Luxembourg: Fund Management/ REITs

Private equity funds increasingly face investor demand for EUR-denominated commitments, creating complex currency risk management challenges. This analysis explores three structural approaches to accommodate EUR investors while balancing foreign exchange exposure, operational costs, and fund firepower considerations.

Semi-liquid alternative investment funds face inherent tensions between illiquid assets and investor liquidity demands, requiring sophisticated redemption management tools. Under AIFMD II, EU-authorized private fund managers must implement pre-determined liquidity management tools, but not all redemption restrictions qualify equally.

CMS Luxembourg's M&A experts analyze the Grand Duchy's evolving dealmaking landscape, examining how regulatory complexity and fund services consolidation are reshaping Luxembourg's dual role as both a domestic market and Europe's premier cross-border structuring hub. The discussion reveals why private equity houses are driving unprecedented consolidation among fund service providers in the world's second-largest investment fund center.

Luxembourg's partnership limited by shares (SCA) offers private fund managers a compelling corporate alternative to the special limited partnership structure, particularly for EU family offices and high-net-worth individuals. When combined with the RAIF regime, this vehicle achieves tax neutrality while maintaining the corporate governance framework that certain investors prefer. The SCA-RAIF structure addresses key legal and tax considerations while providing flexibility for secondary strategies, fund-of-f

Luxembourg's fund industry has long relied on external portfolio managers and investment advisors, but recent regulatory scrutiny raises fundamental questions about how investment decision-making is organized and where authority truly resides. The distinction between delegation and advisory models is not merely formal—it reflects a deeper tension between commercial reality and regulatory expectations, with direct consequences for sponsors seeking to maintain control while meeting substance requirement

The Anti-Money Laundering Regulation (AMLR) introduces a more structured framework for risk assessment while maintaining the Risk-Based Approach at its core. Enhanced Due Diligence requirements now extend to high-net-worth individuals and residence-by-investment schemes, while Simplified Due Diligence faces stricter conditions. The regulation provides EU-wide clarity on politically exposed persons (PEPs) and establishes harmonised risk factors across member states.

In January 2022, we published a client alert examining the initial FAQ issued by Luxembourg’s financial sector regulator—the Commission de Surveillance du Secteur Financier—on the use of what it then called “virtual assets” by investment funds and credit institutions.

The European Long-Term Investment Fund (ELTIF) fund label accommodates EU high-net-worth individuals seeking exposure to private assets.

As EU fund sponsors (EUFS) grow, they often recognise that establishing a fund in Luxembourg, rather than a fund in their home jurisdiction, increases their chances of attracting capital from across the EU.