Liechtenstein’s legal framework (primarily the AIFMG, Gesetz über die Verwalter alternativer Investmentfonds¹) offers significant flexibility in fund structuring. The principal structures include:

1. Investment companies (SICAV/SICAF): The SICAV (Investment Company with Variable Capital) and SICAF (Investment Company with Fixed Capital) are common, especially for open-ended funds and hedge fund strategies. They allow corporate governance (shareholder meetings, board oversight) and flexible capital – a SICAV can issue and redeem shares to adjust capital, whereas a SICAF has a fixed capital structure. Minimum capital is €300,000 (or equivalent CHF) for a self-managed SICAV/SICAF², or €125,000 if an external AIFM is appointed, in line with AIFMG requirements.³ These vehicles are popular for liquid portfolios, as they combine familiar company law features with fund-specific flexibility.
2. Contractual funds (Investmentfonds or “Vertragsfonds”): This is a fund organized by contract rather than as a legal entity – more akin to a common fund or FCP. Investors enter into a fund contract with a management company (AIFM). No legal personality exists; instead, assets are held by a trustee or depositary on behalf of investors. Contractual AIFs are often used for illiquid assets like real estate or private equity, where a corporate governance structure is less important. They require the appointment of a custodian bank (Depotbank) and the fund terms must be set out in a fund contract, which is filed with the Commercial Register. The trustee/management company manages the assets fiduciarily, ensuring asset segregation and bankruptcy-remoteness for investors.
3. Limited partnerships (Kommanditgesellschaft für Investitionen): The limited partnership (often just “LP”) is a preferred vehicle for private equity, venture capital, and other real asset strategies. It consists of at least one general partner (with unlimited liability for the partnership’s debts) and any number of limited partners (liable only up to their contributed capital). In practice, the general partner is typically a limited liability entity (such as a special-purpose GmbH) to insulate individuals from liability. The LP itself is not a separate legal entity in Liechtenstein, but it can be sued and can sue in its name and must be registered with the Commercial Register. Investor limited liability is ensured by law (Art. 733, Personen- und Gesellschaftsrecht (“PGR“)): a limited partner’s liability is capped at the amount of their committed contribution.⁴ Limited partnerships are very flexible in terms of profit allocation and governance (often governed by a Limited Partnership Agreement), making them ideal for closed-ended structures. They must comply with the AIFMG and its regulations on an ongoing basis (registration with the FMA, periodic reports, etc.), just like corporate funds.
4. Trust structures and similar vehicles: Liechtenstein permits collective trusts (Treuhänderschaften) and other fiduciary arrangements for funds. These are less commonly used but can be tailored for specific investor requirements – for example, a common trust fund format can hold assets for investors with the trustee exercising legal ownership. Foundations (Stiftungen) or Establishments (Anstalten) can also act as fund vehicles or holding vehicles in “private label” fund setups. Often, a foundation might be used as an umbrella to hold multiple sub-funds, or a fund may be embedded in a foundation to blend estate planning goals with investment management. Such structures add an extra layer of asset protection or succession-planning utility. A practical example is a purpose foundation (Zweckstiftung) owning the fund’s assets to segregate them from investors’ personal estates – popular for family office arrangements.
5. Tokenized funds: With the advent of blockchain legislation (the Token- und VT-Dienstleister-Gesetz, (“TVTG”)⁵, known as the Blockchain Act), Liechtenstein also enables tokenized AIFs. In practice, this often means using a SICAV structure where fund shares or units are represented by tokens on a distributed ledger. These tokenized SICAVs facilitate fractional ownership and easier transferability of interests via blockchain technology. They remain fully regulated AIFs but can offer innovative features like on-chain governance votes or automated compliance checks. All tokenized funds must comply with the AIFMG and the supplemental requirements of the TVTG (e.g. using a licensed TT Exchange Service Provider for token issuance/custody). This segment is growing as digital asset strategies seek regulated fund wrappers.

Liechtenstein’s structural diversity has contributed to substantial growth in its fund industry. Notably, the Financial Market Authority (FMA) offers a streamlined approval process for standard fund structures – approximately 20 days for a straightforward AIF launch (and up to 60 days for more complex cases)⁶ – which is considerably faster than some neighbouring jurisdictions (where approvals can take several months). This efficiency, combined with the EEA passport and flexible vehicle options, makes Liechtenstein an attractive domicile for alternative investment funds.

Footnote(s):

¹ Gesetz über die Verwalter alternativer Investmentfonds  (“AIFMG“)

² Article 12, AIFMG

³ Article 32, AIFMG

⁴ Article 733, Personen- und Gesellschaftsrecht (“PGR“)

⁵ Token- und VT-Dienstleister-Gesetz, TVTG

⁶ Article 115, AIFMG

Yes – all the common Liechtenstein AIF structures are designed to provide limited liability to investors. In every case, an investor’s potential loss is legally capped at the amount of their investment or committed capital, and their personal assets are protected. The mechanisms differ slightly by legal form:

1. Corporate funds (SICAVs/SICAFs and similar companies): These are independent legal entities, so the fund’s creditors have no recourse to investors beyond the unpaid portion of the investors’ shares. Under Article 261 of Liechtenstein’s Persons and Companies Act (PGR) general provisions, shareholders of a company (including an investment company) are not personally liable for the company’s debts.⁷ The fund’s articles of incorporation typically reinforce this by stating that each share is only paid up to its issue price and no further liability attaches to shareholders. In an insolvency, only the fund’s assets can be used to satisfy fund liabilities – investors are not required to contribute more capital. This principle is fundamental to corporate law and is fully respected in the fund context.
2. Contractual AIF: investors’ rights and obligations are defined by the fund contract. Investors do not own the assets directly; instead, the fund management company or trustee is the legal owner holding the assets on trust for the investors. As a result, if the fund’s investments incur losses or liabilities, the investors’ obligation is only to the extent of their contractual commitment. Article 7(6) of the AIFMG requires that fund contracts include clauses limiting investor liability.⁸ Typically, the contract will explicitly state that each investor’s loss is limited to their units’ value and that no further calls for capital can be made beyond any amount to which the investor originally agreed. The appointed trustee or management company has fiduciary liability and manages assets on behalf of the investors, adding another layer of protection – creditors of the fund deal with the management company/trustee, not directly with individual investors.
3. Limited Partnerships: By law, limited partners in a Kommanditgesellschaft are only liable up to their registered commitment (the Kommanditsumme). This is codified in Art. 733(1) PGR, which stipulates that the limited partner’s liability to creditors is limited to the amount of their contribution (as registered in the Commercial Register).⁹ Once the contribution is fully paid, a limited partner has no further obligation to the partnership’s debts. Only the general partner has unlimited liability, and as noted, general partners are often structured as a separate legal entity to mitigate risk. Thus, from an investor standpoint (investors are usually limited partners), liability is strictly limited. The partnership agreement and the registration documents will make this clear to all parties dealing with the partnership.
4. Umbrella funds (multiple sub-funds): Liechtenstein allows umbrella structures where a single legal entity comprises several sub-funds or compartments. Art. 15 AIFMG mandates segregation of assets for each sub-fund and that liabilities of one sub-fund are limited to the assets of that sub-fund.¹⁰ This “ring-fencing” means that investors in one sub-fund are insulated from risks in another sub-fund under the same umbrella. Creditors of a particular compartment can only claim against assets of that compartment. Umbrella structures thus maintain limited liability across sub-funds, which is crucial when sub-funds pursue different strategies or have different investor groups.
5. Tokenized funds and other innovative structures: When fund interests are tokenized, the same limited liability principles apply in the background (whether the fund is a SICAV or LP, etc.). The use of blockchain smart contracts can even enhance the practical enforcement of liability limits – for instance, by coding that no investor can be redeemed more than the NAV of their tokens, or by automating loss allocation to the manager’s “first loss” tranche (if one exists) before affecting investor tokens. These technological measures complement the legal framework but do not replace it.

In summary, an investor in a Liechtenstein AIF cannot lose more than what they invested. There is no mechanism for an AIF or its creditors to demand additional contributions from investors beyond agreed commitments. Cross-border scenarios (e.g., a foreign AIFM managing a Liechtenstein fund) do not change this principle – EEA regulations ensure that limited liability and investor protection standards are equivalent across member states.

Footnote(s):

⁷ Article 261, PGR

⁸ Article 7(6), AIFMG

⁹ Article 733(1), PGR

¹⁰ Article 15, AIFMG

Liechtenstein’s fund market tends to align fund structures with the nature of the investment strategy. Umbrella structures are common, particularly SICAVs or contractual funds with multiple sub-funds, each pursuing distinct strategies. This setup allows cost-effective expansion and operational efficiency, letting managers launch new compartments without creating new legal entities. Investors benefit from easier switching between sub-funds, and fund promoters often use this format to house different strategies—such as equities, real estate, or hedge funds—under one legal framework.

Open-ended SICAVs are typically used for liquid strategies like equities, bonds, or hedge funds, offering flexibility for investor subscriptions and redemptions. Illiquid strategies—such as private equity, venture capital, or infrastructure—are usually structured as limited partnerships or closed-ended contractual funds. These match long-term investment horizons and avoid liquidity mismatches. While Liechtenstein law permits all fund forms, the choice depends on liquidity needs, investor rights, and operational preferences—not legal limitations.

The Liechtenstein regulatory regime under the AIFMG treats open-ended and closed-ended AIFs largely under the same broad framework, but it does recognize the differences in their operation. In principle, any type of fund (hedge fund, private equity fund, real estate fund, etc.) can be structured as either open-ended or closed-ended, and the law does not prohibit or strictly segregate one or the other. Both are permitted and regulated under AIFMG and the applicable ordinances.

Key points of distinction include:

• Redemption Rights: An open-ended AIF allows investors to redeem their units/shares during the life of the fund (subject to the fund’s specific redemption policy), whereas a closed-ended AIF does not offer redemption rights until a predefined termination or liquidation date. The regulatory framework doesn’t impose how frequently redemptions must occur for open-ended funds, but it mandates that the redemption policy be clearly disclosed. The FMA expects that the liquidity profile of the fund’s assets aligns with the redemption terms (this is more of a guidance/best practice issue than a black-letter rule).
• Liquidity Management: Because of the above, open-ended funds are generally subject to more ongoing liquidity management oversight. The FMA will review, for instance, if an open-ended fund has appropriate gates or notice periods to handle redemptions without harming remaining investors (see also answers 5 and 6). Closed-ended funds, investing in private equity or real assets, are not required to have such liquidity provisions since investors cannot exit early in any case. The AIFM’s risk management function, however, must monitor liquidity risk appropriate to the structure (even closed-ended funds have to manage liquidity for their own obligations, like expenses or capital calls).
• Valuation and Portfolio Transparency: Open-ended funds typically must calculate a Net Asset Value (NAV) at each redemption frequency (e.g., monthly NAV for a fund with monthly dealing). Closed-ended funds often once a quarter or even annually will publish NAV (since it’s not used for subscriptions/redemptions in the interim). The AIFM regulation requires all AIFs to have appropriate valuation procedures, but an open-ended fund’s NAV process will be scrutinized more frequently by the FMA given its direct impact on investor transactions.
• Strategic Use: In practice, hedge funds and liquid strategies in Liechtenstein are usually open-ended (often formed as SICAVs), whereas private equity, venture capital, and real estate funds are usually closed-ended (often LPs or contractual funds). This is a market-driven distinction rather than a regulatory mandate. The law does not, for example, forbid a hedge fund from being closed-ended or a private equity fund from being open-ended; it’s just uncommon due to the nature of the assets.

Aside from open vs closed, the AIFM regime does not explicitly differentiate by strategy type. There isn’t one set of rules for hedge funds and a different set for private equity in terms of authorization – all are “AIFs” under the law. That said, certain regulations account for practical differences. For instance, reporting templates (Annex IV reports under AIFMD, implemented in Liechtenstein) ask for different data points that may apply to different strategies (like leverage details, liquidity profile, etc., which naturally distinguish a hedge fund from a private equity fund in content). But these are variations in reporting and risk management, not separate licenses or regime silos. Every AIFM, whether managing an open-ended hedge fund or a closed-ended PE fund, must meet the same licensing requirements and core obligations (capital, governance, depositary appointment, annual reports, disclosures, etc.).

In summary, open-ended vs. closed-ended is a distinction acknowledged in fund documentation and certain operational rules (especially around redemption and liquidity management), but the regulatory oversight and AIFM obligations apply uniformly across all types. The flexibility of Liechtenstein’s regime is such that it can accommodate all fund types under one regulatory umbrella, with the specifics handled through the fund’s own terms and the general duty of the manager to treat investors fairly and manage liquidity and risk appropriately.

Liechtenstein law does not prescribe hard rules on how frequently redemptions must be offered in an open-ended AIF – instead, it requires that the fund’s constitutional documents clearly define the redemption policy and that this policy be appropriate to the investment strategy. In other words, a manager has considerable freedom to set redemption terms (e.g., monthly, quarterly, semi-annual, etc., or even to restrict redemptions for an initial lock-up period) as long as these terms are disclosed and consistent with the fund’s asset liquidity.

Key considerations and common practices include:

• Consistency with Asset Liquidity: The primary factor determining an AIF’s liquidity terms is the liquidity of its underlying investments. For example, a fund investing in blue-chip stocks might offer monthly or even weekly redemptions, whereas a fund investing in property or private equity might only allow redemptions after a multi-year period (if at all, before the fund’s end). The FMA will scrutinize an open-ended fund’s offering documents to see that, for instance, a fund of real estate doesn’t promise daily liquidity – that would be misaligned. While not codified as a strict prohibition, offering overly frequent liquidity when assets are illiquid could be seen as a breach of the manager’s duty to act in investors’ best interests.
• Redemption Notice and Gates: Managers often include notice periods (e.g., investors must give 30 days’ notice before a quarter-end redemption) and gate provisions (limiting the percentage of the fund that can be redeemed on any redemption date, typically 10%–25% of NAV) in open-ended AIFs. Liechtenstein’s laws permit this – again, as long as these tools are clearly described in the fund documents. There is no regulatory “cap” on how long a notice period can be, or how low a gate can be set; it’s governed by market standards and investor acceptance. For example, a hedge fund might have a quarterly redemption with 45 days’ notice and a gate of 20% per quarter. A side-pocket or special arrangement for illiquid assets is also allowed (common in hedge funds) – the manager’s ability to side-pocket certain assets to pay out later is typically built into the fund rules.
• Suspension of Redemptions: The AIFMG and general principles allow a fund to suspend redemptions temporarily in extraordinary circumstances (with FMA notification). If there’s a market crisis or valuation uncertainty, the manager can invoke a suspension to protect investors from transacting at unfair values. The law doesn’t limit this ability beyond requiring that suspensions be in line with documented procedures and that the FMA and investors are informed. Prolonged or frequent suspensions would gather regulatory attention, but a well-justified suspension (e.g., post-2008 Lehman scenario or March 2020 pandemic shock) is an accepted safety valve.
• Closed-ended fund considerations: In a closed-ended AIF, by definition investors do not have routine redemption rights. The “liquidity” for investors is achieved by secondary market transfers (if permitted) or simply waiting until the fund’s term expires and assets are sold. The manager here doesn’t have to manage redemption flows but does need to plan liquidity for distributions (return of capital, profit payouts) as exits occur. The closed-ended nature must be clearly disclosed to investors upfront (and it typically is, with a stated fund term of X years plus possible extensions, etc.). The FMA doesn’t impose an upper limit on fund term; it could be a 10-year private equity fund with 2-year extensions, for example, as is common industry practice.

In summary, a manager in Liechtenstein can restrict redemptions in various ways (notice periods, lock-ups, gates, suspensions) as needed to align with the fund’s strategy. The regulatory expectation is that such liquidity provisions are transparent and fair: investors need to know what they’re signing up for, and all investors in the same fund should be treated equally under the stated policies. The degree of liquidity offered is ultimately determined by what the fund invests in (e.g., liquid hedge fund vs illiquid private equity) and what target investors will accept, rather than by an arbitrary regulatory mandate. The FMA’s role is to ensure the manager’s policies are prudent (not causing liquidity mismatches) and fully disclosed.

Liechtenstein AIFMs employ a variety of tools – much like their peers in other AIFMD jurisdictions – to manage liquidity and mitigate the risks that arise from holding illiquid or less-liquid assets. Key liquidity risk management tools include:

• Redemption gates: A gate limits the proportion of the fund’s units that can be redeemed on any given redemption date. For example, a fund may stipulate that it will honour redemption requests on a dealing day only up to, say, 10% of the fund’s NAV; any excess redemption requests are deferred to the next period. Gates prevent a “run” on the fund and ensure an orderly exit process. If there’s a surge of redemption requests, gates give the manager breathing space to avoid forced asset sales.
• Lock-up periods: Especially common in hedge funds and certain open-ended alternatives, a lock-up is an initial period (say 6 months, 1 year, or longer after subscription) during which investors cannot redeem. This ensures that the fund has stable capital to deploy and that new investors cannot immediately pull out if markets fluctuate. Some funds also use soft lock-ups (investors can redeem earlier but pay a redemption fee if done before a certain date, which acts as a deterrent).
• Notice periods: Requiring advance notice for redemptions (e.g., 30, 60, or 90 days before the redemption date) is very typical. Notice periods allow the manager to plan asset sales or other liquidity actions in anticipation of outflows. Longer notice is usually needed for less liquid portfolios. For instance, a real estate fund might require 90 days’ notice for quarterly redemptions, whereas an equity fund might only need 5 days for monthly redemptions.
• Side pockets: In times of stress or for particularly illiquid assets, a fund can use side pockets. A side pocket is a mechanism to segregate illiquid or hard-to-value assets from the main liquid portfolio. When an asset is side-pocketed, exiting investors typically do not receive a payout of that portion until it’s realized, and new investors do not participate in that asset. This tool is common in hedge funds dealing with, say, a suddenly illiquid bond or a private stake that was acquired in a mainly liquid fund. Side pockets protect remaining investors because they ensure that those who redeem don’t take an outsized share of the liquid assets and leave illiquids behind for others.
• Suspension of dealings: If market conditions are extremely adverse or if asset values cannot be accurately determined, the AIFM may temporarily suspend redemptions (as noted in 5). This is a drastic tool, but it’s there to prevent fire-sales and to ensure fair treatment among investors. All AIF offering documents typically outline scenarios in which the board/AIFM may suspend NAV calculations and dealings (e.g., market closures, valuation emergencies, etc.).
• Redemption fees or adjustments: Some funds impose a redemption fee or an anti-dilution levy, which is paid back into the fund (not to the manager) by redeeming investors. This is to compensate the fund for the trading costs of selling assets to meet redemptions and to discourage short-term churn. Similarly, swing pricing is a mechanism where the NAV is adjusted downward on days with large outflows (or upward on days with large inflows) so that transacting investors bear the cost of liquidity. These techniques manage liquidity by ensuring the fund isn’t unfairly depleted by transaction costs due to big flows.

The choice and calibration of these tools depend on the fund’s strategy and investor base. A private equity fund (closed-ended) primarily manages liquidity by staging capital calls and having a long lock-up, whereas a hedge fund (open-ended) might actively use notice periods, gates, and possibly side pockets for the rare illiquid situation. The AIFM is required by regulation to have a liquidity management policy for each open-ended AIF, which typically includes scenario analysis (stress-testing the fund under redemption pressures) and a plan of which tools to activate under what circumstances. All these provisions must be clearly disclosed to investors in advance – in the prospectus or offering memorandum – so investors are aware of potential restrictions. The FMA monitors that funds adhere to their stated liquidity management provisions and that any activation of extraordinary tools (like a suspension or gating) is reported and justified. Proper use of these tools can greatly reduce illiquidity risk, ensuring that one investor’s redemption does not materially disadvantage remaining investors.

Transfer of interests in a Liechtenstein AIF is generally permitted, but subject to the fund’s legal form and internal rules rather than a statutory prohibition. Fund units or partnership interests are considered transferable under Liechtenstein law, but most AIFs impose restrictions in their documentation to ensure regulatory compliance and maintain control over who holds interests in the fund.

Common restrictions include requiring the transferee to be a qualified investor, obtaining prior consent from the AIFM or General Partner, observing lock-up periods, and offering stakes to existing investors before external parties (right of first refusal). Transfers usually trigger the same compliance checks as new subscriptions, including AML/KYC and investor qualification. While the FMA doesn’t require notification for every transfer, changes that affect the fund’s regulatory status may prompt reporting or action. These safeguards are standard in private fund practice and are aimed at protecting the fund’s regulatory position and investor integrity.

Liechtenstein’s AIF regime is known for its flexibility, particularly for funds aimed at professional investors. Unlike UCITS funds, AIFs under the AIFMG are not subject to statutory diversification ratios or investment restrictions. There is no legal requirement, for example, to limit exposure to a single issuer or asset. A hedge fund could hold a concentrated position, or a private equity fund could invest entirely in one or two companies, as long as this aligns with the disclosed strategy. The law defers to disclosure and the sophistication of the investor base.

There are also no fixed leverage caps for AIFs, though leverage must be disclosed, monitored, and kept within the limits stated in the fund documentation. The FMA has discretion to intervene if leverage levels raise systemic concerns, but this is supervisory rather than rule-based. In practice, most Liechtenstein AIFs state a leverage range in their offering documents and include internal controls to ensure those limits are respected.

AIFs in Liechtenstein can invest in almost any asset class, including real estate, private equity, derivatives, infrastructure, crypto-assets, or collectibles. The main requirement is that the AIFM can value and risk-manage the assets properly. For unconventional assets, the FMA expects the AIFM to demonstrate relevant expertise and systems. There is no blanket ban on concentrated positions, related-party deals, or self-dealing—but these must be disclosed and managed in line with fiduciary duties and conflict-of-interest rules.

Rather than imposing hard limits, Liechtenstein law focuses on whether the AIFM maintains sound risk management and aligns portfolio conduct with investor disclosures. Managers are expected to identify key risks, set internal limits, and operate within them. If the actual portfolio diverges significantly from what was disclosed, the FMA may intervene. Overall, the regime relies on manager accountability and investor sophistication, not prescriptive rules—unless the manager voluntarily opts into a stricter framework like ELTIF or targets retail investors.

Liechtenstein’s tax regime is highly favourable for fund investors and closely resembles Switzerland’s, benefiting from their customs and currency union. At the fund level, Liechtenstein AIFs are generally exempt from income tax on their earnings, apart from a small annual tax (around CHF 1,800). There is no withholding tax on fund distributions, so taxation, if any, occurs at the investor level. This neutrality makes Liechtenstein particularly attractive for structuring investment funds across a wide range of investor types.

Resident individuals benefit from a system where private capital gains are tax-exempt and dividends are largely untaxed, provided certain anti-abuse provisions don’t apply. Instead of taxing income from investments directly, Liechtenstein applies a modest wealth tax that is calculated as part of the personal income tax base. As a result, individuals investing in Liechtenstein AIFs typically face no tax on fund distributions or capital gains, with the only tax impact being a small addition to their declared wealth. For resident corporations, fund income is taxed at the flat corporate rate of 12.5%, though participation exemptions can apply in certain cases, such as when the company holds a significant interest in the fund.

Non-resident investors face no local taxation on income or capital gains from Liechtenstein funds, and with no withholding tax, distributions are paid out gross. This simplicity is a deliberate policy choice and often gives Liechtenstein funds a competitive edge over similar Swiss vehicles, which face a 35% withholding. Foreign pension funds and sovereign wealth funds enjoy the same benefits, with no special taxes or barriers. Since these investors are often exempt in their home jurisdictions too, Liechtenstein’s tax neutrality allows them to receive returns without friction or reclaim processes.

Tax considerations also influence structuring choices. Since Liechtenstein does not tax fund-level income or impose withholding, most AIFs are structured as tax-neutral vehicles by default. Managers do not need to use complex pass-through structures purely to avoid tax. Where specific investor needs exist—such as compliance with pension regulations or treaty eligibility—custom structures may be used, such as feeder funds or intermediate holding vehicles. Overall, Liechtenstein’s neutral tax environment allows funds to focus on regulatory suitability and investor needs, with minimal tax-driven distortion.

Investors’ rights and obligations in a Liechtenstein AIF vary depending on the fund’s legal structure and its governing documents, such as the prospectus, partnership agreement, or articles of association. Still, there are common patterns across most structures. Investors typically have rights relating to redemption or exit, transparency, governance, and economic returns. In open-ended funds, investors may redeem their units periodically, as specified in the fund documents. In closed-ended funds, redemption is not available, but investors are entitled to distributions during the fund’s life and capital return at maturity. Some structures allow investors to vote on removing the AIFM or General Partner for cause, but this usually requires a supermajority and is limited to serious breaches like fraud.

Investors also have rights to regular information and reporting. At a minimum, funds must issue an annual audited report. Many funds also provide quarterly updates, NAV statements, or additional reports depending on the asset class and liquidity. Key information—such as investment strategy, fees, valuation, risks, and conflicts—must be disclosed clearly in fund documents. Voting rights vary: in corporate funds like SICAVs, investors may vote on changes to core terms or governance. In partnerships, limited partners may vote on major issues like GP replacement or early termination, though routine management remains with the GP or AIFM. Advisory committees are also common, particularly in private equity, where investors may advise on conflicts or valuation matters.

Alongside these rights, investors face certain restrictions. Eligibility is a key restriction: most Liechtenstein AIFs are limited to qualified or professional investors. This ensures compliance with offering exemptions and regulatory expectations. In closed-ended or private equity funds, investors also commit to contribute capital when called, and failure to do so can result in penalties or loss of their interest. In open-ended funds, lock-ups or minimum holding periods may apply. Day-to-day management is strictly reserved for the AIFM or fund manager—investors play no role in portfolio decisions, preserving the passive nature of their interest and maintaining regulatory clarity.

Transfer and withdrawal rights are also restricted. Investors generally cannot transfer their interests freely; prior consent from the AIFM or GP is often required. Minimum redemption or holding thresholds may also apply. Confidentiality provisions restrict investors from disclosing fund details or using sensitive information for competing purposes. Large or strategic investors might also be subject to non-compete or non-solicitation clauses. Finally, the FMA expects equal treatment of investors within the same class, and any differing rights or restrictions must be clearly documented. If a manager violates the fund’s terms, investors can escalate issues to the FMA or pursue legal action, though such cases are rare due to the regulated and transparent nature of Liechtenstein’s fund environment.

Customization can refer to tailoring a fund’s terms or structure to a particular investor or group – essentially “bespoke” funds or share classes. In Liechtenstein, as elsewhere, there are a few approaches to achieve customization:

• Umbrella funds with dedicated sub-funds: If a client (such as a big institutional investor or a family office) wants a bespoke investment strategy, Liechtenstein managers often use the umbrella structure to create a dedicated sub-fund for that client. The umbrella’s governing documents can allow each sub-fund to have its own investment remit, fee schedule, and even different service providers if needed. This way, the investor gets a tailor-made portfolio (in their sub-fund) while the overall structure still benefits from economies of scale (shared administration, custody under the umbrella). For example, one sub-fund might implement a specific ESG strategy requested by Investor A, while another sub-fund in the same umbrella runs a standard strategy for general investors. This approach is common for “fund-of-one” arrangements as well (where an institutional investor is the sole investor in a sub-fund that follows their mandated strategy).
• Segregated share classes or series: Within a single fund (single portfolio), managers can customize economics through different share classes. Liechtenstein funds are allowed to have multiple classes with varying fee terms, redemption rights, or distribution policies. A typical use of this is to offer an “Institutional Class” with a high minimum investment and lower fees, versus a “Standard Class” with higher fees. Custom share classes can also cater to currency hedging (e.g., separate classes for USD, EUR investors, each hedged to that currency) or to different liquidity needs (e.g., one class has a longer lock-up but lower fees because the investor committed to stay put). While the portfolio is common, these classes give a tailored experience to different investor types. If one specific investor wants something unique – say they will seed the fund but want no management fee and a bit of equity in the management company – this might be done via a special class or side letter (though side letters have to be managed carefully as per section 5).
• Single-investor funds (often limited partnerships): For absolute customization, a manager might set up a standalone fund vehicle just for one investor or a small club of investors. In Liechtenstein, single-investor AIFs can be and are established, often structured as a Kommanditgesellschaft (LP) or a contractual trust, where the sole limited partner is the client needing the custom solution. This is basically a “fund of one” outside an umbrella context. It gives maximum flexibility: the entire fund’s terms (investment policy, reporting frequency, fee structure, etc.) can be negotiated to that investor’s preferences. Liechtenstein’s regulatory framework allows this, although even a single-investor AIF needs to go through authorization unless it’s truly managed account (but typically, if it’s called a fund and falls under AIF definition, it goes through FMA). Family offices and institutions sometimes prefer this to commingled funds to retain control and privacy.
• Special purpose vehicles and feeder funds: Customization sometimes involves using feeders or parallel vehicles. For instance, if certain investors want exposure to a strategy but need a different regulatory status (maybe they need a UCITS feeder into an AIF master, or they need their vehicle to be ESG-compliant, etc.), a Liechtenstein manager could set up a feeder fund that feeds into the main AIF. While the main AIF might be standard, the feeder can have custom aspects (like currency, leverage at feeder level, or compliance with a specific set of guidelines). Liechtenstein trust structures or establishments are sometimes used to create these bespoke feeders or holding vehicles for specific investors, especially in private wealth contexts.
• Side-car or co-investment vehicles: For private equity or alternative funds, if certain investors want to co-invest more in particular deals or have separate exposure, the manager might set up side-car vehicles. These are not “funds” in the classic sense (often they’re LLCs or limited partnerships organized deal-by-deal or alongside the main fund) and are offered to interested investors from the main fund. They represent another level of customization – giving big investors the chance to take more concentration in deals they like, separate from the main fund which is more diversified.

In Liechtenstein, the legal environment is such that any of the recognized forms (contractual fund, trust, partnership, corporate fund) can be used in a customized way. However, partnerships and contractual funds are especially flexible for customization because their terms are almost entirely contract-driven. A partnership agreement can be drafted to allocate profits in a specific way or to give an investor more say in governance, etc., without much statutory constraint. Also, using an LP or a contractual fund means the structure can be more easily wound up once the investor’s objectives are met (which might suit a bespoke mandate that isn’t perpetual).

In summary, umbrella sub-funds and tailored share classes are the most common tools to customize within a larger fund family, whereas fund-of-one structures (often LPs) are used for ultimate bespoke solutions. The choice often depends on whether the investor is comfortable being part of a larger legal structure (with their carve-out within it) or whether they require a wholly dedicated vehicle. Liechtenstein law supports both approaches, and managers will choose the path that best balances regulatory efficiency (it’s easier to add a sub-fund than start a new entity sometimes) with the investor’s requirements.

Yes. Any person or entity managing an AIF in or from Liechtenstein – or marketing an AIF in Liechtenstein – generally must be appropriately authorized by the Financial Market Authority (FMA) under the AIFMG. In the terminology of the law, an AIFM (Alternative Investment Fund Manager) license is required. This aligns with the EU’s AIFMD framework.

There are two scenarios:

1. An external AIFM (a third-party management company that manages one or more AIFs), or
2. An internally managed AIF (where the fund itself, typically an investment company, has no external manager and is considered to be self-managed).

Both need authorization. Key requirements and process:

• Initial Capital: The AIFMG specifies minimum capital for the management entity. An external AIFM must have at least €125,000 in initial capital (shareholders’ equity). If the AIF is self-managed (i.e., no separate manager), then the fund company needs at least €300,000 in capital. These amounts mirror AIFMD standards and serve as a buffer to ensure the manager’s financial stability. If assets under management grow beyond certain thresholds, the manager may need additional capital (0.02% of AUM above €250 million, capped at €10 million additional) – again per AIFMD rules which Liechtenstein follows.
• Fit and Proper Requirements: The individuals running the AIFM (directors, governing persons) must be fit and proper. This means they need to demonstrate sufficient collective experience in managing funds or similar assets, good repute (clean regulatory and criminal records), and the governance structure must be sound (clear roles, no conflicts of interest in governance). The FMA will vet CVs, credentials (often requiring at least some years of relevant experience for key persons), and perform background checks.
• Business Plan and Infrastructure: An applicant for an AIFM license submits a comprehensive application including a business plan, description of risk management, investment strategies contemplated, organizational structure, IT systems, and internal control mechanisms. They must also detail how they will comply with AIFMG obligations (like risk management function separation, liquidity management, valuation policies, etc.). Key service providers (the depositary for the AIFs, the auditor, etc.) often have to be identified and in some cases approved or at least known to the FMA at authorization.
• Local Presence: The AIFM must be a company incorporated in Liechtenstein (or a registered branch of an EEA firm, under certain circumstances) and have substantial presence in Liechtenstein (see also 15). It cannot be a “letter-box” – meaning it can’t just outsource everything; it needs real decision-making in Liechtenstein.
• Licensed Activities: The scope of an AIFM’s license can cover portfolio management and risk management of AIFs, plus ancillary services like administration or advisory services to the funds. If a firm only provides advice to an AIF (and isn’t the manager), that advisory activity might fall under a different license (investment advisory license) unless it’s done under the umbrella of an AIFM’s collective management. In practice, most firms will get the full AIFM license to cover management; pure advisors might register under a smaller regime if not managing the fund directly.

Once licensed, Liechtenstein AIFMs are subject to ongoing regulation by the FMA. They must continuously meet capital requirements, submit regular filings (including Annex IV reports detailing fund exposures, leverage, and risk), and undergo annual financial audits by an approved external auditor. Conduct of business rules also apply, including acting in the best interest of investors, maintaining functional separation between risk and portfolio management, managing and disclosing conflicts of interest, and avoiding undue inducements—reflecting AIFMD Articles 12–18.¹¹ The FMA actively supervises AIFMs through both routine and ad hoc inspections and can request compliance evidence at any time. Importantly, a Liechtenstein-licensed AIFM can use the AIFMD passport to manage or market AIFs across the EEA, simply through regulator-to-regulator notification, making the license operationally versatile within the European market.

In short, any party managing an alternative investment fund in Liechtenstein needs to be licensed. There are de minimis exemptions as per AIFMD (if assets under management are below €100m with leverage or €500m without leverage and no redemption rights for 5 years, the manager can opt for a registration regime with lighter requirements). However, such sub-threshold managers cannot passport and are limited in activities, and if they want to benefit from passporting, they voluntarily become fully licensed. The vast majority of AIF-related activity in Liechtenstein is done by fully authorized AIFMs, ensuring a high standard of oversight.

Footnote(s):

¹¹ AIFMD, Articles 12 – 18.

Yes, the funds themselves (the AIFs) are subject to regulatory authorization and oversight in Liechtenstein. It’s not only the manager that needs approval; the product/fund must also be approved or at least registered with the FMA before it can operate or be marketed.

Fund authorisation in Liechtenstein involves both regulatory approval and formal registration steps. When a Liechtenstein AIFM launches a new AIF, the FMA typically must approve the fund’s offering documents, such as the prospectus, articles of incorporation, and partnership or trust agreements. If the AIFM is already licensed, the process may be streamlined to a filing or notification depending on the type of fund. However, all domestic AIFs—except certain single-investor vehicles or those managed by a registered (sub-threshold) AIFM—fall under regulatory supervision. Once the fund is authorised, it must also be entered in the Commercial Register, which is a matter of public record and finalises its legal existence.

After authorisation, the AIF is subject to ongoing regulatory obligations. These include the preparation of an annual audited report, appointment of a Liechtenstein-based depositary for asset safekeeping and oversight, and timely notification to the FMA of material events such as rule changes, suspensions, or liquidation. The depositary plays a supervisory role in addition to custody, ensuring that subscriptions, redemptions, and valuations comply with law and the fund’s rules. Any issues must be reported to the FMA. Importantly, an authorised Liechtenstein AIF may be marketed to professional investors across the EEA via the AIFMD passport, and Liechtenstein also accepts inward marketing notifications from EEA AIFs—ensuring full access to the European fund market.

In practice, the process of “licensing” an AIF is often combined with the manager’s licensing or notification. For example, an umbrella fund may be approved with a couple of sub-funds at launch, and adding sub-funds is then a variation that needs FMA nod. If an AIF is only for qualified investors (professional investors) and not publicly offered, the approval process is straightforward and often just a matter of weeks (with the FMA checking that all formal requirements are met). If any retail offering is intended, the scrutiny is higher (see section 4 on retail).

To summarize: Yes, Liechtenstein AIFs require regulatory authorization, not just the managers. The FMA exercises a dual layer of supervision – licensing the manager and approving the fund vehicle and its rules. This ensures that investors in a Liechtenstein fund, even though they are typically professionals, benefit from a regulated product environment where an authority has vetted the fund’s setup and stands ready to oversee its operations throughout its life.

Liechtenstein law permits a degree of cross-border management of AIFs, thanks to its EEA membership and the AIFMD passport regime. The key requirement is not that the manager must be based in Liechtenstein, but that they must be appropriately authorised—either in the EEA or, under stricter conditions, outside it. EEA-authorised AIFMs may manage a Liechtenstein AIF using the AIFMD passport. For instance, a fund set up in Liechtenstein may be managed by an AIFM in Luxembourg or Germany. This is facilitated by Article 33 AIFMD¹², transposed in Liechtenstein law, under which the foreign AIFM’s home regulator notifies the FMA. There is no need for a separate licence in Liechtenstein. However, the AIF itself must still be approved by the FMA, and a local depositary is usually required.

For non-EEA AIFMs (e.g., Swiss, US or Cayman managers), the AIFMD passport is not available. These managers can participate in two main ways: (1) by delegating portfolio management or advisory functions to a Liechtenstein AIFM (which retains regulatory control and the passport); or (2) under national private placement rules (NPPR), with FMA approval and certain conditions. These include an MoU between the FMA and the third country’s regulator, and a commitment to transparency and reporting (such as Annex IV filings). The FMA may also expect a local representative to be appointed, though this is a matter of supervisory practice rather than law.

Swiss managers benefit from a special position due to the close Liechtenstein–Switzerland relationship. Though Switzerland is a third country under AIFMD, Liechtenstein may allow Swiss FINMA-regulated managers to privately manage Liechtenstein AIFs for qualified investors under NPPR. No public marketing may occur, and the fund must remain within the private placement regime. A Liechtenstein representative is usually required, but a full AIFM licence may not be needed. For broader EEA distribution, however, the manager must be fully authorised or delegate to an EEA AIFM.

Foreign investment advisors (whether EEA or not) can also play a role without being licensed by the FMA. A Liechtenstein AIFM may delegate non-discretionary investment advice or even portfolio management to a foreign entity, provided that the AIFM maintains control in line with AIFMD’s anti–letter-box rules. This approach allows international asset management expertise to be incorporated into Liechtenstein funds while ensuring compliance and supervision remain local.

Footnote(s):

¹² Article 33 (AIFMD)

Yes, Liechtenstein requires a certain level of local substance for both AIFs and AIFMs to ensure effective control and management within its borders. A Liechtenstein-authorised AIFM must have both its registered and head office in Liechtenstein. This means that core decision-making—portfolio and risk oversight—must take place locally, with key personnel either residing in or regularly operating from Liechtenstein. While the law does not mandate a specific number of Liechtenstein-resident directors, the FMA typically expects at least one or two senior individuals based in Liechtenstein. The AIFM must also maintain a real office—not just a P.O. box—and have adequate staff to match the scale of its operations. While certain functions like fund administration or even portfolio management can be delegated, the AIFM must retain ultimate control and cannot become a letterbox.

As for the AIF itself, if it is structured as a legal entity like a SICAV or LP, it must also have a registered address in Liechtenstein and hold at least some governance activity locally (e.g. board meetings). Where applicable, the FMA may prefer some fund board members to be based in Liechtenstein, although in many cases the governance of the fund is tied to that of the AIFM. Service providers also play a role in anchoring the fund locally: a Liechtenstein-based depositary and auditor are mandatory in most cases. This regulatory triangle—manager, custodian, auditor—ensures that core oversight functions occur within Liechtenstein. Where administrators are involved, they may be foreign if they are appropriately supervised and the FMA is comfortable with the arrangement.

Substance is also important for tax residency, even though Liechtenstein AIFs generally do not pay income tax. The fund and manager must be Liechtenstein tax residents, and this ties into international standards on tax transparency and anti-avoidance. While economic substance rules are less formalised than in some offshore jurisdictions, the FMA still expects real activity to be demonstrated. During the authorisation process and through periodic inspections, the FMA may review meeting minutes, staffing, and the location of decision-making. For instance, a fund with no local directors or employees and a foreign-controlled operation would not pass muster.

In practice, foreign sponsors often meet substance requirements by engaging local directorship services, renting modest offices, and employing at least some operational staff in Liechtenstein. Many service providers in the jurisdiction help with this process, and the thresholds are reasonable for serious managers. Ultimately, Liechtenstein requires genuine “mind and management” on the ground. While advisers outside Liechtenstein can be used—especially for investment advice—they cannot replace the local oversight expected of the AIFM or fund board.

Liechtenstein law, implementing the AIFMD, mandates that each AIF must have a licensed Alternative Investment Fund Manager (AIFM), a Liechtenstein-based depositary, and an independent auditor. The AIFM—whether external or self-managed—is responsible for the fund’s portfolio and risk management as well as overall regulatory compliance. The depositary safeguards the fund’s assets, oversees cash flows, and monitors compliance with valuation, subscription, and redemption rules. The auditor, licensed by the FMA, audits both the fund and the AIFM annually, confirming financial accuracy and compliance. These three roles form the core oversight framework and must be disclosed in the fund documentation.

Other commonly appointed service providers include fund administrators, distributors, and legal or domiciliation agents. While administration is not strictly required by law, most AIFs engage a fund administrator to handle bookkeeping, NAV calculation, and investor servicing. Distribution may be carried out by the AIFM (if authorised) or delegated to a licensed distributor or placing agent—especially relevant if the fund is marketed to investors in Liechtenstein or elsewhere in the EEA. Legal counsel and domiciliation agents assist in drafting documents, handling fund formation, and maintaining the registered office, especially when the fund is structured as a legal entity such as a SICAV or LP.

Depending on the fund’s strategy, additional optional providers may be engaged. For hedge funds, a prime broker may be appointed, provided it complies with AIFMD custody and leverage rules. In some cases, an external valuer may be appointed, though valuation is more commonly handled by the AIFM with auditor oversight. All key service providers must either be Liechtenstein-based or meet conditions for recognition if based abroad (e.g., through passporting or compliant outsourcing). Their roles must be clearly disclosed in the offering documents, as they collectively ensure that investor assets are managed, safeguarded, and reported in accordance with regulatory standards.

While Liechtenstein’s Persons and Companies Act (PGR) does not explicitly mandate the appointment of a local director for AIFs, the Financial Market Authority (FMA) generally expects at least one Liechtenstein-resident director for corporate funds, or a local trustee or general partner for contractual or limited partnership structures. This expectation is grounded in the FMA’s broader emphasis on substance and regulatory oversight. In the case of corporate AIFs such as SICAVs or SICAFs, the fund will have a Board of Directors. If self-managed, this board doubles as the AIFM; if externally managed, the board still holds responsibility for key governance matters and for appointing the AIFM. Although the PGR itself does not specify residency requirements for directors, in practice the FMA typically insists on having at least one (preferably two) directors resident in Liechtenstein. This ensures accountability under local law and facilitates direct regulatory supervision.

In the case of contractual funds (Investmentfonds), which lack separate legal personality, the management and fiduciary roles are even more tightly linked to local presence. These funds rely on a management company—i.e., the AIFM—and often a trustee structure. The trustee must be a licensed entity domiciled in Liechtenstein. In most cases, the trustee is either the AIFM itself or a related fiduciary company. Because these roles fall under direct FMA supervision, the result is that the individuals effectively overseeing the fund must be located in Liechtenstein. Thus, even if the fund itself lacks a formal board, the fund’s governance is exercised by locally based managers, satisfying the substance expectations.

For limited partnerships (Kommanditgesellschaften), the structure requires a General Partner (GP), which is usually set up as a Liechtenstein legal entity such as a GmbH or AG. The GP often serves as the AIFM or is affiliated with it. The FMA expects this GP to be Liechtenstein-based, both for regulatory clarity and administrative ease. If a foreign entity were to act as GP, this would raise supervisory complications and the FMA would typically require either registration of that foreign GP in Liechtenstein or, more practically, the appointment of a local GP. In any case, the operational effect is that the directors or managers of the GP—who effectively control the fund—will be Liechtenstein-resident, aligning with the FMA’s requirement for local oversight. Many fund sponsors, to streamline compliance, retain local fiduciaries or trust professionals to serve on the GP board or to act as board members for the fund vehicle itself.

For AIFs structured as trusts, the requirement for local involvement is absolute. Liechtenstein law requires that the trustee of a trust be a licensed and domiciled entity in Liechtenstein. This trustee—typically a trust enterprise regulated by the FMA—has legal ownership of the trust assets and fiduciary responsibility for their administration. The trustee company is managed by individuals resident in Liechtenstein, ensuring that key decisions affecting the fund are taken within the jurisdiction. More broadly, all key persons involved in fund management—directors, trustees, or general partners—are subject to the FMA’s “fit and proper” test. This includes a review of personal reliability, experience, and importantly, residency. Local presence facilitates timely communication with the regulator and ensures the individuals are available for meetings, inspections, and inquiries.

In practice, therefore, even though not strictly required by statute, the appointment of local directors or equivalent fiduciaries is a near-universal feature of Liechtenstein AIFs. This is not merely to satisfy regulatory formality, but rather to ensure effective governance, maintain the jurisdiction’s reputation, and give comfort to investors that the fund is genuinely run from within Liechtenstein. For example, a typical SICAV might have a three-member board, two of whom are Liechtenstein-based professionals (lawyers or fund directors), and one representing the sponsor. This mix reassures the FMA that “mind and management” are genuinely located in Liechtenstein and not merely outsourced or nominal. Hence, while not a legal black-and-white requirement, local governance is effectively a regulatory expectation and market standard.

Please refer to the answer for Question 14.

Managers of AIFs in Liechtenstein are exposed to enforcement risks primarily in areas of regulatory compliance and investor protection, with the FMA actively supervising adherence to obligations. Common violations include exceeding stated leverage or investment concentration limits, which, while not generally imposed by law for professional funds, become binding once disclosed in fund documents. The FMA tracks these through Annex IV reports and depositary oversight, and deviations can result in warnings, forced de-leveraging, or fines. Another major risk area is reporting failures—late or incorrect Annex IV filings, missed financial statements, or unreported changes in governance—account for a significant share of enforcement actions. The FMA uses automated systems to monitor deadlines, and repeat offenders may face escalating fines or even temporary suspension of their licence. Inadequate AML/KYC procedures, including failure to update investor due diligence or report suspicious activity, have also led to large penalties, with some AIFMs fined upwards of CHF 75,000 for AML lapses or weak internal controls.

Marketing violations are another enforcement hotspot. Managers offering funds to ineligible investor types (e.g., retail clients without appropriate authorisation), or marketing foreign AIFs in Liechtenstein without notification, risk formal sanctions. Misleading promotional materials also attract penalties—these breaches may be discovered via investor complaints or cross-border regulator alerts. Conflict of interest issues, such as self-dealing or non-arm’s length transactions between affiliated funds, are less common but treated seriously. The FMA requires such arrangements to be fully disclosed and approved where necessary. Governance failures, including holding insufficient board meetings or permitting de facto management by an undeclared third party, can lead to smaller but still significant fines. In the most severe cases, the FMA may revoke the AIFM’s licence altogether, particularly for persistent non-compliance, insolvency, or serious misconduct. License withdrawals have occurred in cases where AIFMs failed to fix issues after remediation periods, or when capital requirements were no longer met.

The FMA typically follows a progressive enforcement model, beginning with informal recommendations or management letters, escalating to formal orders or fines if the issues are not resolved. AIFMs are often given the opportunity to submit and implement corrective action plans under close supervision. Cooperation is key—managers who proactively report breaches and demonstrate willingness to remedy them are often treated more leniently. However, the FMA maintains high expectations for governance and compliance, and will enforce penalties to preserve Liechtenstein’s reputation as a serious fund centre. The most effective way for managers to reduce enforcement risk is by maintaining a strong compliance framework, staying transparent with the regulator, and responding quickly to supervisory feedback. Failure to do so can result in financial penalties, licence restrictions, or removal from the market.

Yes, management fees for AIFs in Liechtenstein vary by asset class and strategy, generally tracking international norms. Private equity and venture capital funds usually charge 1.5% to 2.5% annually on committed capital during the investment period, dropping to invested capital or NAV thereafter. Hedge funds typically follow the “2 and 20” model but now often fall closer to 1.5% or even 1%, especially for liquid or low-capacity strategies. Real estate and infrastructure funds charge 0.75% to 1.5% on NAV, with core real estate at the lower end. Debt funds tend to charge 1% to 1.5% on committed capital, with lower fees on senior debt and higher ones on mezzanine. Crypto/digital asset funds average around 1.5% to 2%, with some charging up to 2.5% due to complexity, though there is downward pressure.

Liechtenstein does not impose hard caps on fees but requires clear disclosure under AIFMG Article 105(1)(l)¹³. Many managers use an “all-in fee” model that combines management, audit, and admin costs into one quoted figure (e.g., 2.5%), out of which expenses are paid. Large investors often receive fee discounts, so a headline 2% fee may effectively be 1.5% after rebates. Fee levels must be justifiable, particularly for retail-facing funds, and the FMA reviews cost structures accordingly.

In summary: hedge/crypto funds sit around 2% (or lower), PE/VC funds around 2% on commitments (lower for larger funds), core real estate and debt strategies closer to 1%, and mid-range or hybrid strategies fall between. Liechtenstein’s low-cost environment supports competitive fee models, with flexibility for managers to offer reduced costs or run smaller funds profitably, especially compared to costlier jurisdictions like Luxembourg.

Footnote(s):

¹³ Article 105(1)(l), AIFMG

Yes, performance fees and carried interest are typical features in Liechtenstein Alternative Investment Funds (AIFs), particularly in private equity, hedge funds, and other actively managed strategies. These incentive-based compensation structures are designed to align the interests of fund managers with those of investors by rewarding managers for generating superior returns. However, to ensure fairness and investor protection, performance fees in Liechtenstein are almost always subject to a range of conditions and safeguards, including hurdle rates, high-water marks, catch-up clauses, and waterfall models.

The hurdle rate is a central feature of most performance fee arrangements. For private equity funds, the hurdle is commonly set at an 8% internal rate of return (IRR), meaning that the manager only earns carried interest once the fund’s returns exceed this threshold. Hedge funds often use a floating hurdle, such as SOFR (Secured Overnight Financing Rate) plus 300 basis points, to ensure that performance fees are only paid on returns that significantly outperform risk-free alternatives. This mechanism ensures that managers are incentivized to deliver genuine value rather than simply benefiting from market movements or low-interest-rate environments.

High-water marks are another standard condition, particularly in hedge funds. A high-water mark requires that any previous losses must be fully recovered before the manager can earn additional performance fees. For example, if a fund experiences a 10% loss, it must first regain that 10% before any new performance fees are charged. This loss carry forward feature protects investors from paying fees on the same gains more than once and ensures that the manager’s incentives are closely tied to long-term performance.

Catch-up clauses and waterfall models are also prevalent, especially in private equity and real asset funds. A typical catch-up clause allows the manager to receive 100% of profits above the hurdle rate until the agreed-upon profit split (often 20% carried interest) is reached, after which profits are divided according to the standard waterfall. Waterfall models, which detail the sequence and priority of distributions to investors and managers, generally require explicit investor consent and are carefully disclosed in the fund’s documentation. The Financial Market Authority (FMA) regulates these arrangements closely, mandating that hurdle rates must exceed risk-free rates, high-water marks can only reset after full recovery of losses, and catch-up periods are capped at 12 months to prevent excessive manager compensation.

Innovative trends are also emerging, particularly in digital asset funds, where “dynamic carry” models are being introduced. In these structures, performance fees are adjusted algorithmically based on volatility-adjusted returns, providing a more nuanced alignment between risk and reward. Overall, the use of performance fees in Liechtenstein AIFs is both widespread and sophisticated, with a strong regulatory emphasis on fairness, transparency, and investor protection.

Yes, fee discounts, fee rebates, and other economic benefits for initial or “seed” investors are quite typical in raising assets for new fund launches in Liechtenstein. These incentives are strategically used to attract cornerstone investors, build early momentum, and establish credibility for the fund in its formative stages.

Standard seed investor terms often include substantial management fee waivers, with discounts ranging from 50% to a full 100% for the first one to three years of the fund’s life. This dramatically reduces the cost of entry for early investors and can make participation in a new fund especially attractive. In addition to fee waivers, seed investors are frequently granted co-investment rights, allowing them to invest alongside the main fund in select deals at 0% carried interest, which means they can benefit from investment upside without paying performance fees on these specific allocations.

Another common economic benefit is priority in distributions: seed investors may receive between 120% and 150% of their invested capital before the fund manager is entitled to any carried interest. This preferential treatment provides early investors with enhanced downside protection and a superior risk-return profile compared to later entrants.

From a regulatory perspective, the Financial Market Authority (FMA) in Liechtenstein requires that all such incentives and economic arrangements be fully disclosed in the fund’s Annex II marketing documentation. The FMA also mandates equal treatment for all investors within the same seed tier, ensuring fairness and transparency. Importantly, retroactive discounts or rebates after the fund has closed are not permitted, safeguarding against preferential treatment that could disadvantage other investors.

A recent example illustrating these practices is the “Helvetic PE Fund III,” which offered its seed investors a 0% management fee for three years, a 10% co-investment allocation, and a 150% capital return priority. These incentives helped the fund secure €50 million in seed commitments, representing 25% of its target size and providing a strong foundation for its subsequent fundraising efforts.

Overall, offering fee discounts and other economic incentives to early investors is a well-established and regulated practice in Liechtenstein, designed to reward those who take the initial risk and to support successful new fund launches.

Yes, management fee “break-points” based on investment size are a common feature in Liechtenstein Alternative Investment Funds (AIFs). These tiered fee reductions are designed to reward larger commitments and attract institutional investors by offering them more favorable terms as their investment size increases.

Typically, break-points are structured as follows: a commitment of €10 million will often secure a 10% discount on the standard management fee, while a commitment of €25 million or more can result in a 20% discount. These reductions are not negotiable on a case-by-case basis but must be applied uniformly within each investor class. For example, if pension funds investing at the €25 million level receive a 20% fee reduction, all pension fund investors at that tier must receive the same benefit, ensuring fairness and transparency.

The enforcement of these break-points is taken seriously. Custodians are required to verify fee calculations on a monthly basis, ensuring that all discounts are correctly applied according to the terms set out in the fund’s prospectus. Furthermore, the prospectus must include a clear table outlining the break-point structure, so all potential investors are aware of the benefits available at different commitment levels.

A recent trend in the market, emerging in 2023, is the introduction of “dynamic break-points.” Under this model, management fees are not only reduced based on investment size but can also adjust in response to portfolio performance. For example, if a fund outperforms its benchmark by 200 basis points, investors may receive an additional 5% fee reduction. The Financial Market Authority (FMA) permits these dynamic structures, provided they are based on objective, algorithmic criteria and are fully disclosed in the fund’s documentation.

In summary, management fee break-points based on investment size—and increasingly, on fund performance—are standard practice in Liechtenstein, offering tangible economic incentives to larger investors while maintaining regulatory oversight and transparency.

First loss programs—as a source of capital for Alternative Investment Funds (AIFs) in Liechtenstein—are rare, but they do exist in specific, typically more complex fund structures such as collateralized loan obligations (CLOs) and distressed debt funds. In these arrangements, the manager contributes approximately 10–20% of the account balance, positioning their own capital as the “first loss” tranche. This means that if the fund incurs losses, the manager’s capital is used to absorb those losses before any investor capital is affected, providing an additional layer of protection and alignment of interests for investors.

When such programs are implemented, they are subject to strict regulatory oversight and are generally limited to funds targeting professional investors. The manager’s capital contribution is locked in for the entire duration of the fund, ensuring their ongoing commitment and risk exposure. The loss absorption sequence is clearly defined: the manager’s capital is depleted first, and only after this is exhausted would investor funds be at risk. For retail funds, the Financial Market Authority (FMA) requires pre-clearance before such structures can be offered, reflecting the higher degree of risk and complexity involved.

The terms of loss absorption and manager capital contributions in first-loss programs are contractually agreed and not subject to statutory caps. In practice, these structures are typically offered only to professional investors and require robust documentation outlining the loss waterfall, lock-up periods, and risk-sharing mechanics. The FMA may request pre-approval or supporting documentation to assess investor protection and structural integrity.

In summary, while first loss programs are not common in Liechtenstein AIFs, they are occasionally used in specialist strategies to enhance investor confidence and align manager and investor interests—always under close regulatory scrutiny and with clear, pre-defined risk-sharing mechanisms.

Seeding and acceleration programs are increasingly used in Liechtenstein’s Alternative Investment Fund (AIF) market to attract cornerstone investors and catalyze a successful fund launch. These programs typically offer early investors a package of economic incentives and enhanced rights in exchange for their commitment and willingness to lock up capital during the fund’s crucial initial phase.

Standard seeding terms generally include a lock-up period of three to five years, during which seed investors cannot redeem their interests. This provides the fund with stable, long-term capital and demonstrates to other potential investors that the fund has a solid financial foundation. In return for this commitment, seed investors often receive “equity kickers”—typically 0.5% to 1% direct ownership in the fund’s general partner (GP) or management entity—giving them a stake in the long-term success of the fund manager beyond their investment returns.

Another common feature is revenue sharing, where seed investors are entitled to a share of the fund’s management fees, usually in the range of 10% to 15%. This arrangement allows seed investors to benefit from the growth of the fund’s assets under management and provides additional upside beyond traditional fund returns.

From a legal structuring perspective, seed capital is usually invested through special limited partner (LP) classes that come with enhanced rights, such as priority access to information, governance input, or preferential economics. All seed terms and any potential conflicts of interest—such as fee waivers that might dilute the returns of other LPs—must be fully disclosed in the fund’s prospectus, in line with regulatory requirements.

A recent example is the “CryptoYield Fund,” which launched with a seeding program that included a three-year lock-up, a 1% equity kicker in the GP, and a 15% share of management fee revenues for seed investors. This program attracted €15 million in seed commitments, representing 20% of the fund’s total capital and enabling the fund to accelerate its first close. The Financial Market Authority (FMA) required independent valuations to ensure that the net asset value (NAV) for seed investors was set on a neutral, arm’s-length basis, protecting the interests of subsequent investors.

In summary, seeding and acceleration programs in Liechtenstein typically offer a blend of lock-ups, equity participation, and revenue sharing, all structured to align the interests of seed investors, the fund manager, and future investors—while maintaining transparency and regulatory compliance.

Recent years have seen notable shifts in the structure and level of management and incentive/performance fees within Liechtenstein’s Alternative Investment Fund (AIF) industry, reflecting both global trends and local regulatory developments. One of the most prominent trends is the clear differentiation between primary and secondary funds. Secondary funds—which invest in existing fund interests or portfolios rather than originating new investments—typically charge lower management fees, generally in the range of 1% to 1.5%, compared to the traditional 2% charged by primary funds. Similarly, carried interest (the share of profits allocated to the manager) in secondary funds is usually set at 10% to 15%, whereas primary funds, especially in private equity, continue to command the industry-standard 20%.

Digital asset funds are also reshaping the fee landscape. These funds increasingly tie performance fees directly to token appreciation, and innovative “token-burn” fee models are emerging. In such structures, fees are paid by destroying a portion of the fund’s tokens, which in turn boosts the net asset value (NAV) for remaining investors. This approach not only aligns manager and investor interests but also leverages the unique mechanics of blockchain-based assets.

Across sectors, several other trends are emerging. In private equity, the hurdle rate for carried interest is rising, with many funds now requiring a 10% internal rate of return (IRR) before carry is paid—up from the traditional 8%. This change is largely in response to investor demand for stronger alignment and higher performance thresholds. In the hedge fund space, “fulcrum fees” are gaining popularity. These are performance-adjusted fee structures where the base management fee decreases if the fund underperforms its benchmark but increases if it outperforms, creating a more dynamic and investor-friendly fee arrangement.

Institutional investors are playing a significant role in driving these changes. Initiatives led by large allocators such as CalPERS have pushed for management fee caps (often at 1.5%), longer carry measurement periods (up to 10 years), and full fee recycling—where fees earned by the manager are reinvested back into the fund for the benefit of investors. Liechtenstein funds that have adopted these institutional-friendly terms have seen a notable uptick in allocations, with a reported 35% increase in institutional capital commitments in 2023.

In summary, the Liechtenstein AIF industry is increasingly characterized by lower and more performance-sensitive fees in secondary and digital asset funds, rising hurdle rates in private equity, and a broader move toward greater transparency and investor alignment—trends that are being reinforced by the growing influence of large institutional investors.

Liechtenstein’s marketing regime for AIFs distinguishes sharply between professional and retail investors, with stricter controls applied to the latter. Marketing to professional investors—especially within the EEA—is permitted under the AIFMD passport regime. An EU or Liechtenstein AIFM simply notifies the Liechtenstein FMA with Annex IV and other required documents. Once confirmed—usually within 10 business days—marketing can commence. There is no substantive FMA review at this stage, though the regulator may impose limited local disclosure requirements (like German or English language materials). For non-EEA AIFMs, marketing must follow the comply with Article 151 AIFMG, which is a more restrictive route.¹⁴

Public marketing to retail investors is only permitted under tightly controlled circumstances. AIFs cannot be promoted to the general public without prior authorisation. “Marketing” includes any offering or placing of fund units to Liechtenstein-based investors initiated by the manager. Cold calls, unsolicited emails, or advertisements without approval can lead to regulatory sanctions. If an AIF wants to access retail investors, it must either be structured similarly to a UCITS, ELTIF, or other sanctioned retail vehicle—or it must receive specific FMA approval. Even then, it will typically need to provide a KID under PRIIPs regulation and potentially a simplified prospectus, along with proof of investor safeguards like liquidity and diversification.

Marketing content is also subject to strict rules. Materials must be fair, clear, and not misleading. Retail-facing documentation should be in German, although English is often acceptable for professional investors. The FMA can demand translations where retail investors are concerned. Risk and performance claims must be accompanied by standard disclaimers and aligned with the legal offering documents. If intermediaries such as banks or platforms are involved, they too must be licensed and compliant. Use of unlicensed finders or advisors is prohibited. Liechtenstein banks and asset managers often act as key distributors due to their established private banking networks.

There are further nuances with cross-border and crypto-related marketing. Liechtenstein AIFs can be passported to EEA countries, and EEA AIFs may be sold in Liechtenstein. Non-EEA funds, such as those domiciled in the Cayman Islands, cannot be publicly marketed but might access institutional investors under NPPR. For crypto AIFs, Liechtenstein is relatively progressive, but marketing to retail is generally restricted due to risk and volatility. Professional marketing is allowed under the AIFMG and TVTG with proper disclosures. If retail marketing were ever allowed, it would involve tight FMA conditions, such as investor knowledge thresholds and strict risk labeling.

Enforcement by the FMA is active and serious. In 2023 alone, the regulator reportedly imposed over CHF 1.2 million in fines for breaches related to unauthorised distribution. Managers cannot rely on informal workarounds like “reverse solicitation” unless it’s genuine—if a professional investor independently seeks out an AIF, it falls outside marketing scope, but the FMA monitors against abuse of this concept. In sum, marketing AIFs in Liechtenstein is possible, but highly regulated. AIFMs must follow one of three paths: passporting to professionals, obtaining FMA approval for retail, or private placement to known investors. Mass marketing is only allowed for approved retail funds, and even then, advertising often requires FMA review. These measures uphold investor protection and Liechtenstein’s regulatory integrity.

Footnote(s):

¹⁴ Article 151, AIFMG

Yes, Liechtenstein has adopted the concept of “pre-marketing” in line with the EU’s AIFMD II (Directive (EU) 2019/1160) amendments. Pre-marketing allows licensed AIFMs to test investor interest in a fund or strategy before formally notifying the regulator and commencing official marketing. In Liechtenstein, this is addressed under the AIFMG and clarified through FMA Guideline 2019/16. Pre-marketing is permitted to professional investors only, and only if the materials shared concern a draft fund or investment idea not yet authorised for sale, without any binding offer or acceptance mechanism. Critically, materials must be clearly marked as drafts and not allow subscription.

To qualify as pre-marketing, the activity must not involve final fund documents or any subscription forms. The AIF must not already be notified for marketing, and if any investor expresses interest during pre-marketing, the manager cannot accept a subscription without first completing the formal notification process. Moreover, if a subscription follows within 18 months of pre-marketing, the regulator will presume it resulted from marketing—meaning the AIFM should have filed a notification. Liechtenstein law requires the AIFM to inform the FMA within 10 business days of starting pre-marketing, by submitting a short description of the activity and paying a one-off CHF 250 fee. This procedural step ensures the regulator is aware and can monitor compliance.

Pre-marketing must target only professional investors (or those reasonably considered such), never retail. Any documents used must be labelled as draft and contain disclaimers to confirm that the fund is not yet open for investment and may not launch. There is no strict time limit on how long pre-marketing may continue, but if it becomes prolonged, the FMA may question whether it has crossed into actual marketing. If pre-marketing is conducted without notifying the FMA, or if materials breach the requirements, the FMA may consider this unauthorised marketing. AIFMs are therefore cautious and compliant in their pre-marketing efforts.

In practice, pre-marketing offers AIFMs, particularly new managers, a useful way to gauge interest and obtain soft commitments from institutional investors before launching a fund. For example, an AIFM may circulate a draft PPM to a few potential seed investors under NDA. If investors indicate interest, the manager can then formalise the fund and complete the regulatory marketing steps. Importantly, pre-marketing involves the AIFM initiating contact, in contrast to reverse solicitation where the investor reaches out on their own initiative—an important distinction under EU law. Liechtenstein, as part of the EEA, has aligned with this EU framework to bring structure and accountability to early-stage investor engagement.

Yes, but with significant regulatory conditions. Liechtenstein permits AIFs to be marketed to retail (non-professional) investors, although this is the exception rather than the norm. To qualify, the AIF must meet investor protection standards similar to UCITS: sufficient liquidity, clear diversification, transparency in valuation and reporting, and consumer-friendly documentation in German, including a PRIIPs-compliant Key Information Document (KID). Unlike marketing to professionals, retail distribution requires explicit prior approval from the FMA, which will assess factors like the complexity of the strategy, strength of service providers (e.g., depositaries), quality of disclosure, and may impose additional restrictions such as limiting sales to advised clients only.

In practice, few AIFs are approved for general retail sale in Liechtenstein. However, some structures — such as diversified multi-asset funds with monthly liquidity, or real estate AIFs with limited leverage — may be allowed, particularly if targeting high-net-worth individuals. There’s no formal “semi-professional” category in Liechtenstein law, but certain informed investors who meet minimum thresholds and acknowledge risk can be treated akin to professional investors. Retail exposure may also occur indirectly via private banking channels, where clients are placed into discretionary accounts or structured products that include AIF exposure. The sale must still meet MiFID suitability requirements. ELTIFs (European Long-Term Investment Funds) also offer a retail path and can be passported into Liechtenstein with their own protective criteria.

Retail approval opens the door to public advertising, provided it’s accurate and non-misleading. In all cases, a compliant KID (in German) must be delivered to the investor, alongside the full prospectus if requested. Retail investors receive the same legal protections as UCITS buyers, including cooling-off periods and recourse to ombudsman schemes. Given Liechtenstein’s small market and the restrictions in nearby Switzerland, the retail AIF market is narrow and typically limited to local or EEA investors. But legally, retail marketing is possible if the fund meets the relevant standards and is formally approved by the FMA. Without this, AIFs are restricted to professional distribution only.

Liechtenstein does not have a domestic label or standalone regime specifically designated as “retail AIF,” but as a member of the EEA, it adheres to EU fund frameworks for retail access. The most relevant is the ELTIF (European Long-Term Investment Fund), a regulated AIF that can be marketed to retail under strict conditions relating to diversification, leverage limits, disclosure, and investor suitability. If a Liechtenstein manager sponsors an ELTIF, it can be sold to retail across the EEA. Additionally, while Liechtenstein lacks a special “Non-UCITS Retail Scheme” like the UK’s NURS, a Liechtenstein AIF can still be offered to retail if it mimics UCITS-like features—such as high liquidity, strict diversification, limited use of leverage, and minimal exposure to illiquid assets. The FMA would assess these cases individually, applying a safety standard broadly aligned with UCITS expectations.

There are also indirect or hybrid retail pathways. One route is life insurance wrappers: retail investors can access alternative funds through unit-linked insurance products, which invest in AIFs without marketing the AIF directly. This is permitted under Liechtenstein insurance law. Another option involves foreign EU AIFs that are authorised for retail—such as a French FCPR or German Publikums-AIF—passporting into Liechtenstein under AIFMD rules. However, the FMA can impose local host state conditions like appointing a paying agent or ensuring a German-language KID. Despite these theoretical pathways, actual use remains rare, partly due to the small size of Liechtenstein’s market and the predominance of UCITS for retail.

In short, Liechtenstein doesn’t maintain a national retail AIF label but uses EU structures—mainly ELTIFs—for this purpose. Any AIF offered to retail must undergo enhanced regulatory scrutiny and meet liquidity, transparency, and disclosure benchmarks akin to UCITS. If new EU-level retail fund types emerge, Liechtenstein would adopt them by virtue of EEA alignment. In practical terms, managers wanting retail access should either use UCITS, structure the AIF with retail-suitable features, or explore ELTIFs and other long-term EU fund options (like EuSEF or EuVECA) where permitted. A retail offering is possible, but only under careful design and with the FMA’s prior approval.

The concept of “minimum investor qualification” in Liechtenstein is built around ensuring that AIFs are only marketed to those with the capacity to understand and bear financial risk. Liechtenstein aligns with AIFMD standards, primarily restricting AIFs to professional investors, as defined under MiFID II (Annex II). This includes institutional investors, financial firms, and individuals meeting portfolio and experience thresholds. However, Liechtenstein law also allows access to “qualified investors” who are not MiFID professionals but commit at least €100,000 and sign a declaration acknowledging the risks—reflecting the AIFMD’s Article 6 flexibility. Managers may thus accept investors who don’t formally meet professional status but meet this commitment and acknowledgment threshold.

Although this €100k rule provides a regulatory baseline, practice varies by asset class. While Liechtenstein law does not impose differentiated thresholds by fund strategy, market norms do. Hedge funds may accept as low as €100k, especially via feeder platforms. By contrast, private equity funds often set higher minimums (e.g., €500k or €1 million) to align with typical investor profiles and manage operational efficiency. Real estate and infrastructure funds tend to fall somewhere in between, with minimums frequently around €250k. These variations stem from commercial and operational considerations rather than law.

For the FMA, the critical issue is whether an investor qualifies as professional or qualified. If not, the fund would require prior retail approval. In cases of international marketing, thresholds from other jurisdictions must also be considered—for instance, US accredited investor rules or Swiss qualified investor rules. While these do not affect Liechtenstein’s regulatory position directly, they influence how AIFs are structured or marketed abroad. Ultimately, the law doesn’t vary across fund types, but managers often self-impose stricter criteria for illiquid or complex strategies to ensure compliance and investor suitability.

In summary, all AIFs in Liechtenstein must be marketed either to professional investors or to qualified investors committing at least €100k and signing a risk acknowledgement. This €100k threshold is widely used and accepted, including in regulatory guidance under AIFMD. Pension funds, insurers, and banks are automatically professional; wealthy individuals can qualify via opt-up procedures or minimum subscriptions. Investment vehicles like family trusts may also qualify if the underlying individual meets the criteria. Legally, €100k is the minimum for non-retail investors, but market practice often sets higher bars for illiquid or specialised strategies.

Government entities, sovereign wealth funds, pension funds, and insurance companies are treated as professional investors under Liechtenstein law, so no additional marketing restrictions apply beyond those generally applicable to professional investors. However, in practice, these entities often have their own internal or home-country constraints that fund managers must navigate. For instance, Liechtenstein and Swiss pension schemes typically have asset allocation limits—such as caps on exposure to alternatives—and may require detailed risk disclosures or due diligence materials. Insurance companies face capital charges under Solvency II and may request enhanced transparency to assess capital adequacy. Sovereign wealth funds often negotiate custom terms via side letters. While many of these entities qualify as “per se” professional investors, sub-entities (like municipalities) might need to be opted up. Ethical restrictions (e.g., ESG or sanctions-related exclusions) and anti-corruption procedures (such as pre-approval lists or formal tender processes) are also common. Moreover, managers might need to disclose placement agents and fee structures, especially when dealing with public money, and comply with specific exemptions or structural tax preferences for sovereign funds.

In Liechtenstein, the Pensionskasse (occupational pension scheme) and insurance firms are the primary domestic institutional investors. They already invest broadly in funds, including alternatives, with oversight from regulators to ensure appropriate diversification. While the law does not impose constraints on fund managers, these institutional investors may have their own investment limits—for example, a rule that no more than a certain percentage can be allocated to private equity. These restrictions are not binding on the fund itself but must be respected by the investor. As such, when marketing to them, managers must show how the fund aligns with typical asset allocation policies or satisfies the entity’s internal governance and compliance protocols.

In short, there are no additional licensing requirements or legal restrictions under Liechtenstein law for marketing to these institutional investors. However, winning such investors often entails satisfying demanding practical requirements—ranging from transparency and risk reporting to ESG compliance and legal structuring. These are not formal legal barriers but commercial and regulatory expectations that the fund must meet in order to be considered investable by such entities.

If a fund manager in Liechtenstein uses intermediaries—such as third-party marketers, placement agents, or distributors—to raise capital, those intermediaries must be properly regulated. In most cases, they need a licence under the AIFM Act (for AIF distribution) or the Investment Firm Act. If the intermediary is foreign, it must passport its services into Liechtenstein under MiFID (for EEA entities) or partner with a local licensed firm. All marketing activity must adhere to strict transparency and disclosure rules. Compensation structures—such as placement fees or retrocessions—must be clearly documented, especially if they are borne by the fund. Any deviation or misconduct by intermediaries can reflect negatively on the fund manager and result in regulatory scrutiny or sanctions from the FMA.

Fund managers remain responsible for ensuring intermediaries only use authorised offering materials and don’t make unauthorised promises. Under MiFID rules, inducement payments (e.g., retrocessions to banks) must be disclosed to investors. Additionally, intermediaries involved in onboarding investors must comply with AML/KYC obligations. If the intermediary is not a licensed AML-regulated entity, the AIFM cannot rely on them for due diligence. Furthermore, unlicensed individuals acting as finders, even informally, are strictly prohibited from soliciting investments. The FMA treats such conduct as unlawful financial intermediation.

In short, while Liechtenstein allows the use of intermediaries, they must be appropriately authorised, adhere to marketing and AML rules, and ensure transparency of any compensation arrangements. The AIFM bears ultimate responsibility for ensuring compliance. Most funds leverage the country’s private banking network for distribution, where placement agreements with licensed banks allow indirect marketing through those channels. The rules are not restrictive but demand that only properly regulated actors solicit investors using fair and fully disclosed practices.

Liechtenstein law does not prohibit the use of side letters, but fund managers must adhere to the principles of equal treatment and transparency. Side letters are permissible provided that their terms do not breach the manager’s fiduciary duties or unjustifiably disadvantage other investors. Equal treatment under AIFMD Articles 12 and 23 means that if a side letter grants preferential rights—such as improved liquidity, fee discounts, or extra reporting—the manager must ensure these do not harm others. Disclosure obligations also apply: managers must disclose in the prospectus or annual report the existence and nature of any preferential arrangements, even if the details are not made public unless required by an MFN clause.

Side letters often contain Most Favored Nation (MFN) clauses, especially for larger investors. These clauses ensure that if another investor receives more favourable terms, the MFN holder is offered the same. This requires managers to track and manage all side agreements. Content restrictions still apply, however. A side letter cannot legally override the fund’s governing documents or regulatory framework—such as allowing early withdrawals in a closed-end fund or waiving AML compliance. Terms negotiated in side letters are typically limited to areas at the manager’s discretion, such as fee reductions or bespoke reporting formats.

The fund’s LPA or prospectus usually authorises the AIFM or general partner to enter into side letters. Where not explicitly permitted, managers may seek advisory board confirmation for certain preferential terms. Although the FMA does not require side letter pre-approval, it may intervene if it discovers undisclosed arrangements that breach principles of fairness. For example, if a side letter gave one investor excessive liquidity rights or allowed them to exceed portfolio limits without disclosure, the FMA could raise objections or require corrective action.

In practice, side letters are a normal feature of Liechtenstein AIFs and function similarly to how they are used in Luxembourg and other jurisdictions. They accommodate investor-specific requirements—compliance clauses, regulatory disclosures, or excuse rights—within the boundaries of contract law, fiduciary responsibility, and transparency. Their use is not subject to separate regulation, but fairness and disclosure remain paramount. If a conflict arises between a side letter and fund documents, the usual approach is that the side letter governs only the individual investor’s position but cannot override legal or regulatory obligations that apply across the fund.

Under Article 105 AIFMG, fund managers must disclose the existence of any preferential treatment arrangements to investors.¹⁵ Article 105(1)(m) of AIFMG requires that the fund’s prospectus or offering memorandum outline (i) whether any preferential treatment is given to one or more investors, (ii) which categories of investors receive it (without necessarily naming them), and (iii) what the preferential treatment entails, at least in general terms.¹⁶ This is often handled by including standard language in fund documentation noting that side letters may be used to grant select investors different rights—such as reduced fees, reporting, or capacity terms—while ensuring no material disadvantage to others. A description of such arrangements is also included in the fund’s annual report.

AIFMD also mandates that the fund’s annual report state whether any preferential terms were granted. Additionally, if an investor requests it—especially one with MFN rights—the AIFM may be obliged to disclose the actual terms of relevant side letters, allowing the investor to elect similar rights. Without an MFN clause, details typically remain confidential, and disclosure is more general. Managers usually avoid granting materially unequal terms that could affect liquidity or risk-sharing. For example, if a large investor receives reduced fees, the fund documents might only refer to “certain investors may benefit from lower fees.” However, if MFN applies, the manager must share that side letter (in redacted form if necessary) with the requesting investor. Regulators such as the FMA can also inspect side letters to confirm compliance, even though they are not public.

In summary, the existence and general nature of side arrangements must be disclosed, even if the specific terms are not shared widely. Where funds are aimed only at professional investors, minimal disclosure may suffice. But if retail investors are involved, the regulators may require much greater transparency and may restrict the use of side letters that could create investor inequality. In practice, these disclosures are made through the fund’s prospectus, a possible subscription agreement note, and annual reporting.

Footnote(s):

¹⁵ Article 105, AIFMG.

¹⁶ Article 105(1)(m), AIFMG.

Common side letter provisions in alternative funds typically include bespoke terms negotiated by large or early investors. The most frequent is fee reductions or rebates—for instance, management fees discounted from 2% to 1.5%, or basis point rebates often paid outside the fund. Capacity rights also feature prominently, allowing investors to commit additional capital or co-invest alongside the fund on a no-fee basis. Most Favored Nation (MFN) clauses are common, ensuring that investors can opt into more favourable terms given to others. Enhanced reporting is frequently requested by public institutions, including ESG and portfolio-level data. Additionally, some investors negotiate audit access or meetings with fund auditors as part of their diligence rights.

Side letters may also cover redemption provisions such as “excuse or exclude” clauses, allowing investors to opt out of investments for legal or ethical reasons, or redemption rights tied to key personnel changes. Lock-up waivers or voluntary extensions are also used to reward or incentivise investor commitments. Investors often include regulatory compliance clauses to ensure the fund aligns with their domestic requirements (e.g., ERISA for U.S. investors or German investment law categories). Other common provisions include key person protections, confidentiality or no-publicity clauses (especially for sovereign or high-profile investors), and limits on how investor identity can be disclosed.

Recent trends have focused on standardising side letter content and limiting excessive customisation. LP groups like ILPA advocate for incorporating common terms—such as MFN or key person clauses—directly into the LPA or main fund terms. Larger managers increasingly offer pre-set menus of side letter terms above certain thresholds to avoid unequal treatment. Regulatory scrutiny, particularly from the U.S. SEC, has increased pressure to curb terms that might disadvantage others, such as preferential liquidity or information access. Liechtenstein managers dealing with global LPs are also beginning to respond by creating more transparent alternatives, like LP advisory committees, to disseminate side letter-based rights more broadly.

Other developments include side letters committing the fund manager to ESG principles or sanctions-related withdrawal rights. Transfer provisions are also negotiated, especially by seed or anchor investors wanting flexibility to shift interests to affiliates or parallel vehicles. Co-investment priority clauses are increasingly formalised through side letters, giving investors first call on deal allocations. Notably, side letters are generally disallowed for retail-facing funds due to regulatory concerns about fairness and transparency—meaning they remain firmly a feature of institutional AIF fundraising. Despite regulatory pressure, side letters are widely accepted as a bespoke negotiation tool, with MFN provisions playing a key role in levelling access to preferential terms.