing a minimum of EUR100,000; and
• states in writing that they are aware of the risks associated with the envisaged investment.

ELTIFs, which are AIFs that could take the form of one of the available funds in Luxembourg, are, depending on the rules that they comply with, potentially available to be marketed to both retail and professional investors upon notification, in accordance with Article 32 of the AIFMD.

An AIFM wishing to market to professional investors in Luxembourg must submit a notification to the competent authorities of its home member state (the CSSF for Luxembourg AIFMs) in respect of each EEA AIF that it intends to market. This does not apply to Luxembourg AIFMs marketing Luxembourg regulated funds. The notification must comprise certain information, including:

• a notification letter, with a programme of operations identifying the AIFs the AIFM intends to market and information on where the AIFs are established;
• the AIF rules or instruments of incorporation;
• identification of the depositary of the AIF;
• an indication of the member state in which it intends to market the units or shares of the AIF to professional investors; and
• information about arrangements made for the marketing of AIFs and, where relevant, information on the arrangements established to prevent units or shares of the AIF from being marketed to retail investors, including in the case where the AIFM relies on activities of independent entities to provide investment services in respect of the AIF.

The competent authorities of the home member state of the AIFM should, no later than 20 working days after the date of receipt, transmit the complete notification file to the CSSF. From the date of notification of such transmission, marketing can begin.

Those AIFMs wishing to market non-Luxembourg AIFs to retail investors must follow the detailed rules laid down in CSSF Regulation 15-03 on the marketing of foreign AIFs to retail investors in Luxembourg. Prior to marketing its units or shares to retail investors in Luxembourg, any foreign AIF must have obtained an authorisation for such marketing by the CSSF.

Material Changes

In the event of a material change in the information contained in its original marketing notification file, an AIFM must provide written notice of this change to its home state competent authority (the CSSF in the case of Luxembourg AIFMs) by resubmitting a marked-up version of the original notification file indicating the proposed changes.

All material changes planned by the AIFM must be notified to the CSSF at least one month before implementing the change, or immediately after an unplanned change has occurred.

De-Notification

An AIFM may de-notify arrangements made for marketing as regards units of shares of some or all of its AIFs in Luxembourg, if the following conditions are met:

• other than in respect of closed-ended funds and ELTIFs, a blanket offer is made to repurchase or redeem, free of any charges or deductions, all such units or shares held by Luxembourg investors;
• the intention to terminate arrangements made for marketing such units or shares is made public by means of a publicly available medium; and
• any contractual arrangements with financial intermediaries or delegates are modified or terminated, with effect from the date of de-notification, in order to prevent any new or further direct or indirect offering or placement of such units or shares.

The de-notification procedure is carried out through the home supervisory authority of the AIFM, which then informs the CSSF.

However, if an AIFM intends to cease the marketing of its non-Luxembourg AIF to retail investors in Luxembourg, it must inform the CSSF about whether Luxembourg investors are still invested in the AIF.

SIFs, SICARs and RAIFs are intended for well-informed investors that are able to adequately assess the risks associated with an investment in such vehicles.

Part II UCIs can be marketed to retail investors, but the applicable investment restrictions, in addition to the fact that they are supervised by the CSSF, adds to investor protection.

The fact that all AIFs, bar the unregulated SLP, must appoint a depositary and an auditor provides additional protection for investors.

Any AIF managed by an authorised AIFM needs to provide audited annual accounts that, in the case of regulated AIFs, also need to be provided to the CSSF. The CSSF is also made aware of the content of the management letters.

Additionally, such funds are required to disclose certain information to investors pursuant to the rules of the AIFMD and inform investors of any changes thereto. In addition, the AIFMD imposes rules on preferential treatment of investors and the valuation of an AIF’s assets.

AIFMs are also required to have risk management, liquidity management and conflict of interest policies in place, all of which serve to add to the protection of investors.

Part II UCIs must, in addition, produce a half-yearly report for submission to the CSSF.

All of the regulated funds are subject to regular reporting to the CSSF, to enable it to carry out its supervisory function.

In the case of a dispute with a Part II UCI, a retail investor can request the CSSF to impartially intervene for an out-of-court resolution, though its out-of-court decision is not binding on the parties.

In accordance with CSSF Circular 24/856, which replaced CSSF Circular 02/77 on 1 January 2025, AIFs that are regulated entities must have in place policies and procedures to deal with net asset value (NAV) calculation errors, investment breaches and other errors. Such policies and procedures are in place to ensure protection of investors in the case of errors and the correction of such errors.

The FAQ on CSSF Circular 24/856 (the “CSSF NAV Error FAQ”) confirms and clarifies certain aspects of that circular, including clarifications on the treatment of active versus passive investment rule breaches and on the definition of “other errors” (eg, fee miscalculations, cut-off errors, incorrect swing-pricing application).

The CSSF takes a practical approach. They can be approached for face-to-face meetings, particularly in relation to a new entry to the market or in relation to new projects. As regards ongoing matters, they can be reached by phone or email. The CSSF has also set up an electronic platform to facilitate the exchange of documents and information.

UCITS and undertakings for collective investment subject to Part II of the UCI Law (Part II UCIs – together with UCITS, the “retail funds”) are the two main investment funds for retail investors.

Retail funds are subject to direct supervision by the CSSF and require prior CSSF approval before they can be set up.

A retail fund may be set up as a standalone fund or an umbrella fund. However, the umbrella fund structure is most often used as it is cost-effective if several sub-funds are launched.

Each retail fund may issue classes and sub-classes of shares (or units, depending on the legal form chosen; see 3.2.2 Legal Structures Used by Fund Managers), enabling the retail fund’s shares to be adapted to the needs of its investors and its sponsor.

UCITS

UCITS are highly regulated investment vehicles that can be easily marketed to retail investors in the EEA thanks to the EU passport, but also to professional and institutional investors.

Stringent diversification rules are laid down by the UCI Law. In particular, a UCITS may invest no more than 10% of its assets in transferable securities (which must be listed on a regulated market) or money market instruments issued by the same body, and specific restrictions apply to index funds, holdings of other funds, use of financial derivative instruments and deposits. Leverage is restricted, and a UCITS must be an open-ended fund – ie, investors must be able to redeem.

Part II UCIs

Although Part II UCIs always qualify as AIFs, they are open to retail investors.

Part II UCIs are subject to a less stringent diversification policy than UCITS:

• they may borrow money or securities (up to 400% of the NAV for Part II UCIs following alternative investment strategies);
• they can be closed or open-ended funds; and
• they can be used to invest beyond transferable securities (private equity, real estate, etc).

However, Part II UCIs remain subject to the supervision of the CSSF.

Part II UCIs are not entitled to the European UCITS passport for distribution to retail investors in the EEA, but they can rely on the AIFMD marketing passport if they fall under the scope of the full AIFMD regime.

Retail funds must be authorised and supervised during their lifetime by the CSSF.

A retail fund set up in contractual form as an FCP shall only be authorised if the CSSF has approved its management company, which must be based in Luxembourg.

A retail fund set up in corporate form and appointing a management company or AIFM shall only be authorised if the CSSF has approved the management company or AIFM (if a Luxembourg entity), or if the relevant management company or AIFM has notified pursuant to the management passport. Where the management company or AIFM delegates portfolio management, the entity to whom they have delegated is subject to the approval of the CSSF.

Directors (who must be of sufficiently good repute and be sufficiently experienced) and other service providers of retail funds are subject to the approval of the CSSF.

The application is carried out online on a CSSF portal and requires the provision of, inter alia, the following documents:

• an application questionnaire;
• draft instruments of incorporation;
• a draft prospectus;
• a draft PRIIPs KID or, in the case of UCITS funds exclusively distributed to professional investors, a UCITS key investor information document (KIID);
• key policies (generally already in place within the investment fund manager);
• various AML documents;
• confirmation letters regarding main service provider agreements;
• information on the directors of the fund in question; and
• a business plan.

Once the application is complete, the authorisation process for a retail fund will range between three and six months. The actual length and cost depend mainly on the complexity of the investment strategy, the completeness of the application file and whether or not it is a first-time fund.

The largest set-up costs are generally legal fees, though service providers also sometimes charge a set-up or onboarding fee. In addition, there are fees payable to the CSSF for regulated funds. The CSSF charges an examination fee and an annual fee for its supervisory activity with respect to retail funds. The fee amount differs depending on whether the retail fund is a standalone or an umbrella fund, and on whether it is self-managed or not. For example, the examination fee for a standalone retail fund is EUR4,650, while an umbrella fund is charged EUR9,250. It should be noted that the annual fee for umbrella funds increases proportionally with the number of compartments.

Regardless of the legal form or structure, investors in retail funds are only liable up to the amount of their contributions.

UCITS

UCITS must publish a prospectus that includes the information necessary for investors to be able to make an informed investment decision and containing at least the information listed in Schedule A of Annex I of the UCI Law, as well as information about the remuneration policy. The prospectus must be kept up to date.

In addition, a three-page PRIIPs KID (or a two-page KIID under UCITS Directive 2009/65 for UCITS exclusively distributed to professional investors) summarising the key elements of the prospectus must be issued and kept up to date.

The following reports must be produced:

• annual report;
• semi-annual report covering the first six months of the financial year;
• semi-annual risk report (only intended for the CSSF);
• monthly financial report (only intended for the CSSF); and
• annual long-form report (only intended for the CSSF).

Part II UCIs

As with UCITS, Part II UCIs must also publish a prospectus that includes the information necessary for investors to be able to make an informed investment decision and containing at least the information listed in Schedule A of Annex I of the UCI Law. The prospectus must be kept up to date.

In addition, a three-page PRIIPs KID summarising the key elements of the prospectus must be issued if the Part II UCI is marketed to retail investors.

The following reports must be produced:

• annual report;
• semi-annual report covering the first six months of the financial year;
• semi-annual risk report (only intended for the CSSF);
• monthly financial report (only intended for the CSSF); and
• annual long-form report (only intended for the CSSF).

The majority of retail fund investors are located outside Luxembourg. All types of investors invest in retail funds (retail, professional and institutional investors).

Usually, a retail fund is set up in the contractual form of an FCP or a SICAV (ie, a corporate entity with variable capital). UCITS that are SICAVs have to take the form of an SA. However, the Modernising Law has extended the choice of legal forms for Part II UCI to include not only entities in the form of an SA but also those in the form of an SCA, SCS, SCSp and société coopérative organised as an SA or Sàrl. In the case of a Part II UCI, it is also possible to opt for an investment company with fixed capital (SICAF) in any of the same corporate forms.

There are no restrictions – all investors (ie, retail, professional and institutional investors investing for their own account and/or on behalf of retail investors) can invest in retail funds.

Non-Luxembourg investment funds that do not qualify as UCITS can be marketed to retail investors in Luxembourg provided that the provisions of CSSF Regulation 15-03 are complied with and the CSSF has authorised them; if such funds qualify as ELTIFs, CSSF Regulation 15-03 does not apply but rather the rules applicable under the ELTIF regulation.

UCITS

Eligible assets are restricted to transferable securities admitted on a regulated market, investment funds, financial derivative instruments, and cash and money market instruments.

Risk diversification requirements for UCITS include the following:

• cannot invest more than 10% of assets in transferable securities or money market instruments issued by the same issuer, and those holdings that exceed 5% cannot in aggregate exceed 40% of their assets;
• cannot invest more than 20% of assets in deposits made with the same body; and
• global exposure relating to financial derivative instruments cannot exceed the total value of the portfolio.

A UCITS cannot borrow more than 10% of its assets on a temporary basis.

Uncovered short positions are not allowed, but a UCITS can pursue a long-short investment strategy and achieve short exposure synthetically through the use of financial derivative instruments.

Various liquidity monitoring requirements (LMTs) are provided for.

Part II UCIs

The Part II UCI is subject to investment restrictions and risk diversification rules arising from the UCI Law and various implementing CSSF circulars. For example, generally a Part II UCI cannot:

• invest more than 10% of its assets in securities that are not listed on a stock exchange and are not traded on another regulated market that operates regularly and is recognised and open to the public;
• acquire more than 10% of the same type of securities issued by the same issuing body; or
• invest more than 20% of its net assets in securities issued by the same issuing body.

These general investment restrictions do not apply to Part II UCIs that are fund-of-fund structures, if the investment funds in which the Part II UCI shall invest are open-ended and themselves subject to similar general investment restrictions. In addition, these general investment restrictions do not apply to Part II UCIs that are mainly investing in venture capital or real estate, or are pursuing alternative investment strategies.

Part II UCIs may in principle borrow the equivalent of up to 25% of their net assets without restriction as to the intended use thereof.

Part II UCIs that are mainly investing in real estate may borrow the equivalent of up to an average of 50% of the valuation of all their properties.

Borrowings of Part II UCIs that are mainly pursuing alternative investment strategies (hedge funds) may be up to 400%.

The depositary, administrative agent, registrar and transfer agent, and the approved statutory auditor of a retail fund, must be established in Luxembourg, and are all subject to regulation in Luxembourg.

The management company of a UCITS can be established in the EEA unless the fund is an FCP, in which case the management company must be established in Luxembourg. The AIFM of a Part II UCI can be established in the EEA unless the Part II UCI is an FCP, in which case the AIFM must be established in Luxembourg.

Portfolio managers and investment advisers located in third countries can provide advisory or portfolio management services, but this is subject to the CSSF’s authorisation of any delegated portfolio management function.

UCITS in the form of an FCP must have their management company established in Luxembourg. The same applies to Part II UCIs established in the form of an FCP.

UCITS that are SICAVs and are not self-managed may have their management company established elsewhere in the EEA.

An AIFM from any jurisdiction in the EEA can be appointed to manage a Part II UCI unless the Part II UCI is an FCP. Those AIFMs established elsewhere than in Luxembourg need to notify their home supervisory authorities of their intention to manage a Luxembourg fund. Those authorities will in turn notify the CSSF.

The portfolio management of Luxembourg retail funds can be delegated to managers situated in third countries provided that such delegation is subject to the prior approval of the CSSF.

For retail funds, the process for obtaining regulatory approval depends on the complexity of the investment policy, the completeness of the file that has been submitted and whether or not it is a first-time fund. Generally, the time ranges from three to six months.

Pre-marketing to Luxembourg retail investors is not allowed for UCITS and AIFs.

No notification or authorisation is required for the marketing of Luxembourg UCITS or Part II UCIs in Luxembourg.

A UCITS located in another EEA country may be marketed in Luxembourg as soon as the home supervisory authority has duly notified the CSSF of the intended marketing. Such EEA UCITS must provide facilities in Luxembourg to facilitate the processing of subscription and redemption orders, and the provision of information. They need not appoint a third party or have a physical presence in Luxembourg (ie, facilities can be provided via the internet).

An AIF located in a country other than Luxembourg may be marketed to Luxembourg retail investors in accordance with the provisions of CSSF Regulation 15-03, provided that, inter alia:

• it is subject to ongoing supervision by its home supervisory authority;
• it has obtained the authorisation of the CSSF for such marketing;
• its NAV is calculated at least once a month; and
• it follows certain risk diversification principles.

Retail funds and AIFs marketed in Luxembourg to retail investors must provide these investors with a PRIIPs KID.

All marketing communications will need to comply with the requirements of Article 4 of Regulation 2019/1156 on facilitating cross-border distribution of collective investment undertakings. CSSF Circular 22/795 requires investment fund managers to provide the CSSF with information regarding marketing communications. The CSSF will conduct testing to verify the compliance of such marketing communications with the requirements applicable under Article 4.

Closed-ended funds marketed to Luxembourg retail investors must generally issue a prospectus in accordance with EU Regulation 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.

Retail funds can be marketed to all investors located in Luxembourg, whether retail, professional or institutional.

However, a number of rules stemming from MiFID may nevertheless restrict the marketing of retail funds through MiFID-regulated firms, as the investor profile of a retail investor must be in line with the type of retail fund being marketed (eg, it is not appropriate to advise a retail investor with a conservative risk profile to invest in a fund presenting higher risk).

Notification or authorisation is required by the CSSF prior to the marketing of non-Luxembourg retail funds.

In the case of cross-border marketing of a UCITS, the notification process described in the foregoing must be complied with, and in the case of marketing a foreign investment fund that is not a UCITS, there is an authorisation process to be complied with in accordance with CSSF Regulation 15-03.

Change in the Content of the UCITS Marketing Notification Letter

Where an amendment has an impact on the notification letter sent to the CSSF via the UCITS home supervisory authority, at the time when the UCITS fund intended to market its units in Luxembourg or regarding a change in the share classes to be marketed in Luxembourg, the UCITS must directly inform the CSSF before implementing this amendment.

De-Notification

Investment fund managers may de-notify arrangements made for marketing as regards units or shares of some or all of their UCITS and/or AIFs marketed in Luxembourg, provided that:

• a blanket offer is made to repurchase or redeem, free of any charges or deductions, all such units or shares held by Luxembourg investors;
• the intention to terminate arrangements made for marketing such units or shares is made public by means of a publicly available medium; and
• any contractual arrangements with financial intermediaries or delegates are modified or terminated with effect from the date of de-notification, in order to prevent any new or further direct or indirect offering or placement of such units or shares.

The de-notification procedure is carried out through the home supervisory authority, which then informs the CSSF. However, if an AIFM intends to cease the marketing of its non-Luxembourg AIF to retail investors in Luxembourg, it must inform the CSSF as to whether Luxembourg investors are still invested in this AIF.

Other Ongoing Requirements

Please refer to 3.3.10 Investor Protection Rules regarding reporting and other requirements.

To ensure compliance with the regulatory framework and to detect any potential non-compliance, retail funds must produce the following reports:

• an audited annual report;
• an unaudited semi-annual report covering the first six months of the financial year;
• a report in the case of NAV calculation error or non-compliance with applicable investment rules (only intended for the CSSF);
• a monthly financial report (only intended for the CSSF); and
• an annual long-form report (only intended for the CSSF).

In addition, UCITS must provide the CSSF with a semi-annual risk report, and their management companies must have a remuneration policy and procedures designed to prevent conflict of interests and discourage risk-taking inconsistent with the risk profile of the managed UCITS.

Furthermore, retail funds must appoint a custodian bank acting in the interests of investors and providing services as required by the UCI Law – ie, safekeeping of assets, cash monitoring and monitoring of retail funds’ compliance with the legal and regulatory framework. The appointment of a custodian bank is ultimately intended to ensure protection of the fund’s assets.

In the case of a dispute with a retail fund, a retail investor can contact the CSSF in order for the CSSF to impartially intervene for an out-of-court resolution, but its out-of-court decision is not binding on the parties.

Finally, NAV calculation errors and investment breaches are highly monitored by auditors and the CSSF, and incoming and redeeming investors are to be compensated in the case of negative consequences of such errors. CSSF Circular 24/856, together with the related CSSF NAV Error FAQ, sets out the rules to be followed in this regard as from 1 January 2025.

The CSSF takes a practical approach. New Luxembourg market participants can have a face-to-face meeting with CSSF officials to present their projects, better understand the CSSF’s expectations and ask questions.

Formalities and filings with the CSSF are mainly done through an online platform, though during an authorisation process, the CSSF can be contacted via telephone and email.