CSSF Circular 25/901: Modernised Luxembourg Alternative Funds Framework

Why should I read this?

The CSSF published Circular 25/901 on 19 December 2025 as part of a broader effort towards modernisation, clarification and simplification. The Circular introduces investor-calibrated and asset class-calibrated diversification and borrowing limits.

It applies to specialised investment funds (SIFs), risk capital investment companies (SICARs) and undertakings for collective investment set up under part II of the law of 17 December 2010 (UCI Part II) whether open or closed-ended.

Open-ended and closed-ended funds authorised before 19 December 2025 benefit from a grandfathering provision allowing them to continue applying the previous rules.

While the Circular does not apply directly to RAIFs, it will influence market practice for RAIF structures that will most probably apply the new rules (i.e. the ones that are relevant for well-informed and professional investors).

In parallel, the CSSF has published a non-binding Compilation of key concepts used in the alternative fund space, providing innovative practical guidance on their interpretation.

What should I do?

Immediate actions:

Review your investor base

Determine whether your funds target unsophisticated retail investors or are reserved for well-informed/professional investors, as this drives applicable diversification and borrowing limits

Assess grandfathering eligibility

Verify whether your existing funds benefit from grandfathering or must comply with the new requirements

Update diversification limits

Apply the new thresholds or, if relevant for the fund strategy, more stringent ones

Revise borrowing limits

Consider current borrowing limits in light of the new framework. Note that temporary borrowing (bridge loans) fully covered by capital commitments are generally not considered as borrowing

Apply the look-through approach

Diversification limits apply to the underlying investments of intermediate vehicles, not to the vehicles themselves

Extend ramp-up periods

If relevant, use the new ramp-up periods

Enhance disclosure

Sales documents must specify the investment policy, limits calculation basis, use of intermediary vehicles, maximum borrowing limit, and describe liquidity management tools with their activation conditions and treatment of unexecuted redemption orders (cancellation or carry-over)

Review SICAR risk capital compliance

Ensure investments demonstrate: (i) development steps to create value at target entity level; and (ii) specific risk beyond mere market risk. Note that ABS, CDOs and hedge funds are in principle not eligible. Sales documents must include a description of the exit strategy with non-exhaustive list of divestment methods and expected holding period

Apply the prudent person rule

For SICARs, apply the prudent person rule for cash management pending investment

Key changes introduced by the new circular:

What else do I need to know about CSSF Circular 25/901?

The Circular represents a fundamental shift from a purely product-based approach towards investor-driven and asset class-driven calibration. This should enhance Luxembourg's competitiveness, particularly for funds targeting sophisticated investors. The codification of infrastructure asset limits provides welcome certainty for the market.

Under the Circular SICAR risk capital requires the combination of development steps (value creation through start-up, development, restructuring or listing) and specific risk beyond mere market risk. The investment must be time limited with a credible exit strategy; loan origination is now expressly recognised alongside equity contributions. Note that ABS, CDOs and hedge funds are in principle not eligible for SICARs.

The Compilation of key concepts published alongside the Circular provides valuable non-binding guidance on private investments and fund-of-funds structures. Managers should review existing structures to optimise offerings under the new framework, particularly regarding borrowing flexibility, extended ramp-up periods, and the look-through approach for intermediate vehicles.

How Eversheds Sutherland can help

We are well placed to support clients navigating the implications of CSSF Circular 25/901 within the modernised Luxembourg alternative funds framework. Drawing on our extensive experience with structures such as the special limited partnership (Société en commandite spéciale), the reserved alternative investment fund (RAIF) regime and the updated Luxembourg corporate law framework, we help fund managers, investment funds, institutional investors and service providers understand how the Circular may affect their activities. We provide clear, practical guidance on adapting fund structures, investment policies and offering documentation to ensure alignment with the evolving regulatory landscape. For tailored advice on how CSSF Circular 25/901 may impact your specific arrangements, please contact your usual Eversheds Sutherland adviser.