CSSF Circular 25/901: modernisation and streamlining of Luxembourg funds

Circular 25/901 marks a significant step in the ongoing modernisation, clarification and simplification of the regulatory framework for Luxembourg investment funds.

Published by the Luxembourg financial regulator (the CSSF) on 19 December 2025 (the Effective Date), Circular 25/901 (the Circular) repeals and consolidates previous circulars and is intended to provide greater clarity and flexibility to market participants, while adapting regulatory expectations to current market practice.

The Circular is complemented by a compendium entitled “Compilation of the key concepts and terms used in the area of investment funds other than UCITS and MMFs and how the CSSF understands them” (the Key Concept Compilation). It addresses various aspects such as investment policies / strategies and asset classes, capital raising methods (subscription and commitment basis), redemption policies and transactions. Although the Key Concept Compilation is not to be regarded as a circular or be given any legally binding effect, it aims to clarify the CSSF's understanding of key concepts in the funds sector and is a useful reference for the terminology used in the Circular. 

What is the scope of Circular 25/ 901?

The Circular applies to:

• specialised investment funds (SIFs)
• investment companies in risk capital (SICARs)
• undertakings for collective investment subject to Part II of the Law of 17 December 2010 (Part II UCIs) and their compartments where applicable (together UCIs)

The Circular does not apply to European long-term investment funds (ELTIFs), money market funds (MMFs), European venture capital funds (EuVECAs), European social entrepreneurship funds (EuSEFs) or to closed-ended UCIs authorised before the Effective Date. Such pre-existing open-ended UCIs may continue applying their existing rules. However, the governing body of such open-ended UCIs and service providers involved in their management should take necessary measures to review and update the UCI documentation and ensure compliance with the Circular. 

Repeal and replacement of previous circulars

The Circular repeals and replaces Circulars CSSF 02/80, CSSF 07/309, CSSF 06/241, as well as Chapters G and I of Circular IML 91/75.

Additionally, Chapter H of IML 91/75 and Circular CSSF 08/356 are rendered inapplicable to Part II UCIs.

Risk-spreading (diversification) rules 

The Circular modernises and quantifies risk-spreading requirements by introducing clear percentage investment limits, which vary according to the target investor type and assets:

• funds marketed to retail investors: diversification is ensured if up to 25% of assets or commitments are invested in a single entity, vehicle or asset (with exemptions for OECD / EU public sector/supranational issuers). The limit rises to 50% for infrastructure investments. The look-through principle applies in relation to investments in diversified UCIs 
• well-informed or professional investors: limits are relaxed to 50% per entity/investment vehicle/asset, or 70% for infrastructure if the UCI is reserved by law (SIFs or SICARs) or by the UCI documentation to well-informed or professional investors.
• financial derivatives must be appropriately diversified on a look-through basis and counterparty risk limited

Ramp-up and wind-down periods

For the first time, the CSSF codifies a ramp-up practice of one year for UCIs investing in liquid assets and up to four years for UCIs investing in illiquid assets. The new diversification regime provides for a possibility of extension by one additional year, in exceptional circumstances, subject to adequate justification and CSSF approval.

During ramp-up and wind-down periods, investment limits do not apply provided this is expressly foreseen in the fund’s documentation and approved by the CSSF. These exemptions require clear documentation and CSSF approval, and the UCIs must not be exposed to excessive risks or unaddressed conflicts of interest during such periods.

SICAR clarifications: risk capital

The Circular offers important clarifications for SICARs, specifying how CSSF assesses the “risk capital” concept:

• an investment must aim at developing the target entity (such as, creation of value, not passive holding)
• there must be a specific risk element beyond mere market risk
• the exit strategy (disposal of holdings after value creation) is central and must be described in the fund’s documentation
• eligibility of certain investment forms (listed / unlisted securities, mezzanine / rescue financing, indirect investments) is clarified
• the previous private equity real estate concept explanations from Circular 06/241 are not maintained -for real estate or infrastructure exposure, SICAR must invest indirectly via special-purpose vehicles or funds, with underlying assets meeting the risk capital criteria

Borrowing limits

The Circular sets new borrowing restrictions:

• for Part II UCIs marketed to unsophisticated retail investors, borrowing for investment must not exceed 70% of assets/commitments
• for funds available only to professional or well-informed investors (SIFs, SICARs and reserved Part II UCIs), borrowing limits are set by fund documentation; the regulatory cap does not apply
• temporary borrowings backed by capital commitments or certain debt securities do not count against this limit

Transparency requirements

The Circular introduces enhanced requirements concerning the content of fund documentation. In particular, enhanced transparency rules require funds’ sales documents to:

• clearly describe investment policy, strategies, objectives, investment limits and calculation bases, including any use of intermediary vehicles
• detail risks, conflicts of interest, and specific information if investing in other funds or vehicles (including look-through where appropriate)
• if investing more than 25% of assets or commitments in another collective investment, disclose this in the offering document and confirm that comparable or stricter risk-spreading rules apply at the target level
• explicitly disclose clearly all terms and conditions relating to subscriptions and redemptions (including redemption frequency, notice and settlement, liquidity management tools and how redemption orders are handled)
• specify borrowing limits, a description of the types of transactions (for example, use of derivatives, techniques and instruments) including conditions and limits and any risks
• provide details of the distribution of proceeds and all fees or charges (particularly where target funds or vehicles are managed by the same initiator)
• include risk disclaimers where private investments are present or long fund lifespans are possible

Conclusion

The Circular modernises, consolidates and clarifies the Luxembourg regulatory framework for SIFs, SICARs and Part II UCIs, thereby promoting greater consistency and flexibility.

The Circular enhances risk-spreading requirements, making them more flexible and adapted to investor profiles and underlying assets, enhances transparency, tightens borrowing limits for retail-sold funds and codifies risk capital eligibility requirements for SICARs.

Notwithstanding the transitional arrangements that allow pre-existing open-ended UCIs to continue applying their existing rules, the CSSF expects governing bodies and service providers involved in the UCIs' management to review and update their documentation and policies, ensuring compliance with the new provisions.

How Ogier Can help

Ogier’s Luxembourg funds team can advise on compliance with the new rules and their implementation. For more information, please reach out to the team listed below. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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