CSSF Circular 25/901 – Key Changes for Part II UCIs

Circular 25/901 repeals several older circulars (including CSSF circulars 02/80 which applied to Part II UCIs, 07/309 which applied to SIFs, 06/241 which applied to SICARs) and introduces clarifications aimed at simplification and consistency.

This client update focuses exclusively on the impact of Circular 25/901 on Part II UCIs.

Read our previous client updates on the impact of Circular 25/901 at the following:

• For SIFs and on SIF-like reserved alternative investment funds here.
• For SICARs and on SICAR-like reserved alternative investment funds here.

Scope

Circular 25/901 applies to all Part II UCIs, except where the Part II UCI in question:

(a) is authorised as a European long-term investment fund (“ELTIF”), money market fund, European venture capital fund (“EuVECA”) or European social entrepreneurship fund (“EuSEF”); or

(b) is a closed-ended Part II UCI authorised prior to the entry into force of Circular 25/901.

Unless otherwise specified, references to a Part II UCI should be understood as a reference to a Part II UCI or a compartment thereof.

Investors

Circular 25/901 introduces the concept of an ‘unsophisticated retail investor’ which is a retail investor that does not qualify as a well-informed investor. This creates a distinction from investors in a SIF, RAIF or SICAR which must qualify as well-informed investors.

By making such a distinction, Circular 25/901 enables different rules to apply depending on whether Part II UCIs are marketed to unsophisticated retail investors or reserved for professional investors.

Investment Limits

The CSSF considers the principle of risk spreading satisfied if the following investment limits are met:

1. A Part II UCI may invest up to 25% of its assets or commitments (or 50% for Part II UCIs which are reserved for professional investors) in:

   (a) one and the same entity or person. This limit does not apply to securities issued or guaranteed by an OECD Member State or its regional or local authorities or by EU, regional or global supranational institutions and bodies;

   (b) one and the same undertaking for collective investment or other investment vehicle. This limit does not apply if a comparable or stricter risk-spreading than that provided for under this point is provided for at the level of the target undertaking for collective investment or investment vehicle, in accordance with the offering document of the latter or the laws and regulations applicable to it. Each compartment of an undertaking for collective investment or other investment vehicle, as well as each compartment of a securitisation undertaking may be considered as a distinct undertaking for collective investment or entity provided that the principle of segregation of the liabilities of the various compartments with regard to third parties is ensured;

   (c) one and the same asset (“valeur” in French), as defined below under the heading ‘Concept of Asset’. Assets whose economic viability is so closely linked that they form a single economic entity – such as certain real estate assets – are not considered distinct assets.

2. Circular 25/901 further specifies, as its predecessor did, that short sales must not result in a short position exceeding the above limit.
3. When using financial derivative instruments, a Part II UCI must ensure a comparable level of risk-spreading through an appropriate diversification of underlying assets. Counterparty risk that is not cleared by a clearing institution or collateralised must be limited, taking into account the quality and qualification of the counterparty.
4. A Part II UCI may now invest up to 50% of its assets in a single infrastructure investment (or 70% for Part II UCIs which are reserved for professional investors). An infrastructure investment may comprise the acquisition of such asset or the exposure to it.

The CSSF has also used the opportunity to confirm that, when using intermediary vehicles, regardless of their legal form, the applicable Part II UCI investment limits apply to the investments made through such vehicles, and not to the vehicles themselves.

It should be noted that the CSSF may grant derogations to any of the foregoing limits upon a justified request.

Ramp-Up and Wind-Down Periods

If specified in the prospectus of a Part II UCI, the investment limits do not need to be complied with during a ramp-up period following the launch of the Part II UCI and such ramp-up period may be:

(a) Up to 12 months for Part II UCIs investing in UCITS eligible assets.
(b) Up to 4 years for Part II UCIs with private investment strategies, with a possible extension of (in principle) a maximum one additional year if duly justified and approved by the CSSF.

Where the Part II UCI’s objective is to make private investments, the prospectus may also provide that the investment limits will not be complied with during the wind-down period.

Portfolio Management Techniques

Part II UCIs may use portfolio management techniques (e.g. repurchase and reverse repurchase agreements, securities lending) provided these are economically appropriate and do not alter the investment objective or increase risk beyond what is disclosed in the prospectus. Their implementation must be profitable or enable one or more of the following objectives:

(a) risk reduction;
(b) cost reduction; or
(c) generation of additional capital or income for the Part II UCI.

Borrowing

Part II UCIs may borrow cash for investment or liquidity purposes, including to make investments, cover costs and expenses or meet redemptions.

Each Part II UCI reserved for professional investors may set its own maximum borrowing limit. By contrast, Part II UCIs marketed to unsophisticated retail investors are subject to a cap: borrowing for investment purposes must, in principle, not exceed 70% of the assets or commitments to subscribe of a Part II UCI.

Temporary borrowing arrangements that are fully covered by the capital commitments of investors are, in general, not regarded as borrowings.

Information in the Prospectus

Part II of the law of 17 December 2010 relating to undertakings for collective investment² does not prescribe what information should be included in the prospectus of a Part II UCI. Rather, it requires only that the prospectus contain the information necessary for investors to be able to make an informed judgment of the investment proposed to them and, in particular, of the risks attached thereto.

Circular 25/901 indicates the information to be included in the prospectus that the CSSF considers important in accordance with the preceding paragraph. It should be noted that these requirements are without prejudice to the information that must be made available to investors before they invest as required by AIFMD³.

This information includes, among other things, the following:

• Investment policy and strategy, including objectives, asset classes, investment limits, calculation basis, and any use of intermediary vehicles.
• Investments in undertakings for collective investment.
• Significant investments in private investments.
• Subscription and redemption terms, including frequency, notice periods, settlement timelines, and liquidity management tools with a description of their functioning and activation conditions.
• Borrowing limit.
• Procedures for material changes, such as modifications to the investment policy, and provisions for extensions of the Part II UCI’s term, including any notice periods and investor rights.

The CSSF considers that extensions of the term of a Part II UCI by one year, up to a maximum of three times, are possible if such extensions are necessary to allow the investments to reach their full potential. In exceptional circumstances, the CSSF may grant derogations based on a duly motivated justification.

Concept of Asset

Circular 25/901 clarifies that the concept of ‘asset’ (“valeur” in French) under the Part II UCI law encompasses any investment that can be entrusted to the depositary for safekeeping.

If the main objective of a Part II UCI is to invest in assets eligible under the UCITS Directive⁴, the Part II UCI must have an investment and borrowing policy that is different from that of a UCITS in order for it not to be subject to the UCITS Directive.

Entry into Force

Circular 25/901 entered into force on 19 December 2025. However, existing Part II UCIs may continue applying the rules approved by the CSSF before this date.

Further Information

If you (i) wish to obtain more information on the recent developments of Luxembourg funds, and/or (ii) wish to identify any legal, practical and/or operational challenges with Circular 25/901, please reach out to any of the contacts on this page or your usual Maples and Calder (Luxembourg) SARL contact.

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¹ Circular CSSF 25/901 – CSSF 
² Law of 17 December 2010 – CSSF
³ Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011
⁴ Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009