{"id":148076,"date":"2026-09-08T08:53:12","date_gmt":"2026-09-08T08:53:12","guid":{"rendered":"https:\/\/my.legal500.com\/guides\/?post_type=comparative_guide&#038;p=148076"},"modified":"2026-09-08T08:53:12","modified_gmt":"2026-09-08T08:53:12","slug":"luxembourg-alternative-investment-funds","status":"publish","type":"comparative_guide","link":"https:\/\/my.legal500.com\/guides\/chapter\/luxembourg-alternative-investment-funds\/","title":{"rendered":"Luxembourg: Alternative Investment Funds"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-148076","comparative_guide","type-comparative_guide","status-publish","hentry","guides-alternative-investment-funds","jurisdictions-luxembourg"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Stellan Partners<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2026\/08\/stellan-partners-logo-full-color-rgb-900px-w-72ppi.jpg\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Stellan Partners<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2026\/08\/stellan-partners-logo-full-color-rgb-900px-w-72ppi.jpg\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Alternative Investment Funds laws and regulations applicable in Luxembourg<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the principal legal structures used for Alternative Investment Funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg offers a flexible legal framework for structuring alternative investment funds. In practice, Luxembourg fund structures are typically built by combining three principal building blocks:<\/p>\n<ul>\n<li>Regulatory regime. The fund may be established as, among others, a Reserved Alternative Investment Fund (RAIF), a Specialised Investment Fund (SIF), an Investment Company in Risk Capital (SICAR) or, for retail-oriented strategies, a Part II fund or a European Long-Term Investment Fund (ELTIF).<\/li>\n<li>Legal form. The fund may take the form of (i) a corporate vehicle (such as a public limited company (SA), a partnership limited by shares (SCA) or a private limited liability company (S.\u00e0 r.l.)), (ii) a contractual fund (FCP) or (iii) a partnership (SCSp or SCS).<\/li>\n<li>Capital regime. Where a corporate vehicle is used, it may be established as either a SICAV (variable capital) or a SICAF (fixed capital). SICAV and SICAF describe the capital regime of a corporate fund rather than a separate legal form and are therefore not available for partnerships such as the SCSp or SCS.<\/li>\n<\/ul>\n<p>The RAIF structured as an SCSp has become the market standard for alternative investment strategies. It combines contractual flexibility, tax transparency, speed to market and access to the AIFMD marketing passport through an authorised AIFM.<\/p>\n<p>Where a corporate vehicle is preferred, RAIFs and SIFs are most commonly established as SICAV-SAs or SICAV-SCAs.<\/p>\n<p>Luxembourg is also expected to broaden the structuring possibilities available to partnership AIFs through pending legislation introducing statutory compartments for eligible SCS and SCSp funds managed by an authorised AIFM.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does a structure provide limited liability to the investors? If so, how is this achieved?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Limited liability is generally available under Luxembourg alternative fund structures.<\/p>\n<p>For corporate fund vehicles, such as an SA, SCA or S.\u00e0 r.l. (whether established as a SICAV or SICAF), investors are generally liable only up to the amount of their subscribed capital.<\/p>\n<p>In limited partnerships, including an SCSp or SCS, limited partners benefit from limited liability up to the amount of their partnership interests, provided they do not participate in the management of the partnership beyond the statutory safe-harbour provisions.<\/p>\n<p>In practice, investors&#8217; economic exposure is generally limited to their committed or invested capital, subject to customary contractual obligations such as funding undrawn commitments, returning recallable distributions and indemnification obligations.<\/p>\n<p>By contrast, the general partner of a Luxembourg limited partnership has unlimited joint and several liability for the partnership&#8217;s obligations. In practice, however, this role is typically performed by a special-purpose Luxembourg limited liability company with minimal capital, thereby effectively ring-fencing that liability.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a market preference and\/or most preferred structure? Does it depend on asset class or investment strategy?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The RAIF-SCSp has become the market standard for institutional alternative investment strategies owing to its flexibility, tax transparency, speed to market and access to the AIFMD passport. SIFs and SICARs remain relevant where direct CSSF supervision is preferred, while Part II funds and ELTIFs are primarily used for retail distribution.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does the regulatory regime distinguish between open-ended and closed-ended Alternative Investment Funds (or otherwise differentiate between different types of funds or strategies (e.g. private equity vs. hedge)) and, if so, how?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg law recognises both open-ended and closed-ended AIFs. The distinction primarily affects liquidity arrangements, valuation, risk management and operational design rather than the eligibility of the fund vehicle.<\/p>\n<p>Closed-ended structures are typically used for private equity, venture capital, real estate, infrastructure and most private credit strategies, reflecting the illiquid nature of their underlying assets. Open-ended structures remain common for hedge funds and other liquid alternative strategies, where investors benefit from periodic redemption rights.<\/p>\n<p>The distinction is also significant under Directive 2011\/61\/EU on Alternative Investment Fund Managers (AIFMD). Because open-ended AIFs offer redemption rights, they are subject to the AIFMD liquidity management framework, including the liquidity management tools introduced by AIFMD II. Closed-ended AIFs generally do not offer redemption rights during the life of the fund and are therefore outside that regime.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any limits on the manager\u2019s ability to restrict redemptions? What factors determine the degree of liquidity that a manager offers investors of an Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under Luxembourg law, managers may impose redemption restrictions, provided these are clearly disclosed in the fund documentation, applied consistently and fairly, and remain appropriate to the fund&#8217;s investment strategy and the liquidity profile of its underlying assets.<\/p>\n<p>The liquidity offered by a fund is primarily determined by the nature of its underlying assets, valuation frequency, investor profile, financing arrangements and applicable regulatory requirements. As a general principle, redemption rights should remain consistent with portfolio liquidity.<\/p>\n<p>Following the implementation of AIFMD II, authorised AIFMs managing open-ended AIFs must maintain appropriate liquidity management tools from the harmonised EU framework and ensure that they are properly documented, disclosed and capable of being activated when required. The CSSF continues to place increasing emphasis on the alignment between a fund&#8217;s redemption policy, portfolio liquidity and liquidity risk management framework.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are potential tools that a manager may use to manage illiquidity risks regarding the portfolio of its Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg fund managers have access to a comprehensive range of liquidity management tools designed to protect investors, preserve equal treatment and manage liquidity mismatches between a fund&#8217;s assets and its redemption policy.<\/p>\n<p>Depending on the fund structure, investment strategy and fund documentation, these may include redemption gates, redemption deferrals, suspension of subscriptions and redemptions, side pockets, redemptions in kind, swing pricing, anti-dilution levies, notice periods, lock-up periods and other mechanisms for managing periods of market stress or exceptional redemption activity.<\/p>\n<p>The implementation of AIFMD II through the Luxembourg law of 3 March 2026 has further strengthened the liquidity risk management framework. Authorised AIFMs managing open-ended AIFs are expected to select appropriate liquidity management tools, maintain effective governance and escalation procedures, perform liquidity stress testing where appropriate, and ensure that the fund&#8217;s redemption policy remains aligned with the liquidity profile of its underlying assets.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any restrictions on transfers of investors\u2019 interests?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The transferability of investors&#8217; interests is primarily governed by the fund documentation and varies according to the legal form, investment strategy and investor base.<\/p>\n<p>Transfers of interests in closed-ended funds, particularly those established as limited partnerships (such as an SCSp or SCS), generally require the prior consent of the general partner, the AIFM or the manager. This enables the fund to control its investor base and maintain compliance with applicable legal and regulatory requirements.<\/p>\n<p>Proposed transferees are typically required to satisfy the applicable investor eligibility criteria, complete AML\/KYC and sanctions screening, and comply with relevant tax and regulatory requirements. Lock-up periods, minimum holding requirements, rights of first refusal and pre-emption rights are also common.<\/p>\n<p>By contrast, transfers in open-ended funds are generally less restrictive, although they remain subject to the fund&#8217;s eligibility requirements and operational procedures.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any other limitations on a manager\u2019s ability to manage its funds (e.g., diversification requirements)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The applicable investment restrictions depend primarily on the regulatory regime and investment strategy of the fund.<\/p>\n<p>As a general rule, SIFs and most RAIFs are subject to risk diversification requirements. By contrast, SICARs and RAIFs investing exclusively in risk capital are not subject to statutory diversification rules, although they must comply with the applicable risk capital criteria.<\/p>\n<p>Part II UCIs are subject to a more prescriptive product regime, including specific risk-spreading and investment restrictions.<\/p>\n<p>Additional investment restrictions may arise from the fund documentation and investment policy.<\/p>\n<p>Managers must also comply with the applicable AIFMD requirements relating to risk management, leverage, valuation, conflicts of interest, delegation and investor disclosures. In practice, fund documentation frequently contains additional investment, concentration or borrowing limits that must be observed throughout the life of the fund.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What is the local tax treatment of (a) resident, (b) non-resident, (c) pension fund and (d) sovereign wealth fund investors (or any other common investor type) in Alternative Investment Funds? Does the tax status or preference of investors or the tax treatment of the target investments primarily dictate the structure of the Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg generally seeks to maintain tax neutrality at fund level, allowing investors to be taxed according to their own tax profile and the characteristics of the underlying investments.<\/p>\n<p>The tax treatment depends primarily on the regulatory regime and legal form of the fund. Corporate RAIFs and SIFs are generally exempt from Luxembourg corporate income tax and net wealth tax (subject to limited exceptions) and are generally subject to an annual subscription tax, although various exemptions may apply. By contrast, an SCSp is generally treated as tax transparent, with income and gains recognised directly at investor level rather than at fund level. This enables many institutional investors to preserve their own tax status and facilitates efficient cross-border investment structuring.<\/p>\n<p>Non-resident investors are generally not subject to Luxembourg taxation solely by reason of investing in a Luxembourg alternative investment fund, subject to specific anti-abuse provisions and certain Luxembourg real estate-related exceptions. In addition, distributions made by most Luxembourg alternative investment funds are generally not subject to Luxembourg withholding tax.<\/p>\n<p>In practice, the choice of fund structure is often driven by the tax profile of the target investor base, the availability of treaty benefits within the overall investment structure, withholding tax considerations and the tax characteristics of the underlying investments. Pension funds, sovereign wealth funds and other tax-exempt investors therefore frequently require bespoke tax structuring.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What rights do investors typically have and what restrictions are investors typically subject to with respect to the management or operations of the Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Investor rights are primarily determined by the fund documentation and vary according to the fund&#8217;s legal form, regulatory regime and investor profile.<\/p>\n<p>The fund documentation typically grants investors a number of governance and economic rights, including:<\/p>\n<ul>\n<li>voting on reserved matters, such as amendments to the fund documentation, extensions of the fund term, replacement of the general partner or AIFM, mergers, liquidations and certain conflicts of interest;<\/li>\n<li>rights to receive periodic financial information, valuations and regulatory disclosures;<\/li>\n<li>economic rights in respect of distributions, redemption proceeds (where applicable) and liquidation proceeds; and<\/li>\n<li>the right to enforce the contractual protections contained in the fund documentation.<\/li>\n<\/ul>\n<p>Institutional investors frequently negotiate additional rights through side letters or the fund documentation, including LPAC participation, enhanced reporting, key person protections, removal rights, excuse rights, co-investment opportunities and most-favoured-nation (MFN) protections.<\/p>\n<p>In Luxembourg limited partnerships, limited partners may exercise the rights expressly permitted under the statutory safe-harbour provisions without losing their limited liability status, but may not assume day-to-day management functions, on the risk of losing their limited liability protection. Investors must also comply with transfer restrictions, capital commitment obligations and applicable eligibility requirements.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Where customization of Alternative Investment Funds is required by investors, what types of legal structures are most commonly used?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg is particularly well suited to customised investment solutions due to its flexible legal and regulatory framework. In practice, highly customised structures are most commonly established as RAIFs or SIFs in partnership form, typically using an SCSp, which offers exceptional contractual flexibility in relation to governance, economics, investor rights and reporting.<\/p>\n<p>Depending on the investment strategy and investor requirements, customised solutions may take the form of dedicated funds, managed accounts, parallel funds, feeder funds, co-investment vehicles or umbrella structures with multiple compartments.<\/p>\n<p>The contractual nature of the SCSp enables sponsors and investors to tailor virtually every aspect of the fund relationship, including governance arrangements, distribution waterfalls, transfer provisions, advisory committee rights, reporting obligations and bespoke economic terms. Statutory compartments (protected cells) are also expected to be introduced for eligible SCS and SCSp funds.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><strong>Managers of Luxembourg alternative investment funds are generally subject to the Alternative Investment Fund Managers Directive (AIFMD) framework.<\/strong><\/p>\n<p>Where the applicable assets under management thresholds are exceeded, the manager must be authorised as an Alternative Investment Fund Manager (AIFM) and is subject to ongoing prudential, organisational and conduct of business requirements, including governance, risk management, valuation, delegation, remuneration and regulatory reporting. Luxembourg AIFMs are supervised by the Commission de Surveillance du Secteur Financier (CSSF).<\/p>\n<p>Managers below the AIFMD thresholds may benefit from a lighter registration regime rather than full authorisation but remain subject to certain regulatory obligations, including CSSF registration, periodic reporting and anti-money laundering requirements.<\/p>\n<p>The implementation of AIFMD II has further strengthened the regulatory framework, introducing additional requirements relating to loan origination, liquidity management, delegation oversight and regulatory reporting. These developments are particularly relevant for private credit and direct lending strategies.<\/p>\n<p>Investment advisers may also require regulatory authorisation, depending on the nature of the services provided and the regulatory framework under which they operate.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a regulatory body?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In Luxembourg, regulatory supervision takes place either (i) at fund level or (ii) indirectly through the appointed Alternative Investment Fund Manager (AIFM), depending on the regulatory regime.<\/p>\n<p>SIFs, SICARs and Part II funds require direct authorisation by, and ongoing supervision from, the Commission de Surveillance du Secteur Financier (CSSF). Luxembourg has also modernised its supervisory framework through CSSF Circular 25\/901, which consolidates and updates the supervisory rules applicable to these regulated fund regimes.<\/p>\n<p>By contrast, RAIFs are not subject to direct product authorisation or ongoing product supervision by the CSSF. Instead, they must appoint an authorised external AIFM, through which they become subject to the AIFMD framework. Although not directly supervised as fund products, RAIFs remain subject to a comprehensive legal framework, including requirements to appoint an eligible depositary, central administrator and approved statutory auditor.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does the Alternative Investment Fund require a manager or advisor to be domiciled in the same jurisdiction as the Alternative Investment Fund itself?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg alternative investment funds may appoint managers, investment advisers and delegates established in Luxembourg, elsewhere in the European Union or, subject to the applicable legal and regulatory requirements, in third countries.<\/p>\n<p>The appropriate structure depends primarily on the regulatory status and location of the manager, the availability of AIFMD passporting rights and the applicable delegation framework. In practice, many Luxembourg funds appoint Luxembourg or other EU-authorised AIFMs while delegating portfolio management or investment advisory functions to entities established in other jurisdictions.<\/p>\n<p>Cross-border management and delegation arrangements are a well-established feature of the Luxembourg funds industry. However, AIFMD II has reinforced regulatory expectations regarding governance, substance and delegation oversight, requiring authorised AIFMs to retain sufficient decision-making capacity and effective supervision of delegated functions.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there local residence or other local qualification or substance requirements for the Alternative Investment Fund and\/or the manager and\/or the advisor to the fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Luxembourg entities must demonstrate adequate substance and genuine decision-making in Luxembourg.<\/p>\n<p>Authorised AIFMs are also subject to detailed organisational, governance and delegation requirements, including effective oversight of delegated functions.<\/p>\n<p>While there is generally no statutory requirement for directors, managers or advisers to be Luxembourg residents, an appropriate Luxembourg presence is generally expected to support governance, tax residence and substance.<\/p>\n<p>In practice, boards are commonly composed so as to ensure a meaningful Luxembourg presence, and key strategic board meetings are ordinarily held and minuted in Luxembourg as evidence that effective management and control are exercised from Luxembourg.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What service providers are required by applicable law and regulation?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The required service providers depend primarily on the regulatory regime and legal structure of the fund.<\/p>\n<p>Where the AIFMD framework applies, the fund must appoint an authorised AIFM. In addition, regulated funds and RAIFs are generally required to appoint a Luxembourg depositary, a central administrator and an approved statutory auditor.<\/p>\n<p>Depending on the fund structure and investment strategy, additional service providers may include a registrar and transfer agent, portfolio manager, investment adviser, valuation provider and other specialised delegates.<\/p>\n<p>The precise appointment requirements vary according to the applicable fund regime, while unregulated structures may benefit from greater flexibility depending on their legal and regulatory status.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are local resident directors \/ trustees required?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is generally no statutory requirement that directors or managers of Luxembourg alternative investment funds be Luxembourg residents.<\/p>\n<p>In practice, however, Luxembourg resident directors or managers are commonly appointed to support tax residence, governance and substance, particularly where regulated entities or authorised AIFMs are involved. Strategic decisions are expected to be genuinely taken in Luxembourg, with appropriate local oversight and decision-making.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What rules apply to foreign managers or advisers wishing to manage, advise, or otherwise operate funds domiciled in your jurisdiction?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Foreign managers and investment advisers may manage or advise Luxembourg alternative investment funds through a variety of cross-border structures, provided the applicable Luxembourg and European regulatory requirements are satisfied.<\/p>\n<p>Managers established in another EU Member State may generally manage Luxembourg AIFs under the AIFMD passport, while third-country managers or advisers typically provide services through delegation arrangements, investment advisory agreements or, where available, other applicable regulatory frameworks. It is common for Luxembourg funds or their appointed AIFMs to delegate portfolio management or appoint investment advisers established in other jurisdictions.<\/p>\n<p>However, AIFMD and, more recently, AIFMD II require authorised AIFMs to retain effective oversight, adequate substance and genuine decision-making capacity. Delegated activities must remain subject to appropriate governance, documentation and ongoing supervision to ensure that the AIFM does not become a mere letterbox entity.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the common enforcement risks that managers face with respect to the management of their Alternative Investment Funds?\u00a0<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The principal enforcement risks for managers of Luxembourg alternative investment funds arise from deficiencies in governance, valuation, anti-money laundering and sanctions compliance, conflicts of interest, delegation oversight, and compliance with applicable marketing and distribution rules.<\/p>\n<p>In recent years, the CSSF and other European regulators have placed increasing emphasis on the effectiveness of governance, delegation and outsourcing arrangements, liquidity risk management, and the quality of regulatory and investor disclosures. Particular scrutiny is given to the oversight exercised by authorised AIFMs over delegated functions and third-party service providers, especially in cross-border operating models.<\/p>\n<p>Managers are therefore expected to maintain robust governance and compliance frameworks, effective internal controls, comprehensive documentation and demonstrable oversight throughout the fund&#8217;s lifecycle.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What is the typical level of management fee paid? Does it vary by asset type?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Management fees are commercially negotiated and vary according to the asset class, investment strategy, investor base and size of the fund. They are typically calculated as an annual percentage of an agreed fee base, such as committed capital, invested capital, assets under management or net asset value, depending on the investment strategy. The fee arrangements are set out in the fund documentation and commonly include step-down mechanisms following the investment period and, where commercially appropriate, negotiated fee floors or fee offsets.<\/p>\n<p>For private equity and venture capital funds, annual management fees generally range from 1.5% to 2.0% of committed capital during the investment period, typically stepping down thereafter and being calculated on invested capital or net asset value. Private credit funds generally charge between 0.75% and 1.5%, while infrastructure and real estate funds typically fall within a similar range, depending on the strategy and target returns.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is a performance fee or carried interest typical? If so, does it commonly include a \u201chigh water mark\u201d, \u201churdle\u201d, \u201cwater-fall\u201d, \u201cpreferred return\u201d or other condition? If so, please explain.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>Performance-based remuneration is a common feature of Luxembourg alternative investment funds, although the applicable model depends on the investment strategy and fund type.<\/p>\n<p>Private equity, venture capital, infrastructure and private credit funds typically operate on a carried interest model, under which the sponsor, general partner or carried interest vehicle participates in the fund&#8217;s profits once investors have received the agreed priority distributions. A 20% carried interest remains the market standard, although the commercial terms vary between funds.<\/p>\n<p>Carried interest arrangements commonly include preferred returns (typically 6% to 8%), hurdle rates, catch-up mechanisms and distribution waterfalls. Institutional investors increasingly favour European-style (whole fund) waterfalls over American-style (deal-by-deal) waterfalls.<\/p>\n<p>By contrast, hedge funds and other liquid alternative strategies generally remunerate managers through performance fees, which commonly incorporate high-water marks and, where appropriate, hurdle rates to ensure that performance fees are earned only after agreed performance thresholds have been met.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are fee discounts \/ fee rebates or other economic benefits for initial investors typical in raising assets for new fund launches?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>It is common for anchor investors and other early-stage investors to receive preferential economic or governance terms in recognition of their support during a fund launch and the size or strategic importance of their commitment.<\/p>\n<p>Such arrangements may include reduced management fees, preferential carried interest arrangements or fee rebates, founder share classes, enhanced reporting rights, capacity rights in future funds, co-investment opportunities or most-favoured-nation (MFN) rights.<\/p>\n<p>These terms are typically documented in side letters or dedicated share classes, subject to MFN mechanisms and customary eligibility exceptions.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are management fee \u201cbreak-points\u201d offered based on investment size?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. Investors making significant capital commitments commonly negotiate preferential management fee arrangements. These may take the form of fee break-points, tiered fee schedules, negotiated fee reductions or fee rebates, reflecting the size or strategic importance of the investor&#8217;s commitment. Such arrangements are typically documented through side letters.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are first loss programs used as a source of capital (i.e., a managed account into which the manager contributes approximately 10-20% of the account balance and the remainder is furnished by the investor)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><span style=\"font-size: 12.0pt\">Yes, although they remain relatively specialised within the Luxembourg market. They are most commonly encountered in private credit, impact investing, sustainable finance and development finance transactions, where a sponsor, public institution or strategic investor provides subordinated capital designed to absorb initial portfolio losses. By improving the risk-return profile of the senior investment tranches, first-loss structures can facilitate fundraising and attract institutional investors with more conservative risk parameters.<\/span><\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the typical terms of a seeding \/ acceleration program?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Seeding and acceleration arrangements are commercially negotiated and vary according to the size of the investment, the maturity of the manager&#8217;s platform and the strategic objectives of the parties. They typically involve a seed investor providing cornerstone capital in exchange for preferential economic terms and, in some cases, strategic rights.<\/p>\n<p>Common features include reduced management fees, preferential founder economics, revenue-sharing or carried interest arrangements, equity participation in the management company, capacity rights for future funds, preferential co-investment rights and enhanced governance or reporting rights.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What industry trends have recently developed regarding management fees and incentive\/performance fees or carried interest? In particular, are there industry norms between primary funds and secondary funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p class=\"pdq2pgselectionanchorcontainer\"><span lang=\"EN-US\">Institutional investors increasingly focus on alignment of interests rather than headline fees. Fee structures have become increasingly sophisticated through tiered pricing, founder economics and differentiated share classes. Secondary funds generally operate with lower management fees than primary funds because of shorter investment periods and more predictable capital deployment.<\/span><\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What restrictions are there on marketing Alternative Investment Funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The marketing of alternative investment funds is principally governed by the AIFMD framework, together with applicable Luxembourg legislation and the marketing rules of the relevant host Member States.<\/p>\n<p>The applicable requirements depend primarily on the domicile of the fund, the regulatory status and domicile of the AIFM, the jurisdiction in which marketing takes place and the category of target investors.<\/p>\n<p>Where AIFMD applies, marketing generally takes place under the AIFMD passport or, where available, the applicable national private placement regime, subject to the relevant notification, disclosure and ongoing regulatory requirements.<\/p>\n<p>Marketing must be distinguished from pre-marketing, which is subject to a separate regime under AIFMD. Marketing or distribution carried out without the required authorisation or regulatory notification may result in regulatory sanctions.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the concept of \u201cpre-marketing\u201d (or equivalent) recognised in your jurisdiction? If so, how has it been defined (by law and\/or practice)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>The concept of pre-marketing is expressly recognised under the Cross-Border Distribution of Funds Directive (EU) 2019\/1160 (&#8220;CBDF Directive&#8221;) and has been implemented into Luxembourg law.<\/p>\n<p>Pre-marketing consists of the provision of information or communications, directly or indirectly, by or on behalf of an authorised EU AIFM to potential professional investors in order to test their interest in an alternative investment fund or investment strategy that has not yet been established or, if established, has not yet been notified for marketing under AIFMD.<\/p>\n<p>Pre-marketing must not enable investors to commit to acquiring interests in the fund and must therefore be clearly distinguished from marketing. In particular, draft offering documents must not constitute a subscription offer or otherwise enable investors to subscribe.<\/p>\n<p>Subscriptions within 18 months are generally presumed to result from marketing for AIFMD notification purposes.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Can Alternative Investment Funds be marketed to retail investors?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p class=\"pdq2pgselectionanchorcontainer\"><span lang=\"EN-US\">Retail distribution is possible through Part II funds and ELTIFs, subject to the applicable product rules and investor protection requirements.<\/span><\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does your jurisdiction have a particular form of Alternative Investment Fund be that can be marketed to retail investors (e.g. a Long-Term Investment Fund or Non-UCITS Retail Scheme)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>Luxembourg Part II funds remain the traditional regulated retail fund regime for alternative investment strategies.<\/p>\n<p>In addition, the revised European Long-Term Investment Fund regime (ELTIF 2.0) has significantly expanded opportunities to offer private market strategies to retail and private wealth investors through Luxembourg.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the minimum investor qualification requirements for an Alternative Investment Fund? Does this vary by asset class (e.g. hedge vs. private equity)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The applicable investor qualification requirements depend primarily on the regulatory fund regime rather than the underlying asset class.<\/p>\n<p>For example, RAIFs and SIFs are generally reserved for well-informed investors, namely institutional investors, professional investors and other investors who either invest at least EUR 100,000 or have been assessed or certified as possessing the expertise, experience and knowledge necessary to adequately assess the investment.<\/p>\n<p>By contrast, Part II funds and ELTIFs may be offered to retail investors, subject to the applicable product rules and investor protection requirements.<\/p>\n<p>Accordingly, investor eligibility is determined by the applicable regulatory regime rather than by the specific alternative investment strategies.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there additional restrictions on marketing to government entities or similar investors (e.g. sovereign wealth funds) or pension funds or insurance company investors?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Generally not. Luxembourg law does not impose specific fundraising or marketing restrictions solely because the target investor is a government entity, sovereign wealth fund, pension fund, insurance company or other institutional investor.<\/p>\n<p>Such investors are typically subject to their own regulatory and governance requirements and frequently negotiate bespoke reporting, MFN and other governance protections through side letters.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any restrictions on the use of intermediaries to assist in the fundraising process?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>Intermediaries may be subject to regulatory requirements depending on the nature of the services they provide and the jurisdictions in which they operate.<\/p>\n<p>Where fundraising activities constitute regulated investment services, the intermediary must hold the appropriate regulatory authorisation or otherwise benefit from an applicable exemption under the relevant financial services legislation.<\/p>\n<p>Managers should ensure that intermediaries act within the scope of their regulatory permissions and comply with the applicable marketing and distribution rules in each relevant jurisdiction.<\/p>\n<p>The appointment of a third-party intermediary does not relieve the manager or, where applicable, the AIFM of its responsibility for ensuring that fundraising activities comply with the applicable legal and regulatory framework.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the use of \u201cside letters\u201d restricted?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Side letters are widely used throughout the Luxembourg alternative investment funds industry, particularly in institutional fundraising.<\/p>\n<p>However, side letters must remain consistent with applicable law, the fund documentation and any applicable investor equal treatment obligations. They should not undermine the fundamental rights of other investors or alter the essential characteristics of the fund without any required disclosure or investor approval.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any disclosure requirements with respect to side letters?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is generally no requirement under Luxembourg law to publicly disclose side letters.<\/p>\n<p>However, managers must consider their disclosure obligations under AIFMD, the fund documentation and any contractual commitments made to investors. In particular, they should ensure compliance with applicable investor equal treatment requirements and any most-favoured-nation (MFN) provisions.<\/p>\n<p>While the detailed terms of side letters are not generally required to be disclosed, institutional investors increasingly expect transparency regarding the existence and nature of preferential rights granted to other investors, particularly where MFN rights apply.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the most common side letter terms? What industry trends have recently developed regarding side letter terms?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Side letters are a standard feature of institutional fundraising in Luxembourg and are commonly used to address investor-specific legal, regulatory, tax and commercial requirements.<\/p>\n<p>While negotiations historically focused on preferential economic terms, they now increasingly address governance, reporting and regulatory compliance.<\/p>\n<p>Common provisions include management fee discounts, founder economics, co-investment and capacity rights, most-favoured-nation (MFN) protections, enhanced reporting, ESG, tax and regulatory disclosures, valuation and liquidity reporting, and other investor-specific information rights.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">5008<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/148076","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=148076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}