Why this matters
Luxembourg SCS and SCSp vehicles are widely used for private equity, private debt, real estate, infrastructure and other alternative strategies. They are valued for their contractual flexibility, familiarity to international sponsors and compatibility with Anglo-Saxon fund documentation.
Until now, however, an SCS or SCSp AIF outside a product law could not benefit from a statutory umbrella or compartment structure. This has been a practical limitation for sponsors seeking to replicate multi-series, parallel fund, co-investment or platform structures in Luxembourg without adopting a regulated or semi-regulated product regime. The proposed reform is intended to close that gap.
Who could use the new regime?
The regime would be available only to Luxembourg AIFs established as an SCS or SCSp and managed by an authorised AIFM, established in Luxembourg or in another EU Member State, provided the relevant AIFMD management passport requirements are met. By contrast, the proposed wording would not cover structures managed only by a registered or sub-threshold manager, or by a non-EU AIFM.
What formalities are required?
The core formalities would be limited to an explicit reference in the partnership agreement to the creation of compartments and the rules applicable to them. Each compartment’s investment policy would also need to be disclosed to investors in accordance with article 21 of the AIFM Law. Importantly, the bill does not prescribe a single form of offering document, preserving flexibility as to how the required AIFMD disclosures are made.
What are the key features?
- Statutory ring-fencing - As a default rule, the rights of investors and creditors relating to a compartment would be limited to the assets of that compartment, unless the limited partnership agreement provides otherwise.
- Separate lifecycle - Each compartment could be liquidated separately, without automatically triggering the liquidation of the AIF as a whole. Only the liquidation of the last remaining compartment would result in the liquidation of the entire vehicle.
- Cross-investments - Subject to the limited partnership agreement, one compartment could invest in another compartment of the same AIF. Circular investments would be prohibited and voting rights attached to interests held by the investing compartment would be suspended.
- Reporting flexibility - A separate annual report could be prepared for each compartment, provided it also includes aggregated information for all compartments of the AIF.
What does this mean in practice?
An SCS or SCSp AIF using the new regime can therefore remain outside the RAIF, SIF, SICAR or Part II UCI frameworks, unless it separately elects, or is established under, one of those regimes. The existing compartment rules applicable to those product regimes would continue to apply to them and remain unaffected.
If adopted broadly as drafted, the bill should give international sponsors another Luxembourg structuring option: a compartmentalised SCS or SCSp AIF with the flexibility of a partnership and without the additional features of a product-law fund. This could be particularly relevant for parallel funds, co-investment vehicles, feeder or aggregation structures and multi-strategy platforms. Careful drafting will remain important, especially for ring-fencing, financing arrangements, guarantees, valuation, conflicts of interest and reporting.
How we can help
Our Luxembourg Investment Funds team is monitoring the progress of Bill of Law n° 8814 and can help sponsors, managers and advisers assess whether the proposed regime could be relevant to upcoming or ongoing Luxembourg fund structuring projects.
We would be pleased to discuss how the proposal compares with existing Luxembourg options, including RAIFs, SIFs, SICARs and non-product-law partnerships.
