Luxembourg Fund Setup: Key investment Structures

A Luxembourg investment fund can be formed without prior regulatory approval when structured as a RAIF or as a Special Limited Partnership (SCSp) managed by an authorized AIFM.

Luxembourg is the leading European hub for alternative investment platforms backed by private equity sponsors, real estate managers, family offices, and institutional allocators. The jurisdiction combines EU-compliant rules with flexible fund vehicles and predictable tax treatment. The core investor thesis is clear. Luxembourg provides fast formation, solid governance, and scalable cross-border distribution.

Private equity and real estate fund managers select Luxembourg to hold portfolio companies, real assets, credit exposures, and co-investment programs in one coherent platform. Family offices centralize their global holdings under Luxembourg structures to enhance asset protection and succession planning. Pension funds and insurers rely on Luxembourg for clear regulatory oversight and stable outcomes over long investment periods.

Legal Foundations Of Luxembourg Investment Funds

Luxembourg funds sit on a civil law framework aligned with EU directives and local investment laws. This framework protects investors and gives managers a clear rulebook.

Two high level regimes apply. Regulated funds are directly supervised by the Commission de Surveillance du Secteur Financier (CSSF). Unregulated funds rely on indirect supervision through an authorized Alternative Investment Fund Manager (AIFM). Both regimes can serve professional investors, but they differ in approval timing and formalities.

Key laws include the AIFM Law, the 2016 RAIF Law, the 2007 SIF Law, and the 2004 SICAR Law. These regimes support a wide set of strategies, from buyout and growth equity to real estate, private credit, and infrastructure. They also allow umbrella structures with segregated compartments. This ring-fencing is attractive for managers who want distinct strategies and vintages under one legal platform.

Why Investors, Family Offices And Institutions Choose Luxembourg

Global allocators need stable legal frameworks, long term policy visibility, and a mature service ecosystem. Luxembourg delivers on all three points.

Institutional investors value the jurisdiction for its consistent case law, conservative regulatory practice, and deep pool of administrators, depositaries, and auditors. Managers can rely on providers who handle complex capital call mechanics, waterfall models, and multi-currency reporting. This supports sophisticated private equity and real estate programs.

Single family offices and multi family offices use Luxembourg to consolidate cross border portfolios. They can pool private equity stakes, real estate assets, and liquid securities in one vehicle. Governance improves because decision processes, reporting lines, and risk controls sit in a single structure. Institutions benefit from this same clarity when they access Luxembourg feeder funds or co investment platforms.

Regulated Versus Unregulated Structures

The first structural choice is between a regulated fund and an unregulated vehicle that relies on the AIFM regime. The preferred option depends on speed, target investors, and commercial positioning.

Regulated funds include SIFs, SICARs, and Part II UCIs. They require CSSF approval and ongoing regulatory dialogue. They are well suited for large institutional investors, public pension plans, and long standing insurance relationships that value visible regulatory oversight.

Unregulated funds include RAIFs and standalone SCSp partnerships. They do not require direct CSSF authorization. Oversight occurs through the AIFM, the depositary, and the auditor. This route significantly shortens time to market while still delivering institutional grade governance. Many private equity and real estate managers use a RAIF SCSp combination to align speed with control.

The RAIF: Institutional Fast Track Structure

The Reserved Alternative Investment Fund (RAIF) is at the center of many modern Luxembourg sponsor platforms. It offers indirect supervision under the AIFM and avoids full pre approval by the CSSF.

A RAIF can take several legal forms, including SICAV, SCA, SCS, and SCSp. It can be structured as an umbrella with multiple compartments, each with its own strategy, leverage profile, and fee schedule. A RAIF must be reserved to well informed, professional, or institutional investors. Minimum subscription levels provide an additional filter for suitability.

A RAIF that opts for the SIF tax regime pays only a 0.01% subscription tax on net assets. Income and capital gains are generally exempt at fund level, except for some specific asset categories. This creates an efficient platform for private equity, real estate, private credit, and infrastructure sponsors who want to deploy capital across several jurisdictions.

The SCSp: Partnership Backbone For Private Capital

The Special Limited Partnership (SCSp) is the preferred partnership form for alternative strategies in Luxembourg. It is contract based and has no legal personality.

The SCSp mirrors the economic logic of English and Delaware limited partnerships. It has one or more general partners with unlimited liability and limited partners whose liability is capped at their commitment. Rights and obligations are defined in a limited partnership agreement. This contract governs capital calls, distributions, carried interest, and voting rules.

Because the SCSp is normally tax transparent, profits and losses flow through to the partners. This allows alignment with tax rules in the investors home jurisdictions. Managers use SCSp vehicles for flagship funds, parallel funds, co investment sleeves, carried interest vehicles, and joint venture platforms. The same structure can sit under a RAIF umbrella or operate as a standalone partnership.

Tax Positioning And Cross Border Efficiency

Tax is not the sole driver of fund setup, but it is central to investor returns. Luxembourg provides clear and predictable tax treatment.

RAIFs under the SIF regime are exempt from income tax and wealth tax. They pay subscription tax at a standard rate of 0.01% on net assets, with some exemptions for certain money market or pension compartments. SICARs are generally fully exempt on income and gains from eligible risk capital investments. SCSp and SCS partnerships are typically treated as tax transparent, provided they do not carry a commercial activity.

Luxembourg holding companies can be inserted between the fund and portfolio assets. These companies may benefit from the EU Parent Subsidiary Directive and a wide tax treaty network. This reduces withholding taxes on dividends, interest, and capital gains in many jurisdictions. The result is an efficient cross border platform that supports leveraged buyouts, sale and leaseback transactions, and infrastructure projects.

Governance Expectations For Institutional Capital

Investors expect clear governance lines, robust controls, and transparent reporting. Luxembourg meets these expectations with defined roles and legal obligations.

A typical Luxembourg alternative fund appoints an AIFM, a depositary, a central administrator, and an external auditor. The AIFM oversees portfolio management and risk management. The depositary safekeeps assets and monitors cash flows. The administrator handles NAV calculation, investor registry, and reporting. The auditor reviews annual accounts and confirms valuation policies.

Investment committees and advisory boards often sit above the fund or at the GP level. They approve key deals, material exits, and leverage levels. For family office structures, committees may include trusted advisers and next generation family members, which supports continuity and education. Institutional LPs value this disciplined architecture because it reduces operational and governance risk.

Core Asset Classes Structured Through Luxembourg Funds

Luxembourg structures are used across all major private market asset classes. Each strategy leans on specific legal forms and tools.

Private equity buyout and growth funds often use closed ended RAIF SCSp structures with a 10 to 12 year life. Real estate vehicles use SCSp partnerships that hold special purpose property companies owning office, logistics, residential, or hospitality assets. Private credit funds use SCSp or RAIF structures to originate loans, provide unitranche facilities, or purchase loan portfolios.

Venture capital strategies may adopt SICAR or RAIF regimes with flexible follow on provisions. Infrastructure sponsors structure long duration vehicles with stable cash flow profiles. Fund of funds managers pool commitments into RAIF umbrellas with multiple compartments by strategy, geography, or vintage year. Family offices may use similar tools but with lower leverage and longer holding periods.

Fund Formation Timeline And Process

Time to market matters for managers who raise capital around committed deals or pipeline visibility. Luxembourg supports efficient execution when documents and service provider choices are clear.

A typical RAIF SCSp platform can be legally formed within a few business days once constitutional documents are agreed. Onboarding of the AIFM, depositary, and administrator usually takes two to four weeks, depending on KYC and AML procedures. Bank account opening may add further time based on investor profiles and geographies.

Regulated SIF, SICAR, or Part II funds require CSSF review. This can extend the timeline to three to six months. Institutional investors rarely object to this delay. They seek the additional comfort of direct supervision, especially for larger and more visible strategies.

Investor Thesis: Why Structure Capital In Luxembourg

The investor thesis behind Luxembourg is straightforward. The country offers structural reliability, tax clarity, and a service ecosystem that understands private capital.

Managers benefit from a jurisdiction that supports complex holding chains, multiple strategies, and global fundraising. Investors gain from governance that aligns with institutional standards. Family offices and private wealth clients see Luxembourg as a stable anchor for cross border generational planning.

For private equity and real estate fund managers, Luxembourg is not only an access point to European investors. It is also the backbone of their fund architecture, from first close to final distribution. The result is a jurisdiction that supports long term, thesis driven capital deployment.

Key Features And Benefits Of Luxembourg Investment Fund Setup

We highlight the practical features that matter to investors, family offices, and institutions.

• Fast formation through RAIF and SCSp structures, often within days.
• Flexible partnership contracts that support bespoke waterfalls and co investment rights.
• Tax efficient treatment with subscription tax at 0.01% for many RAIF SIF structures.
• Strong governance with AIFM, depositary, and independent audit requirements.
• Umbrella and compartment options for multi strategy and multi vintage platforms.
• Access to a broad European and global investor base under EU rules.
• Predictable cross border holding structures for portfolio companies and real assets.
• Scalable platforms that can integrate new strategies without full restructuring.
• Alignment with institutional reporting standards and risk frameworks.
• Long term legal and political stability that supports multi decade investment horizons.

Damalion supports entrepreneurs, family offices, private equity, venture capital and more to setup their investment fund in Luxembourg, in the most efficient way. Please contact your Damalion expert now.

FAQs: Luxembourg Investment Fund Setup: Key Structures for Investors, Family Offices & Institutional Capital

Below are key questions that investors, family offices, and institutions ask when structuring Luxembourg funds.