Fund managers based in Asia-Pacific and the United States are taking interest in establishing parallel fund vehicles in Luxembourg to gain access to high-net-worth investors in the European Union that will further strengthen their existing domestic alternative investment undertakings.

Luxembourg Parallel funds : principles

In this specific structure type, a parallel fund vehicle will sit alongside a non-European Union master vehicles that may include other parallel funds co-investing in the same types of assets. As parallel fund vehicles are operated and being managed the same way as its master fund, this specific vehicle brings greater efficiencies than other traditional distribution systems.

Before establishing a Luxembourg parallel fund, it is important for fund managers and investors to understand its key features and the different roles that service providers play to ensure smooth governance and operations.

• Provisions under the Alternative Investment Fund Managers Directive offers a variety of flexible structuring solutions that investors can choose from when looking to participate in an alternative fund structure such as a Luxembourg parallel fund.
• Fund managers must include a comprehensive discussion of the governance model inherent in the structuring of Luxembourg alternative investment funds, including parallel funds.

Differences Between the Parallel Fund and Main Fund

• Differences between the parallel fund and main fund are mainly due to legal, operational, regulatory, and tax reasons. The fund structure in which these two funds fall under created how parallel and main funds are treated differently.
• Simply put, a Luxembourg parallel fund will be subject to the regulatory requirements of the Alternative Investment Fund Managers Directive (AIFMD), while its main, which may be located in the Cayman Islands will be subject under a different set of legal and regulatory requirements.
• The main fund and parallel fund may also differ in size, although the assets under management will be grouped accordingly to determine the final size of the entire fund structure.

Why Do Fund Managers Set-Up Parallel Funds in Luxembourg?

Non-European Union fund managers that are looking to broaden their investor base by including European investors choose to deploy parallel fund structures in Luxembourg for a number of reasons:

• Parallel funds easily replicate domestic fund ranges resulting in an optimized investment process.
• Non-European Union managers gain access to new capital from a diverse investor pool while leveraging their local funds track record.
• Parallel funds typically use the same investment and divestment rules, profiles, and targets as the main fund, allowing fund managers to establish them quickly.
• Promote operational efficiencies through replication of operational processes between domestic and European funds. This makes it smart and sensible structure to lower management costs.

Advantages of Deploying a Parallel Fund in Luxembourg?

• Some investors are required to follow internal guidelines that limit them to invest in offshore vehicles, as well as regulatory and tax implications that arise from investing in either the main or parallel fund.
• Fund managers bring the option between on-shore and off-shore jurisdictions that allows them to meet the needs of a diverse group of investors.
• Luxembourg is a premier destination for seeking access to European capital due to its extensive alternative investment vehicle toolbox.
• The most popular legal form for parallel funds is the Limited Partnership as it offers comprehensive functionality. For investors who are familiar with Anglo-Saxon partnerships, a Luxembourg Limited Partnership is an easy choice due to its flexibility and efficient structuring.
• Fund managers enjoy European passporting rights, allowing them to market across Europe.
• After Brexit, non-European fund managers have shifted to Luxembourg as their new European base.

Challenges of Setting-Up a Luxembourg Parallel Fund

Fund managers will face a few challenges in setting-up a parallel fund in Luxembourg. It is then crucial for non-European Union based fund managers to choose the right group of service providers to help set-up, manage, and supervise parallel funds in Luxembourg.

• Despite the complexity of parallel funds, fund managers are required to provide equal treatment for all its investors.
• Administrative burdens that commonly occur in a parallel fund set-up include dealing with different base currencies that makes reporting obligations more challenging than it already is on a normal investment set-up.
• Adequate allocation of costs between different fund structures must be met. A fund manager is expected to balance costs from different asset pools.
• Fund managers looking to open a Luxembourg parallel fund is encouraged to discuss the governance model before investors can invest. This is done so that investors gain clear understanding how activities such as voting rights, distribution waterfall, and expenses will be managed over time.
• The delegation model of a Luxembourg parallel fund is more complicated. A Luxembourg-based fund manager will be appointed to handle most of the administrative tasks.
• The appointed Luxembourg sponsor will act as an external authorized alternative investment fund manager with passporting rights. The management fee for the fund manager will be included in a parallel fund delegation structure.
• This will be the same in a Luxembourg fund but if you, for example, have a Luxembourg fund that needs to appoint an external authorised AIFM to access the European passport, it will have a third-party service provider that will be included in the fee and delegation structure. This may make things difficult because you will need to carefully monitor the flow of fees within both structures, and the delegation structure in each fund may not be the same.
• Maintaining larger parallel funds is not sustainable dur to the mounting costs it will generate over time. It is imperative to determine the size of a parallel fund at the onset of the structuring stage.

Other Investment Vehicle Structures in Luxembourg

Due to the flexibility of investment vehicles in Luxembourg, fund managers should consider setting-up a single master fund in the Grand Duchy, featuring one or more combination feeders at international jurisdictions like the Cayman Islands and Delaware.

Establishing a master fund in Luxembourg benefits from a simplified portfolio management as it eliminates the need to track between the main fund and parallel fund. To determine the right fund structure, initiators need to look at various factors, including the specific preferences and needs of investor. This will guarantee an easier way of raising funds as well as carefully assessing tax implications for investors and the entire investment portfolio.

To learn more about Luxembourg parallel fund structuring or you need expert guidance on which investment vehicle structure is best suited to include in your portfolio, call a Damalion expert today.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Luxembourg parallel funds — clear basics, common wrappers, 2025 compliance points.

For private equity, private debt, infrastructure, real assets and venture sponsors • This page explains how parallel funds work in Luxembourg and what rules matter in 2025.

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Essentials

A parallel fund is a separate vehicle that invests alongside a main fund under the same strategy and investment decisions. Sponsors use it to meet investor, tax, currency, regulatory or governance needs. Documents and governance are kept aligned so that decisions, fees and economics remain coherent across all vehicles.

In Luxembourg, most parallel funds are alternative investment funds (AIFs). An AIFM (authorised or registered, as applicable) oversees portfolio and/or risk management. Where required, a single depositary is appointed in Luxembourg to perform cash-flow oversight, safekeeping or ownership verification, and other duties under AIFMD and its Level-2 rules.

Parallel funds are not the same as feeders. A feeder invests into a master; a parallel fund invests directly into the same assets as the main fund. Because parallel funds hold assets directly, allocation and conflict rules must be clear and consistently applied.

Terms do not have to be identical across vehicles (for example: currency, fee rate, tax mechanics). Differences must be disclosed and supported by a conflicts and allocation policy. Capital calls, distributions and expense sharing should be coordinated through a single timetable and set of notices to avoid unequal treatment.

Key 2025 touchpoints in Luxembourg include: notifications by Luxembourg AIFMs for non-authorised AIFs (e.g., set-ups, material changes and cessations), ongoing Annex IV reporting where applicable, and updates to offering documents when material terms change. Depositary agreements and valuation policies should reflect current AIFMD guidance and be remediated if legacy wording is still in place.

• When it helps: different tax residence needs, currency separation, investor eligibility, ERISA/insurance pools, or jurisdictional marketing constraints.
• What to align: investment strategy scope, allocation waterfall, fee/expense split, FX handling, co-investment handling, GP/LP reporting, and side letters.
• What to document: LPA and offering documents for each vehicle, an allocation policy, conflicts policy, depositary agreement (where required), valuation policy, and marketing/notification files.
• Administration & banking: consistent KYC/AML for LPs, sanctions screening, clear cash-flow maps, and reconciled closing files across all vehicles and SPVs.

Common Luxembourg wrappers

Overview only. Choice depends on investor base, product supervision needs, timing, and tax analysis.

Wrapper	Who uses it	Regulatory status (product)	Our comments
SCSp / SCS	PE, PD, infrastructure, VC	Unregulated product (AIFM regime applies if an AIF)	Flexible partnership terms. SCSp has no legal personality; SCS does. Well-known to global LPs. Works well for parallel stacks and carry/co-invest sleeves.
RAIF	Well-informed investors	No prior CSSF product authorisation; AIFM is supervised	Fast time-to-market. Can mirror the main fund while keeping Luxembourg oversight through the AIFM, depositary and audit framework.
SIF	Institutional / professional / well-informed	CSSF-authorised product	Regulated product layer. Useful where investors or lenders prefer CSSF product supervision and a familiar risk-spreading framework.
SICAR	Private equity / VC (risk capital)	CSSF-authorised product	Designed for risk-capital investments. Tax and accounting tailored to that scope. Often used when strategy is clearly within risk-capital perimeter.
Part II fund	Broader distribution needs	CSSF-authorised product (public law)	Flexible but fully regulated product framework. Can be aligned to professional or wider marketing plans depending on strategy and disclosures.
SA / SCA feeder or sleeve	Sponsors needing company form	Depends on product regime chosen	Company-law vehicles used for feeders or parallel sleeves where corporate form, governance or listing options are desired.
SPV (SOPARFI)	Holding / co-investment / financing	Not a fund product	Holdings and financing within the stack. Not itself the parallel fund, but often paired for acquisitions, financing and exits.
Securitisation vehicle	Debt / asset pools with tranching	Regulated or unregulated SV	Occasionally used alongside funds for credit or asset-backed strategies. Distinct legal regime from fund products.
ELTIF 2.0 (Lux wrapper)	Long-term assets; potential semi-pro/retail	Authorised product (via host regime)	Used where ELTIF distribution features are relevant. Can sit next to professional-only vehicles in a broader platform.

Selecting a wrapper involves: investor eligibility, need for CSSF product supervision, speed to launch, depositary and valuation model, distribution footprint (passporting vs. national private placement), and how well the form supports allocation, FX and expense-sharing rules across all vehicles.

Whichever wrapper is used, align the LPA/offering document set, conflicts and allocation policy, fee and expense wording, key person/suspension mechanics, and reporting standards. Keep a single change log and ensure updates are mirrored across every parallel vehicle and its SPVs.

Frequently asked questions

1) What is a Luxembourg “parallel fund” in practice?

A separate vehicle that invests alongside a main fund with the same strategy and coordinated decisions, for regulatory, tax, currency, or investor eligibility reasons. It is generally an AIF under Luxembourg law.

2) Which legal forms are most used?

SCSp/SCS partnerships and RAIFs are common. Regulated options include SIF, SICAR and Part II funds. Choice depends on investor type, supervision, and timelines.

3) Do all parallel funds need CSSF product approval?

No. Unregulated partnerships and RAIFs have no prior product authorisation. Regulated products (SIF/SICAR/Part II) do. In all cases the AIFM regime applies where the vehicle is an AIF.

4) What changed in 2025 for non-authorised AIF notifications?

CSSF Circular 25/894 requires Luxembourg AIFMs to notify the CSSF about set-ups, material changes and cessation for AIFs that are not authorised products. Keep an internal calendar and templates ready.

5) Does AIFMD apply to each parallel vehicle?

Yes. Each AIF in the stack must comply with AIFMD as applicable, including AIFM oversight, depositary rules, valuation, reporting, and conflicts management.

6) Any 2025 updates on depositary agreements?

The CSSF AIFMD FAQ (2025) stresses that depositary agreements must meet AIFMD-CDR requirements. Legacy agreements should be updated within indicated timelines.

7) Can terms differ between the main and a parallel fund?

Yes, but differences must be disclosed and managed. Conflicts, allocations, fees and expenses must follow clear, pre-defined policies that ensure fair treatment.

8) How should allocations be handled?

Use a written allocation policy applied consistently. Record decisions. Explain treatment for co-investments, over-subscriptions, FX or currency-specific vehicles.

9) What are the EU marketing rules in 2025?

EU AIFs marketed to professional investors rely on AIFMD passporting. Third-country marketing is via national private placement regimes. Keep pre-marketing and marketing filings separate and documented.

10) What are the depositary basics?

EU AIFs appoint one depositary in their home state. The depositary oversees cash flows, safekeeping or ownership checks, and certain oversight tasks. The agreement must reflect AIFMD and Level-2 rules.

11) Can sponsors rely on reverse solicitation?

Only in narrow cases. You need evidence that the approach was unsolicited. It is not a general marketing route. Keep careful records.

12) What are the main CSSF reporting touchpoints now?

Annex IV where applicable, Circular 25/894 notifications for non-authorised AIFs, and timely updates to offering documents for material changes. Track deadlines per vehicle.

13) How does SFDR apply?

Entity- and product-level disclosures apply where relevant. Align the website, pre-contractual and periodic disclosures. Update on material strategy or sustainability changes.

14) Any investor eligibility or minimum capital considerations?

RAIF, SIF and SICAR are for well-informed investors and have minimum capital rules achieved within a set period. Partnerships follow their LPA terms under the AIFM framework.

15) How are conflicts managed across a parallel stack?

Adopt and enforce conflicts and allocation policies. Use advisory committees where appropriate. Disclose expense sharing, fee offsets and cross-vehicle transactions.

16) Can a Luxembourg parallel fund invest alongside a Cayman or Delaware main?

Yes. Document allocation, governance, fees and information flows. Ensure EU rules are respected for the Luxembourg AIF (AIFM, depositary, reporting).

17) What do banks and administrators expect in 2025?

Up-to-date KYC/AML, sanctions checks, investor eligibility evidence, and clear cash-flow mapping. Expect more transparency on SPVs, financing, and GP ownership.

18) What if the AIFM changes, or status changes to non-authorised?

Under Circular 25/894, notify the CSSF of a change of AIFM and of a status change to non-authorised, within the stated timelines and format.

19) What should we plan for AIFMD II?

Luxembourg’s implementation is underway. Watch loan-origination rules, delegation reporting and depositary topics. Check transitional dates and prepare policy updates ahead of entry into force.

20) Drafting tips for LPA and offering docs?

State allocation and expense rules, FX and currency mechanics, cross-vehicle deal rules, key person, suspension, reporting standards, and depositary/valuation frameworks. Keep annexes aligned across all vehicles.