Issued by the Commission de Surveillance du Secteur Financier (CSSF) on December 19, 2025, Circular 25/901 represents a significant effort to modernize, clarify, and simplify the regulatory framework for specific Luxembourg investment funds. The circular applies to specialised investment funds (SIFs), investment companies in risk capital (SICARs), and undertakings for collective investment subject to Part II of the UCI Law of 2010 (Part II UCIs).
Effective from its date of issue, the circular consolidates and repeals several prior regulations—notably Circulars CSSF 02/80, 07/309, and 06/241—into a single, cohesive text. This initiative maintains core regulatory principles while adapting them based on practical experience, ensuring consistency in terminology and providing greater flexibility.
Key takeaways from the circular include:
- Tiered Investment Limits: The circular formally establishes a tiered approach to risk-spreading for SIFs and Part II UCIs based on the target investor profile. Funds marketed to “unsophisticated retail investors” face stricter concentration limits (e.g., 25% per single entity), while those reserved for “well-informed or professional investors” are granted higher limits (e.g., 50% per single entity).
- Clarification of “Risk Capital” for SICARs: The document provides detailed assessment criteria for what constitutes a “risk capital” investment, the sole objective for SICARs. The criteria emphasize an “intention to develop” the target entity, the presence of a “specific risk” beyond market fluctuations, and a defined “exit strategy.” This codifies the expectation that SICARs will not be passive holding companies.
- Formalized Ramp-Up and Wind-Down Periods: The circular introduces clear guidelines for periods during which investment limits do not apply, such as the initial portfolio construction (ramp-up) and final liquidation (wind-down) phases. The duration of these periods is linked to the fund’s investment strategy, with longer periods permitted for private investment strategies.
- Standardized Borrowing Limits: For SIFs and Part II UCIs marketed to unsophisticated retail investors, borrowing for investment purposes is capped at 70% of the fund’s assets or commitments. No specific limit is set for funds targeting professional investors, which must define their own maximum in their sales documents.
- Enhanced Transparency Requirements: The circular reinforces the need for clear, correct, and non-misleading information in all sales documents. It specifies required disclosures on investment policies, risks, borrowing limits, redemption terms, liquidity management tools, and specific risk warnings for long-term or illiquid investments.
While the circular introduces a modernized framework, it includes a grandfathering provision, allowing funds authorized before December 19, 2025, to continue applying the rules under which they were established.
1. Introduction and Scope
1.1. Purpose and Intent
Circular CSSF 25/901 is designed as part of a “broader effort towards modernisation, clarification and simplification.” Its primary objectives are to:
- Consolidate provisions from multiple older circulars into a single, comprehensive text.
- Maintain the core principles of previous regulations while adapting them based on practical experience.
- Ensure consistency in terminology across different fund types.
- Provide flexibility by allowing for derogations based on duly motivated justifications.
1.2. Applicability
The circular applies to the following Luxembourg-based investment funds and their sub-compartments:
- Specialised Investment Funds (SIFs), governed by the SIF Law of 13 February 2007.
- Investment Companies in Risk Capital (SICARs), governed by the SICAR Law of 15 June 2004.
- Undertakings for Collective Investment (Part II UCIs), governed by Part II of the UCI Law of 17 December 2010.
1.3. Exemptions
The provisions of this circular do not apply to funds or compartments that are:
- Authorized as European long-term investment funds (ELTIFs).
- Authorized as money market funds (MMFs).
- Labelled as European venture capital (EuVECA) or European social entrepreneurship (EuSEF) funds.
- Closed-ended and were authorized before the circular’s entry into force on December 19, 2025.
1.4. Repealed and Superseded Regulations
The circular explicitly repeals the following:
- Circular CSSF 02/80 (Alternative Investment Strategies)
- Circular CSSF 07/309 (Risk-spreading for SIFs)
- Circular CSSF 06/241 (Concept of risk capital for SICARs)
- Chapters G and I of Circular IML 91/75
Additionally, it renders the provisions of Circular CSSF 08/356 (Techniques and Instruments) and Chapter H of Circular IML 91/75 inapplicable to Part II UCIs.
2. Risk Spreading and Investment Limits (SIFs and Part II UCIs)
The circular clarifies the concept of risk-spreading by establishing quantifiable investment limits. These limits are tiered based on the type of investor the fund is permitted to market to. The calculation basis is generally the fund’s assets or commitments to subscribe.
2.1. Tiered Investment Limits
| Investment Type | Limit for Unsophisticated Retail Investors | Limit for Well-Informed or Professional Investors |
| Single Entity or Person | 25% | 50% |
| Single UCI or Other Investment Vehicle | 25%* | 50% |
| Single Other Asset (e.g., real estate forming a single economic entity) | 25% | 50% |
| Single Infrastructure Investment | 50% | 70% |
*This limit does not apply if the target UCI ensures a comparable or stricter level of risk-spreading.
2.2. Additional Rules on Investment Limits
- Government Securities: The limit does not apply to securities issued or guaranteed by an OECD Member State, its local authorities, or specified supranational bodies.
- Short Sales: Short positions in securities from a single issuer must not exceed the limits outlined in the table above.
- Derivatives: When using financial derivatives, a fund must ensure comparable risk-spreading through appropriate diversification of the underlying assets. Counterparty risk must be limited.
- Intermediary Vehicles: When investing through intermediary vehicles, the limits apply to the underlying investments, not the vehicles themselves.
- CSSF Derogations: The CSSF may grant further derogations from these limits based on a duly motivated justification and may also impose additional restrictions for specific investment policies.
2.3. Application Periods: Ramp-Up and Wind-Down
The circular allows for defined periods during which investment limits do not apply, provided this is disclosed in the sales document.
- Ramp-Up Period: This period is for the initial construction of the fund’s portfolio.
- For funds primarily investing in assets eligible under the UCITS Directive, the ramp-up period may be up to twelve months from launch.
- For funds making private investments, which require more time, the period may be longer but should not exceed four years from launch. A further extension of up to one year is possible in exceptional, justified circumstances.
- Wind-Down Period: For funds focused on private investments, the sales document may provide that investment limits cease to apply during the final liquidation phase.
3. The Concept of Risk Capital (SICARs)
The circular provides extensive clarification on the concept of “risk capital,” which is the exclusive investment object of a SICAR. A risk capital investment is defined as the direct or indirect contribution of assets to entities for their launch, development, or listing on a stock exchange.
3.1. Core Assessment Criteria for Risk Capital
The CSSF assesses a SICAR’s investment policy based on the combination of several key criteria:
| Criterion | Description |
| Intention to Develop | The investment must aim to create value at the level of the target entity. A SICAR cannot merely hold a passive investment waiting for its value to increase. |
| Specific Risk | The risk associated with the investment must go beyond simple market risk. This can be justified by factors like the target entity’s maturity, activities, or development project. |
| Exit Strategy | The SICAR must have a time-limited objective to resell its investment for a profit. This distinguishes it from a holding company with a long-term holding strategy. The sales document must describe the exit strategy. |
| Active Management/Control | A SICAR is often expected to actively intervene in the management of its target entities (e.g., via board representation) to ensure funds are used for development. This is not strictly required if other factors clearly indicate a risk capital investment. |
3.2. Specific Investment Restrictions and Allowances
- Listed Securities: Eligible only in specific cases, such as on non-UCITS-eligible markets, or if the investment is part of a specific development project (e.g., delisting). Small caps may also be eligible.
- ABS/CDOs: In principle, these are not eligible investments for SICARs.
- Debt & Mezzanine Financing: Eligible forms of financing, provided the target entity itself qualifies as a risk capital investment (e.g., a non-listed company).
- Derivatives: May be used for hedging or to realize the investment policy, but they cannot be the primary object of the investment policy.
- Real Estate & Infrastructure: Direct investment is not permitted. Investment is only possible through intermediary vehicles (e.g., SPVs), and the underlying assets must meet the risk capital criteria.
- Commodities: Direct investment is not permitted. Indirect investment is possible through companies that exploit commodities, provided the risk and development criteria are met at the company level.
- Target Funds: Investments in other funds (e.g., private equity or venture capital funds) are acceptable if the target fund’s policy is restricted to assets eligible as risk capital. Hedge funds are generally not eligible.
4. Borrowing, Techniques, and Transparency
4.1. Borrowing Regulations
- Purpose: SIFs and Part II UCIs may borrow cash for investments, to cover costs, or to meet redemption requests.
- Limits:
- For funds marketed to unsophisticated retail investors, borrowing for investment purposes must not exceed 70% of the fund’s assets or commitments.
- For funds reserved for well-informed or professional investors, this limit does not apply; these funds must set their own maximum borrowing limit in their sales document.
- Exclusions: Temporary borrowing fully covered by investor capital commitments is generally not considered borrowing for the purpose of this limit.
4.2. Portfolio Management Techniques
SIFs and Part II UCIs may use techniques like securities lending, repurchase agreements, and reverse repurchase agreements for efficient portfolio management. Their use is subject to the following conditions:
- It must be in the best interest of investors.
- It must not alter the fund’s investment objectives or add excessive risk.
- It must be economically appropriate (i.e., for risk reduction, cost reduction, or generating additional capital/income).
4.3. Transparency and Disclosure Requirements
The circular mandates that information in the sales document must be “correct, clear and not misleading.” Key required disclosures include:
- Investment Policy: A detailed description of objectives, strategies, portfolio composition, asset classes, investment limits, and associated risks.
- Redemptions and Subscriptions: Clear terms and conditions, including frequency, notice periods, settlement periods, and available liquidity management tools.
- Borrowing: The maximum borrowing limit must be explicitly stated.
- Risk Warnings: For funds investing in private assets and marketed to retail investors, a warning must be included stating the high level of risk and its suitability only for investors able to bear that risk. A further warning is required if the lock-up period could exceed ten years.
- Material Changes: Procedures for modifying the investment policy or making other material changes must be described.
- Fund Life Extension: The possibility to extend the life of a fund (up to three times for one year each) must be provided for in its governing documents.
5. Implementation and Transitional Provisions
- Effective Date: The circular entered into force on December 19, 2025.
- Grandfathering: The rules do not retroactively apply to funds or compartments authorized before this date. These entities may continue to apply the rules under which they were established. This ensures regulatory stability for existing structures.