Luxembourg parallel fund structures: considerations for US sponsors raising capital in Europe

For US private capital sponsors, a European fundraising strategy often raises an early structuring question: can European investors join the existing US or offshore fund, or is a separate European vehicle needed?

A Luxembourg parallel fund can give European investors access to the same investment programme through an EU-domiciled vehicle. It can widen the potential investor base while allowing the sponsor to retain its established main fund structure.

Parallel funds, however, require sponsors to operate separate legal vehicles in a consistent manner. Investment allocation, governance, management arrangements, fees, expenses and reporting all need to be considered before launch.

In this article, Investment Funds partner Hervé Leclercq and senior associate Alexandra Damascato look at when a Luxembourg parallel fund may be useful, how it works alongside a US or Cayman Islands main fund, and what sponsors should consider before choosing this route.

How does a parallel fund work? 

Parallel funds co-invest and divest alongside the main fund, usually at the same time and on similar terms. Investment opportunities are generally allocated between the funds in proportion to their commitments.

The terms on which the parallel fund operates are, to the greatest extent possible, similar to the terms of the main fund. This means that the parallel fund has a common investment policy and common asset targets because they are investing in the same portfolio. The differences between them are mainly due to regulatory or operational reasons.

The size of a main fund and some of its parallel funds may differ. For instance, the parallel fund may be larger than the main fund and, in most cases, the AUM of all funds will be aggregated to determine the size of the overall structure.

The main fund and parallel fund are separate legal entities, established and operated in different jurisdictions (triggering different running costs and subject to local constraints).

Why might a US fund sponsor use Cayman and Luxembourg parallel fund structures?

A US or Cayman vehicle may remain the natural choice for a sponsor’s established investor base. European institutional investors, however, may prefer or require an EU-domiciled structure because of their internal investment policies, regulatory position, tax requirements or reporting expectations.

Luxembourg is familiar to many European institutional investors. Notably, it’s where the European Investment Fund and European Investment Bank have their head offices - and is widely regarded to offer the golden standard in terms of investor protection.

The Luxembourg toolbox is also very sophisticated and allows fund managers to replicate the terms of their Cayman / US fund in a Luxembourg structure, with only those adjustments required by local rules and investor expectations.

This us why the most common Luxembourg vehicle used is the société en commandite spéciale (the "SCSp"), the Luxembourg equivalent to the common law partnership, which as been hugely popular from the moment it was enacted.

In addition, if the Luxembourg fund appoints an authorised alternative investment fund manager (AIFM), it will likely benefit from the European marketing passport, providing access to professional investors across the EU and beyond.

Since the transposition of the EU cross-border distribution rules, an authorised AIFM can pre-market a proposed fund to professional investors in the EU before it is formally established or notified for marketing. This allows sponsors to gauge European demand before committing to a parallel vehicle.

Recent changes o the ELTIF regime have also made these vehicles more accessible to retail investors, creating new opportunities for managers looking beyond institutional capital.

In terms of fundraising, some of the largest EU pension funds and large allocators are already familiar with Luxembourg fund structures. For sponsors, this can help streamline due diligence and onboarding, as fund documentation is often aligned with the requirements and expectations of investors' internal risk, legal and compliance teams. Luxembourg fund documentation incorporates a range of requirements that apply across the EU, including rules relating to data protection, fair treatment of investors disclosures and compliance with sustainability standards. As a result, investors may be able to assess a Luxembourg fund more readily than a non-European structure, where a more detailed gap analysis may be required.

What recent Luxembourg developments should US sponsors consider?

Luxembourg’s fund toolkit has been modernised in several key areas relevant to sponsors considering a parallel fund.

It is worth noting a proposed new law allowing eligible unregulated SCS and SCSp alternative investment funds to operate as umbrella structures. If adopted, the change could provide greater flexibility and reduce the cost of operating multiple strategies or investor pools within a single structure. Similar functionality is currently available under fund regimes such as the RAIF.

AIFMD II is now Luxembourg law

The Law of 3 March 2026 transposed Directive (EU) 2024/927 (AIFMD II) into the Luxembourg AIFM Law, covering delegation arrangements, liquidity risk management, supervisory reporting, depositary services and loan origination by AIFs.

Since 16 April 2026, authorised AIFMs managing open-ended AIFs must select at least two liquidity management tools, disclose them to investors and notify the CSSF through a dedicated eDesk procedure.

Most closed-ended private equity, infrastructure and private credit parallel funds will be less impacted by the liquidity rules, but the new delegation, reporting and loan-origination requirements should be factored into the AIFM selection, documentation and the allocation of compliance costs between the parallel fund and the main fund.

ELTIF 2.0 and retail access

The revised ELTIF Regulation, applicable since 10 January 2024, has made the ELTIF a practical route to European wealth and retail investors. ELTIFs benefit from an EU marketing passport and can be distributed to both professional and retail investors, subject to the applicable requirements.

For some sponsors, an ELTIF or semi-liquid structure may complement a traditional institutional fund strategy, providing access to a broader range of investors across Europe.

What should sponsors consider when setting up a Luxembourg parallel fund?

One point of key consideration is the appointment of an authorised AIFM, which is responsible for documenting how it selects, appoints and oversees delegates, including portfolio managers and investment advisers. Sponsors need to consider how investment decisions will be made, what functions may be delegated and what due diligence and ongoing oversight will be required.

Fee arrangements may have to be carefully scrutinised as well, particularly where management fees, carried interest, transaction fees or other costs are shared across the wider structure.

From a commercial standpoint, a manager may have to factor in requirements that do not apply in the same way outside the EU, including investor eligibility criteria, fair treatment obligations, data protection requirements and regulatory disclosures.

Before launch, it is often helpful to undertake a gap analysis to assess whether the proposed operating model works within the European regulatory framework. For example, sponsors should consider whether their valuation methodology, conflicts of interest framework and investor reporting processes align with applicable EU requirements.

These issues are often identified and addressed before drafting begins and are reviewed again as early investor commitments are secured. Side letters may also be used to address specific investor requirements, provided they are consistent with applicable fair treatment and disclosure obligations.

How Ogier can help

Ogier helps US sponsors establish Luxembourg parallel funds that work alongside their existing fund structures. Our Luxembourg and Cayman investment funds teams work with sponsors and their US counsel to align fund terms while addressing local regulatory requirements and European investor expectations.

From initial structuring and fund documentation to investor negotiations and ongoing governance, we help sponsors resolve practical issues early and support the structure beyond launch. Contact the team to find out more.

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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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