In brief
On 19 December 2025, the Commission de Surveillance du Secteur Financier (CSSF) published Circular CSSF 25/901 ("Circular"), which consolidates and modernizes the rules applicable to Part II Undertakings for Collective Investment (UCIs), Specialised Investment Funds (SIFs) and Investment Companies in Risk Capital (SICARs). The Circular replaces several earlier texts by regrouping general principles previously displayed in across several circulars. Interestingly, it introduces more flexible diversification and borrowing rules based on the investor category, reiterates ramp-up and wind-down practices to accommodate diversification over the lifetime of a fund, and further clarifies the concept of risk capital for SICARs.
The Circular is accompanied by a Compilation of key concepts for investment funds other than UCITS and Money Market Funds (MMFs).
The Circular entered into force on 19 December 2025 without requiring changes to rules adopted by funds or compartments authorized by the regulator before that date.
Key takeaways
The Circular creates a single, coherent framework by repealing CSSF Circulars 02/80, 07/309 and 06/241, as well as specified chapters of IML 91/75. It also confirms that certain provisions no longer apply to Part II UCIs. This consolidation removes ambiguity and ensures consistency across product types.
Scope and exclusions
Circular CSSF 25/901 applies to SIFs, SICARs and Part II UCIs, including their compartments. It expressly excludes ELTIFs, MMFs, EuVECA/EuSEF, and closed-ended funds authorized before 19 December 2025.
More generally, the preamble of the Circular states that existing funds authorized by the CSSF prior to that date are grandfathered.
Diversification rules
The Circular introduces more flexible diversification thresholds tailored to investor type:
- For retail investors products, funds must ensure that no more than 25% of assets or commitments are invested in a single issuer, asset or investment vehicle or 50% in an infrastructure investment.
- For well informed/professional only products, the applicable limit is increased to 50% and 70% for infrastructure investments. These higher thresholds apply equally to SIFs, SICAR and Part II UCIs which are reserved to those investor categories.
The Circular also formalizes the practice by introducing clear parameters for portfolio build-up and liquidation phases. Funds investing primarily in liquid assets may benefit from a ramp-up period of up to one year, while those pursuing illiquid strategies may extend this to four years, with a possible one-year extension subject to CSSF approval. During these phases, investment limits may be disapplied, provided expressly disclosed in the offering documents as approved by the CSSF, ensuring transparency and investor protection.
Clarification of risk capital for SICARs
The CSSF sets out a clear definition of "risk capital," outlining the essential features that an investment must meet to qualify under the SICAR regime:
- It must aim to develop the target company.
- It must involve a specific risk beyond general market fluctuations.
- It must Include a credible exit strategy described in the documentation.
The CSSF expects SICARs to exercise an adequate level of control or supervision to ensure that the amount invested is effectively used to develop the target entity. This level of control should be reflected in SICAR's governance arrangements and in its procedures for overseeing the use of proceeds to develop the activities of portfolio entities.
Clear expectations also apply to documentation. The authorization file — whether for a new SICAR or a new compartment — must explain how the risk capital requirement is satisfied. The sales document must outline the exit strategy, provide a non-exhaustive list of divestment methods, and indicate the expected holding period. Where investments are made through target funds, the document must confirm that these funds comply with the same exit strategy criteria.
New borrowing parameters
For Part II UCIs marketed to retail investors, borrowing for investment purposes is subject to a ceiling of 70% of the fund's assets or subscription commitments. This limit acts as a safeguard against excessive leverage in products distributed to non-professional investors.
Funds reserved for well-informed or professional investors may set their own borrowing limits.
The Circular also clarifies that short-term financing arrangements fully covered by investor commitments, as well as debt instruments linked to performance, are generally not considered borrowings for these purposes.
Enhanced disclosure requirements
The Circular reiterates the transparency by requiring sales documents to be clear, accurate and sufficiently detailed to enable investors to make informed decisions. They must describe the investment policy and strategy, portfolio composition, asset classes, investment limits and any use of intermediary vehicles, together with associated risks and conflicts of interest.
Operational terms such as subscription and redemption conditions and mechanisms, dealing frequency, notice periods and liquidity tools must also be disclosed, along with borrowing limits and any techniques such as securities lending or repos. Where private investments or extended fund lifespans are envisaged, prominent risk warnings are mandatory to inform specifically retail investors.
Fee structures, distribution waterfalls and procedures for material changes or extensions of the fund's life must also be clearly set out.
Companion Compilation of concepts
To complement the Circular, the CSSF has issued a non-binding Compilation designed to clarify the most common concepts in the alternative investment fund space and place them in context. The document is purely informative, non-exhaustive, and deliberately kept outside the scope of formal regulation to remain flexible and adaptable.
It covers four key areas: investment policy, strategies and asset classes, investment methods, and subscription and redemption models.
Recommended actions for undertakings
Further to the adoption of Circular 25/901, undertakings should:
- Consider the flexibility allowed for portfolio construction for funds targeting retail investors taking into account the new 25% concentration limit and the 70% borrowing cap. It may be beneficial to make adjustments to investment strategies, pipeline planning and risk monitoring processes to benefit from the more flexible regime.
- Review SICAR investment strategy to eventually fine-tuned the risk-capital criteria, including the required governance and control mechanisms or exit strategies.
- Use the benefit of the ramp-up and wind-down periods which have to be disclosed clearly in fund documentation.
- Update offering documents and marketing materials to reflect enhanced transparency requirements, including investment limits, borrowing parameters, liquidity tools, redemption mechanics, investment risks and potential conflicts of interest, if applicable.
- Align terminology and drafting of key concepts with CSSF's Compilation to ensure consistency across filings and investor communications.