What co-investment means
Neither the AIFMD nor its implementing regulation contains a rule on co-investment; the general rules for managers and funds apply. The CSSF describes sidecar or LP co-investments as situations in which investors co-invest alongside a primary fund in which they are also invested, directly or through a co-investment vehicle, and adds that the fund must not, in principle, be at a disadvantage in relation to other investors (CSSF compilation of key concepts, 19 December 2025, paras 60–61 — explanatory material, not a regulation).
On this page, a co-investment vehicle is a vehicle that the manager sets up next to the main fund for one investment, and a direct co-investment is a stake that the investor holds itself, without such a vehicle. The CSSF uses "direct co-investment" differently, for investors who are not invested in the primary fund, with or without a vehicle; the documents of a deal should therefore define the term.
When the vehicle is a fund
A vehicle is an alternative investment fund if it raises capital from a number of investors to invest it in accordance with a defined investment policy for their benefit, and its investors as a group have no day-to-day control (AIFM law Article 1(39); AIFMD Article 4(1)(a); ESMA/2013/611). A co-investment vehicle to which the manager invites several investors, and which the manager runs, usually meets every element — even though it holds a single asset.
Two cases fall outside. A vehicle whose documents legally restrict it to one single investor does not raise capital from a number of investors, unless that investor itself pools money from others (ESMA/2013/611, paras 17–19). And a vehicle in which all investors together keep the day-to-day decisions is a club deal, not a fund. The vehicle's management body assesses the status itself; the CSSF does not rule in advance (CSSF FAQ on the AIFM law, v24, Q1.A).
One more fund for the manager
Each AIF has a single AIFM (AIFM law Article 4(1)). The thresholds are calculated on all AIFs a manager manages: the co-investment vehicle's assets count in full, and a manager that exceeds EUR 100 million (or EUR 500 million for unleveraged funds without redemption rights for five years) other than temporarily must apply for authorisation within 30 calendar days (AIFM law Article 3; Regulation (EU) No 231/2013, Articles 2 and 4). A manager registered below the thresholds reports to the CSSF and has no marketing passport.
An authorised AIFM appoints a single depositary and sets valuation procedures for each AIF it manages, and publishes an annual report for each within six months of the year-end (AIFM law Articles 17, 19 and 20). Since 16 April 2026 it also tells investors every year which parent undertakings, subsidiaries and special purpose vehicles are used for the fund's investments (Article 21(4)(f)). A RAIF or an unregulated AIF appoints its own persons responsible for anti-money laundering compliance and files them with the registration duties, estates and VAT authority (AED).
Choosing the vehicle
The unregulated special limited partnership (SCSp) is the usual co-investment vehicle: formed quickly, governed by its partnership agreement, with a general partner controlled by the manager. Limited partners keep their limited liability as long as they carry out no acts of management towards third parties; exercising partner rights, giving advice and opinions, supervising, granting loans or guarantees and giving the authorisations provided for in the agreement are not acts of management (Law of 10 August 1915, Article 320-4). A reserved alternative investment fund (RAIF) needs an authorised AIFM and is open to well-informed investors — institutional or professional investors, or others who confirm that status in writing and invest at least EUR 100,000 or are assessed by a bank, an investment firm, a management company or an authorised AIFM; these conditions do not apply to directors and other persons involved in the management of the fund (RAIF law Articles 2 and 4).
A RAIF or a specialised investment fund (SIF) may have compartments, each a distinct part of its assets and liabilities, so a co-investment can be a dedicated compartment of an existing umbrella (RAIF law Article 49; SIF law Article 71). A RAIF invests to spread risk; one that invests exclusively in risk capital under Article 48 of the RAIF law is not obliged to, which matters for a single deal. Compartments for partnerships that are AIFs are proposed in bill 8814, pending in Parliament on 10 November 2026.
Fair treatment and side letters
An AIFM treats all investors of a fund fairly. No investor may obtain preferential treatment unless it is disclosed in the fund's rules or instruments of incorporation, and before investing every investor is told what preferential treatment exists, which type of investors obtain it and how they are linked to the fund or the manager (AIFM law Articles 11(1) and 21(1)(j); AIFMD Articles 12(1) and 23(1)(j)). Preferential treatment must not result in an overall material disadvantage to other investors (Regulation (EU) No 231/2013, Article 23(2)).
No EU text says expressly that a right to co-invest is preferential treatment, but the reporting template names side letters as its typical source, and a right reserved to some investors is typically treated as one. The safe course is to provide for co-investment in the fund documents — who may be offered it, on what terms, at what fees — and to keep side letters within that frame.
Allocation and conflicts of interest
Who gets how much of a deal — the fund or the co-investors — is the central conflict. The law names it: conflicts between a fund or its investors and another fund or its investors, and any incentive to favour another fund, a client or one investor over another (AIFM law Article 13(1); Regulation (EU) No 231/2013, Article 30). The regulation has no rule on allocating investment opportunities; its allocation rule covers aggregated trading orders only (Article 29). The manager's written conflicts-of-interest policy therefore has to set the allocation method, and the manager keeps a record of the conflicts that arise (Articles 31 and 35).
The same applies to costs — broken-deal expenses, transaction fees, fund and vehicle investing and exiting on the same terms and at the same time — and to fees and carried interest on the co-investment. Where the conflict cannot be prevented with reasonable confidence, it is disclosed to investors before the business is done (AIFM law Article 13(2)). Since 16 April 2026, an AIFM that manages a vehicle at the initiative of a third party explains to the CSSF how it handles the resulting conflicts (Article 13(2a)).
Offering the co-investment
A co-investment vehicle that is an AIF is marketed like any fund. Marketing is any offering or placement of its units at the manager's initiative to investors in the EU; the definition makes no exception for investors who are already in the main fund (AIFMD Article 4(1)(x)). An authorised AIFM notifies the CSSF in respect of each AIF it intends to market — also in Luxembourg, where the vehicle is a RAIF or an unregulated partnership (AIFM law Articles 29 and 30).
Sounding out investors before the vehicle exists is pre-marketing: an informal letter to the CSSF within two weeks, no subscription documents, and any subscription within 18 months counts as marketing (AIFM law Article 28-1). ESMA allows further units of an already notified fund to be offered to its existing investors without a new notification; that does not cover a new vehicle (ESMA Q&A on the AIFMD, section II, Q3). A registered manager below the thresholds has no passport and relies on each country's private placement rules.
Direct co-investment
An investor that buys its own shares in the target or in the holding company next to the fund invests in no fund for that stake: the AIFMD regulates managers and the funds they manage, not individual shareholders. The rights are contractual — a shareholders' agreement on governance, information, pre-emption, tag-along and drag-along and the exit; Luxembourg company law contains no tag-along or drag-along rule. In a private limited company (S.à r.l.), a transfer to a non-shareholder needs the approval of three quarters of the shares; in a public limited company (SA), lock-ups in the articles must be limited in time, and approval or pre-emption clauses may not block a transfer for more than twelve months (Law of 10 August 1915, Articles 710-12 and 430-1).
The boundary matters. If the manager pools the co-investors in a vehicle or a nominee that it runs, the question whether that vehicle is a fund returns. And the fund's own investors are told of the arrangement where it gives some of them preferential treatment.
Control, merger and investment screening
Where funds of the same manager acquire control of a non-listed company individually or jointly — more than 50% of the voting rights — the AIFM notifies the company, its shareholders and the CSSF, and for 24 months may not support distributions, capital reductions or share buy-backs that strip its assets; holdings reaching 10, 20, 30, 50 or 75% are notified in any case. Small and medium-sized enterprises and real-estate vehicles are excluded, and the rules bind authorised AIFMs (AIFMD Articles 26–30).
A direct co-investor adds its own checks. An acquisition of control by one or more undertakings is a concentration under EU merger control where the combined worldwide turnover exceeds EUR 5,000 million and at least two of them each exceed EUR 250 million in the EU (Regulation (EC) No 139/2004, Articles 1 and 3); Luxembourg has no national merger control. An investor from outside the EU and the EEA that acquires control — including 25% of the voting rights, alone, in concert or through an interposed entity — of a Luxembourg company carrying on a listed critical activity notifies the Minister of the Economy beforehand; portfolio investments are excluded (Law of 14 July 2023).
Tax and carried interest in brief
A co-investment partnership is transparent. As an AIF it is treated by the tax administration as not carrying on a commercial activity, but a capital company acting as general partner must still hold less than 5%, or the partnership pays municipal business tax (LIR Article 14; Circular L.I.R. n° 14/4). If associated foreign investors holding 50% or more treat the partnership as a taxable company, it can become taxable in Luxembourg on income not taxed elsewhere; the exception for investment funds requires a diversified portfolio, which a single-deal partnership does not have, while a RAIF is covered (LIR Article 168quater; Circular L.I.R. n° 168quater/2). Managing an AIF is exempt from VAT; a RAIF pays a subscription tax of 0.01% a year, an unregulated partnership none.
Since 2026, carried interest from an AIF is taxed at a quarter of the ordinary rate where it is purely contractual, and is not taxable where it is tied to a participation held for more than six months, unless that participation exceeds 10%; carry may now be paid deal by deal, and the rules cover managers, employees and advisers of AIFMs and management companies (Law of 3 February 2026; LIR Article 99bis). They do not apply to a direct co-investment through a holding company: there the general rules apply — 15% withholding tax on dividends unless an exemption applies, none on liquidation proceeds, and non-resident sellers taxed only on a holding of more than 10% sold within six months, subject to the applicable tax treaty.
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