UCI Part II Fund: Luxembourg's Regulated Fund Open to All Investors

What a UCI Part II fund is

A UCI Part II fund is a fund authorised under Part II of the UCI law, the part of the law for funds that are not UCITS. It is always an alternative investment fund (UCI law Article 88-1), so the fund rules of the UCI law and the manager rules of the AIFM law apply together. It sits between the UCITS, which is limited to liquid assets, and the SIF and the RAIF, which are reserved to well-informed investors.

The fund may be open to everyone or reserved in its documents to well-informed or professional investors; a reserved fund gets wider investment limits, and a fund whose documents do not allow marketing to retail investors in Luxembourg a different depositary regime. A fund that invests mainly in assets a UCITS could hold must follow an investment and borrowing policy that differs from a UCITS (Circular CSSF 25/901, point 6).

Authorisation and supervision

A UCI Part II fund needs CSSF authorisation before it starts. The CSSF approves the management regulations or articles and the choice of depositary; the persons who direct the fund must be of good repute and experienced for the type of fund; and the external AIFM must itself be authorised first (UCI law Article 129). The request is filed through the CSSF's eDesk portal with the draft prospectus, the constitutive documents and the governance file; the law sets no decision period for UCI Part II funds, and the CSSF publishes no typical duration. The CSSF charges EUR 4,650 for examining a single fund and EUR 9,250 for an umbrella, and the same amounts each year, rising with the number of compartments.

Later changes — a new management company, AIFM or depositary, or amended constitutive documents — again need CSSF approval (Article 129(6)). The CSSF may inspect, suspend issues and redemptions, impose fines of up to EUR 5,000,000 and withdraw the authorisation, which leads to liquidation by the court. Entry on the CSSF's list is not a judgement on the quality of the fund (Article 132).

Legal form and manager

The fund is a common fund (FCP) run by a Luxembourg management company, or an investment company with variable capital (SICAV) in the form of a public or private limited company, a partnership limited by shares, a common or special limited partnership or a cooperative; one fund may have several compartments (UCI law Articles 89, 93 and 181). Net assets must reach EUR 1,250,000 within twelve months of authorisation, and the head office is in Luxembourg.

Each fund has a single AIFM. An external AIFM is as a rule authorised; a SICAV that manages itself must be authorised as AIFM and have an initial capital of EUR 300,000 (UCI law Article 88-2; AIFM law Article 8). A manager registered below the EUR 100 million or EUR 500 million thresholds is possible, but has no marketing passport, and the law requires an authorised AIFM for a SICAV formed as a partnership (Article 93(1)).

Depositary, administration and audit

Every fund has a single depositary. Where the documents allow marketing to retail investors in Luxembourg, the depositary rules of the UCITS part of the law apply and the depositary is a credit institution; a fund that does not allow such marketing and has an authorised AIFM follows the depositary rules of the AIFM law (UCI law Article 88-3). The administrator — registrar, net asset value calculation and accounting, client communication — works under Circular CSSF 22/811.

An approved statutory auditor audits the annual report and reports serious breaches to the CSSF (Article 154). If the net asset value is calculated wrongly or an investment rule is breached, Circular CSSF 24/856 sets out the correction and the compensation of investors: for a fund open to retail investors an error counts from 0.50% of the net asset value for bond and mixed funds and 1.00% for equity and other funds; a reserved fund may set its own threshold of up to 5%.

Investment and borrowing limits

The law requires risk spreading without figures; Circular CSSF 25/901 of 19 December 2025 sets them. A fund that may be marketed to unsophisticated retail investors invests in principle no more than 25% of its assets or commitments in one entity, one fund or one other asset, and 50% in one infrastructure investment; a fund reserved to well-informed or professional investors 50% and 70%. Borrowing for investment is in principle limited to 70% of assets or commitments for a retail fund. Limits are applied on a look-through basis to intermediary vehicles, and a build-up period of in principle up to four years is accepted for private investments.

Eligible is any type of investment that can be entrusted to the depositary (point 5). Some edges remain: an AIF open to retail investors may hold crypto-assets up to 10% of its net asset value (CSSF FAQ on crypto-assets, 24 April 2026); a fund that originates loans follows the limits of the AIFM law and may not lend to consumers in Luxembourg (AIFM law Articles 4-1 and 14). Funds authorised before 19 December 2025 may keep their earlier rules, and the circular does not apply to compartments authorised as ELTIFs or money market funds.

Subscriptions, redemptions and liquidity

A UCI Part II fund may be open-ended or closed-ended. Unlike a UCITS, the law gives its investors no right to redeem on request: the management regulations or articles and the prospectus set the redemption frequency, the notice period and any limits (UCI law Articles 90 and 95). Prices are made public each time units are issued or redeemed, and at least once a month unless the CSSF grants a derogation (Article 157(2)). The redemption frequency must fit the investment policy, and private investments may justify less than monthly (Circular CSSF 25/901, point 45).

Since 16 April 2026, the AIFM of an open-ended fund selects at least two liquidity management tools from the statutory list — redemption gates, longer notice periods, redemption fees, swing pricing, dual pricing, anti-dilution levies, redemptions in kind — and writes them into the fund rules; swing and dual pricing alone are not enough, and redemptions in kind may be used for professional investors only. Suspension and side pockets remain available in exceptional cases (AIFM law Article 15-1; AIFMD Article 16(2b)–(2d); Circular CSSF 26/910). The detailed characteristics apply to funds constituted before that date from 16 April 2027.

Documents for investors

The fund publishes a prospectus with the information investors need for an informed judgement of the investment and its risks, kept up to date, an audited annual report within six months and a half-yearly report within three months; all are provided on request free of charge (UCI law Articles 150–156). A closed-ended fund publishes no prospectus under the UCI law and may fall under the Prospectus Regulation instead. For a retail fund with significant private investments the prospectus carries a warning of a high level of risk, and a further one where the life or lock-in may exceed ten years (Circular CSSF 25/901, point 47).

Every class open to retail investors needs a key information document under the PRIIPs Regulation: at most three A4 pages, provided in good time before the investor is bound and reviewed at least every twelve months (Regulation (EU) No 1286/2014, Articles 6 and 13). The AIFMD adds disclosure before investment and, each year, of all fees, charges and expenses borne by investors (AIFM law Article 21).

Marketing and distribution

In Luxembourg a UCI Part II fund may be marketed to any retail investor; the AIFM provides arrangements for orders, payments, information and complaints in Luxembourgish, French, German or English, without a physical presence (AIFM law Articles 46 and 46-1). In other Member States an authorised AIFM markets the fund to professional investors with the AIFMD passport. There is no retail passport for AIFs: each host State decides whether and on what conditions a foreign AIF may be sold to its retail investors.

For banks and other distributors, units of a fund that is not a UCITS count as complex instruments under ESMA's reading of MiFID II. They may be sold to retail investors, but not on an execution-only basis: an appropriateness test is needed without advice, a suitability assessment with advice, and the distributor defines a target market (MiFID II Articles 16, 24 and 25).

The ELTIF on a UCI Part II fund

The European long-term investment fund (ELTIF) is a label, not a legal form: the CSSF authorises a UCI Part II fund or a compartment as an ELTIF where an authorised EU AIFM manages it. The label adds what the UCI Part II fund lacks — a passport to retail investors across the EU, after a suitability assessment — against product rules of the ELTIF Regulation: at least 55% in eligible long-term assets, for retail ELTIFs no more than 20% in one undertaking, real asset or fund, and borrowing of up to 50% of the net asset value (Regulation (EU) 2015/760, Articles 13, 16 and 31).

Redemptions before the end of the ELTIF's life are possible after a minimum holding period, under a redemption policy that limits them to a percentage of the liquid assets; redemptions more often than quarterly and notice periods under three months must be justified (Article 18; Delegated Regulation (EU) 2024/2759). Circular CSSF 25/901 does not apply to an ELTIF compartment, and ELTIFs are exempt from subscription tax.

Tax

A UCI Part II fund pays no corporate income tax, municipal business tax or net wealth tax. It pays a subscription tax of 0.05% a year on its net assets, calculated and paid quarterly; 0.01% for money market funds and for compartments or classes reserved to institutional investors; reduced rates down to 0.01% on the part of the assets invested in sustainable activities under the EU Taxonomy; and nothing for ELTIFs, pension vehicles, microfinance funds and units of other funds that already bear the tax (UCI law Articles 173–175).

Distributions bear no Luxembourg withholding tax and are not taxed in the hands of non-resident investors (Article 173(2)). The management of the fund is exempt from VAT. How the investors are taxed at home, and whether the fund can rely on tax treaties, depends on its legal form and on each country.

Who may invest in a UCI Part II fund?

Anyone. The law sets no eligibility condition and no minimum investment, and a UCI Part II fund is the only AIF that can be marketed to any type of retail investor in Luxembourg. The fund may choose to reserve itself to well-informed or professional investors, which widens its investment limits.

What may a UCI Part II fund invest in?

In principle any asset a depositary can hold: private equity, private debt, real estate, infrastructure, hedge strategies, other funds. A fund open to retail investors keeps to the CSSF's limits — in principle 25% per investment, 50% for one infrastructure investment, borrowing up to 70% — and to 10% for crypto-assets. A reserved fund may go to 50% and 70%.

Does a UCI Part II fund have to redeem units on request?

No. The law gives no redemption right; the prospectus sets how often and on what notice investors may redeem, and the fund may be closed-ended. An open-ended fund must provide at least two liquidity management tools, such as redemption gates or longer notice periods, and its redemption frequency must fit its assets.

How long does CSSF authorisation take and what does it cost?

The law sets no decision period for UCI Part II funds and the CSSF publishes no typical duration; the timetable depends on the file and on the fund's complexity. The CSSF's fees are EUR 4,650 for a single fund and EUR 9,250 for an umbrella for the examination, and annual fees from the same amounts.

Can a UCI Part II fund be sold to retail investors outside Luxembourg?

Not with a passport. An authorised AIFM may market it to professional investors across the EU; for retail investors each host State applies its own rules. A UCI Part II fund authorised as an ELTIF can be marketed to retail investors throughout the EU after a suitability assessment.

What is the difference between a UCI Part II fund, a SIF and a RAIF?

The investors and the supervision. A UCI Part II fund is authorised by the CSSF and open to all investors. A SIF is also authorised by the CSSF but reserved to well-informed investors. A RAIF is not authorised by the CSSF at all, must be managed by an authorised AIFM and is likewise reserved to well-informed investors.

How is a UCI Part II fund taxed?

It pays no corporate income tax, municipal business tax or net wealth tax, only a subscription tax of 0.05% a year on net assets — 0.01% for institutional classes, less for sustainable investments, nothing for ELTIFs. Distributions bear no Luxembourg withholding tax.