CSSF Circular 25/901: A consolidated regulatory framework for Luxembourg investment funds

On 19 December 2025, the Commission de Surveillance du Secteur Financier (CSSF) published the CSSF Circular 25/901 (Circular), along with a technical document that compiles key investment fund concepts (Compilation Document). These documents together serve to streamline and clarify the new regulatory framework applicable to Luxembourg specialised investment funds (SIFs), investment companies in risk capital (SICARs), and Part II undertakings for collective investment (Part II UCIs).

Effective from 19 December 2025 (effective date), the updated framework provides important insights into the CSSF’s interpretation of key investment fund principles, while enhancing the flexibility of Luxembourg’s investment funds ecosystem.

The Circular marks a significant step towards regulatory consolidation and harmonisation, repealing several existing circulars, including CSSF Circulars 02/80, 07/309 and 06/241, as well as Chapters G and I of IML Circular 91/75. In addition, Circular CSSF 08/356 and Chapter H of IML Circular 91/75 no longer apply to Part II UCIs.

This cohesive framework minimises regulatory complexity yet preserves the core principles and adaptability essential to the investment fund sector.

1. Scope of application

The Circular encompasses all SIFs, SICARs and Part II UCIs, together with their respective sub-funds, but expressly excludes unregulated investment vehicles from its scope.

It is not applicable to funds or sub-funds designated as ELTIF, MMF, EuVECA or EuSEF nor does it extend to closed-ended funds that received authorisation prior to the Circular’s commencement.

Worth noting that while the Circular directly applies to all SIFs, SICARs and Part II UCIs, RAIFs will have similar flexibility going forward as SIF and SICAR requirements serve as benchmarks in this regard.

Importantly, the Circular does not affect the regulatory framework for any funds or sub-funds that were authorised by the CSSF before the effective date. Should these funds or sub-funds intend to adopt the new provisions set out in the Circular, they must ensure their fund documentation is revised accordingly.

The Circular further clarifies the scope of the term “assets” for SIFs and Part II UCIs under the SIF Law and the UCI Law and provides an official definition. The CSSF confirms that, in principle, any type of investment may qualify as an asset, provided it can be entrusted to the depositary for safekeeping.

2. Investment limits and diversification

The Circular introduces greater flexibility regarding the diversification rules for SIFs and Part II UCIs, allowing the CSSF to authorise additional exemptions to these limits where a well-founded rationale is provided.

• Funds/sub-funds reserved for well-informed[1] or professional investors[2]:
  • 50% limit per person, entity[3] or asset [4](now standardised across all vehicle types).
  • 70% limit for one and same infrastructure investment.
• Funds/sub-funds marketed to unsophisticated retail investors[5]:
  • 25% limit per person, entity[6] or asset[7] (now standardised across all vehicle types).
  • 50% limit for one and same infrastructure investment.

The Circular confirms that investment limits for SIFs and Part II UCIs are calculated on a assets-based or commitments-based[8] basis and when using intermediary vehicles, regardless of their legal form, the investment limits apply to the investments made through them, and not to the vehicles themselves (look-through recognition).

When using derivatives, a comparable level of diversification should be ensured and counterparty risk must be limited taking into consideration the quality and qualification of the counterparty, except for cleared derivatives or when the counterparty risk is mitigated by collateral.

3. Ramp-up periods

The Circular provides a clear guidance on the application of ramp-up periods when investment limits are not yet in effect.

• Ramp-up period for UCITS-eligible assets: up to 12 months following launch (i.e. first subscription in the fund).
• Ramp-up period for private investments: up to 4 years following launch (in exceptional cases and with CSSF approval, this period may be extended by one year).

In any case, the ramp-up period must be limited to a reasonable period of time, consistent with the investment policy of the fund.

4. Clarification of risk capital requirements for SICARs

The Circular consolidates and enhances the rules outlined in the repealed Circular 06/241 by establishing a more robust and comprehensive framework.

While it does not modify the existing legal structure for SICARs, it codifies prevailing market practices and interpretations, further clarifying the criteria relating to risk and development. Additionally, it expressly addresses exit strategies, thereby formalising a previously established CSSF approach.

While private equity and venture capital remain the cornerstone for SICAR regime, the Circular now expressly recognises that risk capital may also include certain debt financing strategies[9] for non-listed undertakings[10].

The Circular further establishes the necessity for a clearly defined exit strategy, stressing that investments must be time-bound and in accordance with the SICAR’s objective to divest. There is an expectation of transparency, including detailed information on proposed exit routes and the expected holding period.

Additionally, the Circular consolidates and expands the list of ineligible assets and specific restrictions across different asset classes. Key clarifications include:

• Structured products (e.g. ABS, CDOs) are generally ineligible.
• Cash management is conducted in accordance with a "prudent person" standard for funds pending investment, reinvestment, distribution or to meet liabilities.
• Derivatives can only be used for hedging purposes or when necessary to the realisation of the investment policy.
• Real estate and infrastructure exposure is permitted solely through intermediary vehicles or funds; all underlying assets must continue to satisfy applicable risk capital requirements.
• Commodities may not be held directly. Indirect exposure is only permissible via companies exploiting commodities, subject to case-by-case assessment by the CSSF.

5. Techniques

While the use of portfolio management techniques is limited for SICARs, due to the capital at risk requirements, such use is expressly recognised for SIFs and Part II UCIs. Such techniques must be economically appropriate, i.e. they must be profitable or aim at risk reduction, cost reduction or generation of additional income or capital. Collateral received in the context of these techniques must be appropriately diversified in accordance with the diversification requirements highlighted in 2. above. The same rules than those described in 2. above apply as well to counterparty risk in relation to these techniques.

6. Borrowing

New borrowing limits for SIFs and Part II UCIs have been established in the Circular:

• Funds/sub-funds reserved for well-informed or professional investors: no statutory limits imposed, own maximum borrowing thresholds to be set.
• Funds/sub-funds marketed to unsophisticated retail investors: maximum 70% of assets or subscription commitments.

Temporary borrowings covered by capital commitments or debt issued by the fund and linked to the performance of the assets concerned are not considered as borrowings for the purpose of the above-mentioned 70% limit.

7. Transparency and disclosure requirements

Sales documentation (offering document or prospectus) must now meet enhanced transparency standards, requiring comprehensive disclosures on investment policies, in-depth risk explanations, clearly defined subscription and redemption processes, as well as explicit risk warnings for private equity strategies presented to retail investors.

8. Strategic take-aways and practical considerations

As a significant improvement, the Circular enhances and standardises risk diversification criteria by implementing clear percentage-based investment thresholds, tailored to different categories of target investors and asset classes.

The Circular is less about tightening rules but more about aligning risk, liquidity, leverage and concentration with the investor outcome (tailored to investor profiles). It formalises supervisory expectations that were previously set out as informal guidance, while giving fund managers structured flexibility, provided that robust governance, comprehensive documentation and mandatory disclosures are well maintained.

For fund managers, the Circular does not alter the regulatory framework for funds / sub-funds approved before its effective date. As a result, existing structures may continue to operate under their current regimes.

Nevertheless, documentation for newly authorised funds must comply with the consolidated regulatory framework. The Circular offers increased flexibility for funds aimed at professional and well informed investors, whilst upholding strict protective measures for unsophisticated retail investors.

Notes:

[1] As defined in the SIF Law or the SICAR Law
[2] Within the meaning of MiFID II
[3] This limit does 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 same applies whenever investing in a target fund whenever the fund documentation or the law applicable to that target fund provides for diversification requirements at least comparable to the one applicable as per the Circular.
[4] Considered as “one and the same other asset” , meaning that assets are not considered distinct if they are economically interdependent. For example, real estate assets whose value or viability is closely connected are treated as a single economic asset.
[5] Any investor who is neither a professional investor nor a well‑informed investor. For Part II UCIs, the Circular introduces a new category of “unsophisticated retail investors” and adjusts the applicable product rules to reflect this distinction.
[6] Same as footnote 2 above.
[7] Same as footnote 3 above.
[8] Although other basis could be used upon proper justification given to the CSSF.
[9] Especially mezzanine financing
[10] Unless in the context of a specific development project, such as a delisting