Jevgeniy Nesch and Clément Petit contributed to the Chambers Global Practice Guide 2026 for the "Trends and Developments" section in the Investment Funds chapter for Luxembourg.
Click here for the online version or read the publication below.
With several significant regulatory initiatives having matured at the end of 2025, the alternative investment fund (AIF) landscape entered 2026 shaped by a number of key developments that are set to influence market practice in the months ahead.
Luxembourg Progresses With One-to-One Transposition of AIFMD II
Luxembourg is advancing the implementation of Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 revising Directive 2011/61/EU (“AIFMD II”), which entered into force on 15 April 2024. Most of its provisions shall be implemented by the member states by 16 April 2026. National Transposition Bill No 8628 incorporates AIFMD II into Luxembourg law on a one-to-one basis, without “gold-plating”.
Aiming to improve resilience under stressed market conditions and reduce divergent national approaches, Luxembourg alternative investment fund managers (AIFMs) shall comply with new rules on liquidity management tools (LMTs), loan origination, reporting, delegation and supervisory co-operation. The Luxembourg financial sector regulator, the Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier – CSSF), is expected to issue complementary guidance to support AIFMs and fund documentation updates ahead of the application date.
New RTS for LMTs Under AIFMD II
On 17 November 2025, the European Commission adopted two close-to-final-draft delegated regulations setting out the final regulatory technical standards (RTS) on LMTs for open-ended AIFs and undertakings for collective investment in transferable securities (UCITS), supplementing AIFMD II and the amended UCITS Directive. The RTS implement the mandate set out in Directive 2011/61/EU, as amended by AIFMD II and follow the final draft RTS of April 2025 of the European Securities and Markets Authority (ESMA).
For AIFMs, one of the key implementation points is the introduction of a one-year transitional period for open-ended AIFs constituted before 16 April 2026. For existing funds, the detailed RTS requirements regarding the characteristics of LMTs will apply one year later, while the AIFMD II obligation to select at least two LMTs (one for money market funds) still applies from 16 April 2026. This creates a sequencing where Luxembourg AIFMs must ensure timely selection and disclosure of two LMTs for in-scope funds by April 2026, while having additional time to precisely align the calibration and drafting of those tools with the RTS.
The RTS bring more prescriptive details on suspensions of subscriptions, repurchases and redemptions. The Commission confirms that suspensions must apply simultaneously to subscriptions, repurchases and redemptions, and across all share classes, and recognises the possibility of a “soft closure” (in which subscriptions are restricted but redemptions remain possible) as a valid commercial practice – but which does not qualify as an Annex V LMT for the purpose of meeting the two-tool requirement.
For redemption gates, the RTS require a clearly defined activation threshold and mandate uniform application to all investors, with pro rata execution of orders up to that threshold. Thresholds may be set at fund level or investor level for AIFs (and only at fund level for UCITS) and may be expressed relative to net asset value (NAV), liquid assets or order size. Regarding extension of the notice period, the Commission clarifies that the extended notice covers only the period between receipt and execution of the order, without altering the underlying redemption frequency of the fund.
The RTS further require that redemption fees, swing pricing, dual pricing and anti-dilution levies be calibrated by reference to estimated explicit transaction costs and, where appropriate, implicit costs (including market impact), using a best-efforts approach. Each mechanism must be expressed in the prescribed way (for example, swing factors as a percentage of NAV; redemption fees and anti-dilution levies as a percentage or monetary amount linked to the order) and may be structured with activation thresholds or different levels depending on order size, provided the criteria are set out ex ante.
For redemptions in kind and side pockets, the final RTS codify operational detail that will be relevant for Luxembourg managers of private asset funds. Redemption in kind must follow the conditions set out in the fund documentation and is generally executed on a pro rata basis, subject to exceptions. For exchange-traded funds, in-kind creation/redemption by authorised participants is not treated as activation of the LMT. Side pockets are defined in functional terms, with two possible implementations: accounting segregation through a dedicated share class or physical separation via the transfer of affected assets to (or from) a separate vehicle; in both cases, the side-pocketed assets are closed to subscriptions, repurchases and redemptions.
Within three months from the date of submission, the European Commission shall take a decision on whether to adopt the RTS, unless the Commission extends that period by one month. The co-legislators may endorse the RTS at any point during this period. Once approved, the RTS will be published in the Official Journal of the European Union and will become directly applicable across all member states.
In parallel, ESMA will update its existing guidelines to ensure alignment with the finalised RTS and to support supervisory convergence across member states.
SFDR 2.0 – Proposed Overhaul of the EU Sustainable Finance Disclosure Framework
On 20 November 2025, the European Commission published its long-awaited legislative proposal to revise the Sustainable Finance Disclosure Regulation (SFDR 2.0). This proposal represents a structural shift away from the existing disclosure-based regime towards a more prescriptive product categorisation framework, reflecting market feedback on the limitations of the currently applicable SFDR regime and the need for clearer, more reliable ESG signals for investors; this is expected to reduce disclosure requirements and cutting costs.
Under the proposal, financial products would be classified into three categories, namely Transition (Article 7), ESG Basics (Article 8) and Sustainable (Article 9), each carrying its own set of minimum requirements linked to investment strategy, sustainability objectives and the treatment of principal adverse impacts (PAIs).
The Commission’s intention is to simplify disclosures while improving comparability and reducing the risk of misleading claims. Notably, SFDR 2.0 would remove the concept of “sustainable investment” as defined under the current regime and integrate its core elements directly into the criteria for the new product categories. The proposal would further eliminate entity-level PAI reporting under Article 4, replacing it with proportionate, category-specific obligations. For Luxembourg-based AIFMs, this shift is expected to require a recalibration of internal classification methodologies, documentation standards and investor-facing disclosures.
The legislative process remains at an early stage. Negotiations between the European Parliament and the Council are expected to continue through 2026, and final adoption is unlikely before 2027. Transitional arrangements will be critical, as market participants will need adequate time to adapt systems, prospectuses, marketing materials and due diligence frameworks to the revised regulatory architecture. Supervisory authorities, including ESMA and national regulators such as the CSSF, are expected to issue further guidance, particularly on the evidential thresholds for meeting each of the proposed categories and the interplay with parallel initiatives such as the EU taxonomy and corporate sustainability reporting rules.
Until the revised framework is adopted, the existing SFDR regime remains fully applicable. However, in anticipation of SFDR 2.0, the market is already observing a clearer articulation of sustainability objectives and enhanced internal data governance, signalling the beginning of the transition to a more structured and predictable sustainable finance framework in the EU.
ELTIF 2.0 – RTS Status and Recent Updates
Two years after the introduction of the revised European Long-Term Investment Fund Regulation (ELTIF 2.0), Luxembourg continues to consolidate its position as the leading domicile for ELTIFs. As of September 2025, the majority of ELTIFs established to date were domiciled in Luxembourg, reflecting the jurisdiction’s appeal for sponsors seeking structuring efficiency, regulatory clarity and specialist service provider depth. The ability under ELTIF 2.0 to create semi-liquid, open-ended products – a significant departure from the original, closed-ended model – has proven particularly attractive for managers targeting private market strategies with a broader investor reach.
In 2025, ESMA published a consolidated set of questions and answers incorporating clarifications on ELTIF 2.0 and Commissions Delegated Regulation (EU) 2024/2759. These responses provided long-awaited regulatory certainty on several issues of direct relevance to Luxembourg ELTIF sponsors, particularly those structuring open-ended, evergreen and semi-liquid strategies. Importantly, they confirm that member states may not impose additional “gold-plating” requirements on ELTIFs, thereby ensuring a level playing field for managers structuring products in Luxembourg while marketing them across the EU. The clarifications cover eligible assets, intermediary entities, portfolio composition and diversification requirements, national discretions, liquidity and redemption governance, and the operational parameters applicable under the ELTIF 2.0 regime.
There is no requirement to have different assets serving the eligibility and liquidity assessments separately; instead, a single asset may be used for both eligibility and liquidity criteria.
The Commission clarified that intermediary entities such as SPVs, securitisation vehicles and holding companies do not constitute ELTIF investments. Portfolio composition and diversification rules apply strictly on a look-through basis, with intermediary entities not automatically qualifying as AIFs or as qualifying portfolio undertakings. Taken together, these interpretations confirm the compatibility of multilayered structuring, which is a core feature of Luxembourg private market fund arrangements.
Eligibility questions also arose with respect to investments in non-EU AIFs. The Commission reiterates that an ELTIF may invest directly in a non-EU AIF only where the fund meets the requirements of Article 50(1) of the UCITS Directive; but in practice, this category is extremely limited as most non-EU AIFs do not offer UCITS-equivalent investor protections and therefore fall outside this article.
In relation to the application of composition and leverage limits during capital flows, the Commission confirms that Articles 16(4) and 17(1)(c) apply to all ELTIFs regardless of whether they are closed- or open-ended. Where an ELTIF raises additional capital or processes redemptions, temporary suspensions of portfolio composition and diversification compliance may last for up to 12 months. During this period, managers must not increase concentration or leverage and must take steps to return the ELTIF to compliance within the prescribed timeframe.
The Commission reiterated that member states may not impose additional requirements on the duration or life cycle of an ELTIF. Evergreen and perpetual structures are therefore permitted, provided the fund complies with the Regulation’s long-term investment objectives. The same Q&A 2481 confirms that member states may not impose requirements relating to the nationality, domiciliation or location of an ELTIF or its AIFM, including in contexts where ELTIFs are embedded in insurance or pension products.
Liquidity management topics receive detailed treatment. The Commission explains that ELTIFs using Annex II of the Delegated Regulation may, under strict conditions, fall below their minimum required liquid asset threshold. Managers must restore compliance within an appropriate timeframe while continuing to meet redemption obligations. QA 2479 addresses secondary market matching mechanisms under Article 19(2a), confirming that anti-dilution levies cannot be imposed because matched transactions involve transfers of existing units only. Transfer-related fees remain permissible. QA 2478 and QA 2482 provide flexibility regarding minimum holding periods and redemption rate mechanisms, while QA 2477 confirms that daily valuation and dealing cycles are permissible when supported by adequate operational and liquidity arrangements. Lastly, the Commission confirms that expected cash flows may support higher redemption volumes where the manager can demonstrate a high degree of certainty.
Taken together, these clarifications materially strengthen legal certainty for ELTIF sponsors and confirm the breadth of structuring flexibility available under ELTIF 2.0. From Luxembourg’s perspective as the leading ELTIF domicile, the Commission’s responses support the continued viability of semi-liquid, evergreen and multi-strategy ELTIF models, reinforce the permissibility of intermediary structures and help to ensure a harmonised cross-border framework free from member state divergence. These developments provide a clearer operational roadmap for managers designing long-term investment solutions targeting retail and professional investors across the EU.
Circular CSSF 25/901: Consolidation of Luxembourg Fund Supervisory Guidance
As a recent national-level development, the CSSF published, on 19 December 2025, Circular CSSF 25/901 (“Circular 25/901”), which entered into force with effect from the same date. The circular is primarily addressed to specialised investment funds (SIFs), investment companies in risk capital and Part II undertakings for collective investment.
Circular 25/901 does not introduce a new regulatory framework or call into question the rules adopted by the funds or compartments authorised by the CSSF. Instead, it repeals and replaces a number of earlier-dated CSSF circulars (including CSSF 02/80, CSSF 07/309, CSSF 06/241 and chapters of Circular IML 91/75) while building on their core principles, adapted to the practical experience gained throughout the years and integrating them into a single, thematically structured document.
From a practical perspective, Circular 25/901 clarifies the rules applicable to the fund vehicles subject to this Circular, providing fund managers with comfort and greater flexibility – which contributes further to the attractiveness of Luxembourg as the fund domicile.
Key clarifications of Circular 25/901 focus on:
- the relaxation of risk-spreading for SIFs – single investment cap generally raised to 50% (instead of 30%), and to 70% for infrastructure investments;
- recognition of the look-through approach and codification of ramp-up and ramp-down mechanisms, in which investment limits do not apply;
- the risk capital concept, which now includes certain debt strategies but excludes certain (logical) types of securities; and
- retail-investor driven rule adjustments.
Circular 25/901 constitutes a consolidation and clarification of existing CSSF guidance and supervisory positions that had previously been provided across a number of circulars and regulatory communications.
The Rise of Continuation Funds in Luxembourg
Over the past decade, continuation funds have evolved from a niche (liquidity) tool used in isolated cases to a material and increasingly institutionalised segment of the private equity market. The markets have become more challenging, valuation expectations between sellers and buyers have diverged, and general partners (GPs) have faced increasing difficulty executing traditional exits. Continuation funds have therefore emerged as a practical mechanism to bridge this gap and provide optionality to both GPs and LPs. Recent global data underscores the scale of the trend. Evercore (Evercore, H1 2025 Secondary Market Review, July 2025) reported USD102 billion in secondary volume in H1 2025, the highest on record, with the secondary market expected to exceed USD210 billion for the full year, reflecting continued growth in deal activity and capital deployment (Jefferies, H1 2025 Global Secondary Market Review (July 2025)).
As continuation fund transactions have become more common, their structuring has matured significantly. This development is supported by Luxembourg’s mature infrastructure of administrators, depositaries, auditors and specialist advisers, together with the ability to appoint an EU-authorised AIFM providing access to the AIFMD marketing passport. The Luxembourg fund-friendly environment accommodates this trend particularly well, with its unregulated partnerships qualifying as AIFs subject to AIFMD compliance.
Jevgeniy Nesch and Clément Petit contributed to the Chambers Global Practice Guide 2026 for the "Trends and Developments" section in the Investment Funds chapter for Luxembourg.
Click here for the online version or read the publication below.
With several significant regulatory initiatives having matured at the end of 2025, the alternative investment fund (AIF) landscape entered 2026 shaped by a number of key developments that are set to influence market practice in the months ahead.
Luxembourg Progresses With One-to-One Transposition of AIFMD II
Luxembourg is advancing the implementation of Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 revising Directive 2011/61/EU (“AIFMD II”), which entered into force on 15 April 2024. Most of its provisions shall be implemented by the member states by 16 April 2026. National Transposition Bill No 8628 incorporates AIFMD II into Luxembourg law on a one-to-one basis, without “gold-plating”.
Aiming to improve resilience under stressed market conditions and reduce divergent national approaches, Luxembourg alternative investment fund managers (AIFMs) shall comply with new rules on liquidity management tools (LMTs), loan origination, reporting, delegation and supervisory co-operation. The Luxembourg financial sector regulator, the Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier – CSSF), is expected to issue complementary guidance to support AIFMs and fund documentation updates ahead of the application date.
New RTS for LMTs Under AIFMD II
On 17 November 2025, the European Commission adopted two close-to-final-draft delegated regulations setting out the final regulatory technical standards (RTS) on LMTs for open-ended AIFs and undertakings for collective investment in transferable securities (UCITS), supplementing AIFMD II and the amended UCITS Directive. The RTS implement the mandate set out in Directive 2011/61/EU, as amended by AIFMD II and follow the final draft RTS of April 2025 of the European Securities and Markets Authority (ESMA).
For AIFMs, one of the key implementation points is the introduction of a one-year transitional period for open-ended AIFs constituted before 16 April 2026. For existing funds, the detailed RTS requirements regarding the characteristics of LMTs will apply one year later, while the AIFMD II obligation to select at least two LMTs (one for money market funds) still applies from 16 April 2026. This creates a sequencing where Luxembourg AIFMs must ensure timely selection and disclosure of two LMTs for in-scope funds by April 2026, while having additional time to precisely align the calibration and drafting of those tools with the RTS.
The RTS bring more prescriptive details on suspensions of subscriptions, repurchases and redemptions. The Commission confirms that suspensions must apply simultaneously to subscriptions, repurchases and redemptions, and across all share classes, and recognises the possibility of a “soft closure” (in which subscriptions are restricted but redemptions remain possible) as a valid commercial practice – but which does not qualify as an Annex V LMT for the purpose of meeting the two-tool requirement.
For redemption gates, the RTS require a clearly defined activation threshold and mandate uniform application to all investors, with pro rata execution of orders up to that threshold. Thresholds may be set at fund level or investor level for AIFs (and only at fund level for UCITS) and may be expressed relative to net asset value (NAV), liquid assets or order size. Regarding extension of the notice period, the Commission clarifies that the extended notice covers only the period between receipt and execution of the order, without altering the underlying redemption frequency of the fund.
The RTS further require that redemption fees, swing pricing, dual pricing and anti-dilution levies be calibrated by reference to estimated explicit transaction costs and, where appropriate, implicit costs (including market impact), using a best-efforts approach. Each mechanism must be expressed in the prescribed way (for example, swing factors as a percentage of NAV; redemption fees and anti-dilution levies as a percentage or monetary amount linked to the order) and may be structured with activation thresholds or different levels depending on order size, provided the criteria are set out ex ante.
For redemptions in kind and side pockets, the final RTS codify operational detail that will be relevant for Luxembourg managers of private asset funds. Redemption in kind must follow the conditions set out in the fund documentation and is generally executed on a pro rata basis, subject to exceptions. For exchange-traded funds, in-kind creation/redemption by authorised participants is not treated as activation of the LMT. Side pockets are defined in functional terms, with two possible implementations: accounting segregation through a dedicated share class or physical separation via the transfer of affected assets to (or from) a separate vehicle; in both cases, the side-pocketed assets are closed to subscriptions, repurchases and redemptions.
Within three months from the date of submission, the European Commission shall take a decision on whether to adopt the RTS, unless the Commission extends that period by one month. The co-legislators may endorse the RTS at any point during this period. Once approved, the RTS will be published in the Official Journal of the European Union and will become directly applicable across all member states.
In parallel, ESMA will update its existing guidelines to ensure alignment with the finalised RTS and to support supervisory convergence across member states.
SFDR 2.0 – Proposed Overhaul of the EU Sustainable Finance Disclosure Framework
On 20 November 2025, the European Commission published its long-awaited legislative proposal to revise the Sustainable Finance Disclosure Regulation (SFDR 2.0). This proposal represents a structural shift away from the existing disclosure-based regime towards a more prescriptive product categorisation framework, reflecting market feedback on the limitations of the currently applicable SFDR regime and the need for clearer, more reliable ESG signals for investors; this is expected to reduce disclosure requirements and cutting costs.
Under the proposal, financial products would be classified into three categories, namely Transition (Article 7), ESG Basics (Article 8) and Sustainable (Article 9), each carrying its own set of minimum requirements linked to investment strategy, sustainability objectives and the treatment of principal adverse impacts (PAIs).
The Commission’s intention is to simplify disclosures while improving comparability and reducing the risk of misleading claims. Notably, SFDR 2.0 would remove the concept of “sustainable investment” as defined under the current regime and integrate its core elements directly into the criteria for the new product categories. The proposal would further eliminate entity-level PAI reporting under Article 4, replacing it with proportionate, category-specific obligations. For Luxembourg-based AIFMs, this shift is expected to require a recalibration of internal classification methodologies, documentation standards and investor-facing disclosures.
The legislative process remains at an early stage. Negotiations between the European Parliament and the Council are expected to continue through 2026, and final adoption is unlikely before 2027. Transitional arrangements will be critical, as market participants will need adequate time to adapt systems, prospectuses, marketing materials and due diligence frameworks to the revised regulatory architecture. Supervisory authorities, including ESMA and national regulators such as the CSSF, are expected to issue further guidance, particularly on the evidential thresholds for meeting each of the proposed categories and the interplay with parallel initiatives such as the EU taxonomy and corporate sustainability reporting rules.
Until the revised framework is adopted, the existing SFDR regime remains fully applicable. However, in anticipation of SFDR 2.0, the market is already observing a clearer articulation of sustainability objectives and enhanced internal data governance, signalling the beginning of the transition to a more structured and predictable sustainable finance framework in the EU.
ELTIF 2.0 – RTS Status and Recent Updates
Two years after the introduction of the revised European Long-Term Investment Fund Regulation (ELTIF 2.0), Luxembourg continues to consolidate its position as the leading domicile for ELTIFs. As of September 2025, the majority of ELTIFs established to date were domiciled in Luxembourg, reflecting the jurisdiction’s appeal for sponsors seeking structuring efficiency, regulatory clarity and specialist service provider depth. The ability under ELTIF 2.0 to create semi-liquid, open-ended products – a significant departure from the original, closed-ended model – has proven particularly attractive for managers targeting private market strategies with a broader investor reach.
In 2025, ESMA published a consolidated set of questions and answers incorporating clarifications on ELTIF 2.0 and Commissions Delegated Regulation (EU) 2024/2759. These responses provided long-awaited regulatory certainty on several issues of direct relevance to Luxembourg ELTIF sponsors, particularly those structuring open-ended, evergreen and semi-liquid strategies. Importantly, they confirm that member states may not impose additional “gold-plating” requirements on ELTIFs, thereby ensuring a level playing field for managers structuring products in Luxembourg while marketing them across the EU. The clarifications cover eligible assets, intermediary entities, portfolio composition and diversification requirements, national discretions, liquidity and redemption governance, and the operational parameters applicable under the ELTIF 2.0 regime.
There is no requirement to have different assets serving the eligibility and liquidity assessments separately; instead, a single asset may be used for both eligibility and liquidity criteria.
The Commission clarified that intermediary entities such as SPVs, securitisation vehicles and holding companies do not constitute ELTIF investments. Portfolio composition and diversification rules apply strictly on a look-through basis, with intermediary entities not automatically qualifying as AIFs or as qualifying portfolio undertakings. Taken together, these interpretations confirm the compatibility of multilayered structuring, which is a core feature of Luxembourg private market fund arrangements.
Eligibility questions also arose with respect to investments in non-EU AIFs. The Commission reiterates that an ELTIF may invest directly in a non-EU AIF only where the fund meets the requirements of Article 50(1) of the UCITS Directive; but in practice, this category is extremely limited as most non-EU AIFs do not offer UCITS-equivalent investor protections and therefore fall outside this article.
In relation to the application of composition and leverage limits during capital flows, the Commission confirms that Articles 16(4) and 17(1)(c) apply to all ELTIFs regardless of whether they are closed- or open-ended. Where an ELTIF raises additional capital or processes redemptions, temporary suspensions of portfolio composition and diversification compliance may last for up to 12 months. During this period, managers must not increase concentration or leverage and must take steps to return the ELTIF to compliance within the prescribed timeframe.
The Commission reiterated that member states may not impose additional requirements on the duration or life cycle of an ELTIF. Evergreen and perpetual structures are therefore permitted, provided the fund complies with the Regulation’s long-term investment objectives. The same Q&A 2481 confirms that member states may not impose requirements relating to the nationality, domiciliation or location of an ELTIF or its AIFM, including in contexts where ELTIFs are embedded in insurance or pension products.
Liquidity management topics receive detailed treatment. The Commission explains that ELTIFs using Annex II of the Delegated Regulation may, under strict conditions, fall below their minimum required liquid asset threshold. Managers must restore compliance within an appropriate timeframe while continuing to meet redemption obligations. QA 2479 addresses secondary market matching mechanisms under Article 19(2a), confirming that anti-dilution levies cannot be imposed because matched transactions involve transfers of existing units only. Transfer-related fees remain permissible. QA 2478 and QA 2482 provide flexibility regarding minimum holding periods and redemption rate mechanisms, while QA 2477 confirms that daily valuation and dealing cycles are permissible when supported by adequate operational and liquidity arrangements. Lastly, the Commission confirms that expected cash flows may support higher redemption volumes where the manager can demonstrate a high degree of certainty.
Taken together, these clarifications materially strengthen legal certainty for ELTIF sponsors and confirm the breadth of structuring flexibility available under ELTIF 2.0. From Luxembourg’s perspective as the leading ELTIF domicile, the Commission’s responses support the continued viability of semi-liquid, evergreen and multi-strategy ELTIF models, reinforce the permissibility of intermediary structures and help to ensure a harmonised cross-border framework free from member state divergence. These developments provide a clearer operational roadmap for managers designing long-term investment solutions targeting retail and professional investors across the EU.
Circular CSSF 25/901: Consolidation of Luxembourg Fund Supervisory Guidance
As a recent national-level development, the CSSF published, on 19 December 2025, Circular CSSF 25/901 (“Circular 25/901”), which entered into force with effect from the same date. The circular is primarily addressed to specialised investment funds (SIFs), investment companies in risk capital and Part II undertakings for collective investment.
Circular 25/901 does not introduce a new regulatory framework or call into question the rules adopted by the funds or compartments authorised by the CSSF. Instead, it repeals and replaces a number of earlier-dated CSSF circulars (including CSSF 02/80, CSSF 07/309, CSSF 06/241 and chapters of Circular IML 91/75) while building on their core principles, adapted to the practical experience gained throughout the years and integrating them into a single, thematically structured document.
From a practical perspective, Circular 25/901 clarifies the rules applicable to the fund vehicles subject to this Circular, providing fund managers with comfort and greater flexibility – which contributes further to the attractiveness of Luxembourg as the fund domicile.
Key clarifications of Circular 25/901 focus on:
- the relaxation of risk-spreading for SIFs – single investment cap generally raised to 50% (instead of 30%), and to 70% for infrastructure investments;
- recognition of the look-through approach and codification of ramp-up and ramp-down mechanisms, in which investment limits do not apply;
- the risk capital concept, which now includes certain debt strategies but excludes certain (logical) types of securities; and
- retail-investor driven rule adjustments.
Circular 25/901 constitutes a consolidation and clarification of existing CSSF guidance and supervisory positions that had previously been provided across a number of circulars and regulatory communications.
The Rise of Continuation Funds in Luxembourg
Over the past decade, continuation funds have evolved from a niche (liquidity) tool used in isolated cases to a material and increasingly institutionalised segment of the private equity market. The markets have become more challenging, valuation expectations between sellers and buyers have diverged, and general partners (GPs) have faced increasing difficulty executing traditional exits. Continuation funds have therefore emerged as a practical mechanism to bridge this gap and provide optionality to both GPs and LPs. Recent global data underscores the scale of the trend. Evercore (Evercore, H1 2025 Secondary Market Review, July 2025) reported USD102 billion in secondary volume in H1 2025, the highest on record, with the secondary market expected to exceed USD210 billion for the full year, reflecting continued growth in deal activity and capital deployment (Jefferies, H1 2025 Global Secondary Market Review (July 2025)).
As continuation fund transactions have become more common, their structuring has matured significantly. This development is supported by Luxembourg’s mature infrastructure of administrators, depositaries, auditors and specialist advisers, together with the ability to appoint an EU-authorised AIFM providing access to the AIFMD marketing passport. The Luxembourg fund-friendly environment accommodates this trend particularly well, with its unregulated partnerships qualifying as AIFs subject to AIFMD compliance.