CSSF Circular 25/901 – Key Changes for SICARs

This client update focuses exclusively on the impact of Circular 25/901 on SICARs and, by extension, on SICAR-like reserved alternative investment funds.

Read our legal update on SIFs and on SIF-like reserved alternative investment funds. 

A separate legal update will be issued for Part II UCIs.

Scope

Circular 25/901 applies to all SICARs, except where the SICAR in question:

• 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
• is a closed-ended SICAR authorised prior to the entry into force of Circular 25/901.

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

Concept of Risk Capital

In accordance with the law of 15 June 2004² relating to SICARs (as amended) (the “SICAR Law“), SICARs may only invest in securities representing risk capital, i.e., the direct or indirect contribution of assets to entities with a view to their launch, development or listing on a stock exchange. Although SICARs must typically have private equity or venture capital strategies, Circular 25/901 states that risk capital may cover other strategies, such as debt financing strategies for non-listed undertakings, including via loan origination, as further described below.

Assessment Criteria

In addition to the requirement for a SICAR to intend to develop the target entity and have a specific risk associated with its investments, Circular 25/901 states that a SICAR must also have an exit strategy.

As a consequence, risk capital is now characterised by the combination of three elements:

1. the concept of development: this refers to the intent to develop the target entity, i.e., how managers intend to take steps to create value in the target entity, with an expected increase in its financial worth, i.e. no passive holding;
2. a specific risk: risk capital must extend beyond simple market risk. Several aspects may be taken into account to determine the specific risk (e.g. the number and type of target entities, their activities, the maturity, the development project, the expected holding period, etc.).

The CSSF notes that geographic location alone is insufficient to justify risk capital status.

A case-by-case analysis, supported by arguments in the authorisation file, may be required to demonstrate compliance with the criteria relating to specific risk.

3. an exit strategy: a SICAR must intend to sell assets at a profit after a certain holding period.

This time-limited approach and clear exit strategy – whether through a private sale or IPO – are key indicators of compliance with the SICAR Law.

A SICAR should generally maintain a degree of control over its investments to ensure funds are used to develop the target entity. This often involves active participation, such as board representation or strategic measures to create value (e.g. restructuring, modernisation, research, etc.).

While active management is common, it is not strictly required if other factors qualify the investment as risk capital.

The CSSF expects the authorisation file and offering document to describe compliance with risk capital criteria, including the exit strategy, expected holding period, and, for indirect investments, confirmation that target funds follow these principles.

Specific Restrictions

The CSSF emphasises that the concept of risk capital inherently creates limitations regarding the type of assets that can be held by a SICAR:

• Listed Securities: investments in listed securities may qualify as risk capital if linked to development projects, delisting strategies, or if the securities are issued by entities meeting SICAR criteria.

However, investments in asset backed securities, collateralised debt obligations, and similar instruments are generally not permitted.

That said, the subsequent listing of the securities invested in does not automatically require divestment.

• Cash: a SICAR may temporarily invest cash in low-risk, liquid instruments such as deposits, money market funds, or money market instruments pending deployment into qualifying risk capital assets. These investments must follow the prudent person rule and aim to preserve capital.

Cash may also be held to meet liabilities, including payments to service providers or other creditors.

• Debt: mezzanine financing is permitted provided that the recipient qualifies as risk capital (e.g. a non-listed company).

It is generally not permitted to finance listed companies unless the financing is linked to a specific development project such as a delisting. Existing mezzanine financing or distressed debt investments are also eligible when aimed at increasing value through restructuring.

• Derivatives: derivatives are allowed for hedging or necessary transactions, not as a core investment strategy.
• Real Estate/Infrastructure: SICARs can only invest in real estate or infrastructure through intermediary vehicles meeting risk capital criteria detailed above.
• Commodities: direct investment in commodities is prohibited; indirect exposure is possible if both the development and risk criteria are met.
• Indirect Investments: indirect investments are permitted if made through undertakings for collective investment or intermediary vehicles whose objectives align with the SICAR’s investment policy.

Target funds such as private equity or venture capital funds are acceptable if their policies restrict them to investment in risk capital assets; the same applies to real estate funds. Hedge funds are generally not eligible. For intermediary vehicles, the SICAR must implement measures to ensure that invested cash is actually used for risk capital investments.

Portfolio Management Techniques & Borrowing

SICARs may only use portfolio management techniques or borrowing if these are compatible with the specific restrictions mentioned above, which therefore limit their use.

Information in the Offering Document

The SICAR Law does not indicate what information concerning a SICAR should be included in its offering document but only provides that it must include 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 offering document which 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 AIFMD (to the extent applicable).

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.
• Subscription and redemption terms, including frequency, notice periods, settlement timelines, and liquidity management tools with a description of their functioning and activation conditions.
• Borrowing limits
• Procedures for material changes, such as modifications to the investment policy, and provisions for extensions of the SICAR’s term, including any notice periods and investor rights.

The CSSF considers that extensions of the term of a SICAR 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.

Entry into Force

Circular 25/901 entered into force on 19 December 2025. However, existing SICARs 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.

¹ Circular CSSF 25/901 – CSSF

² Law of 15 June 2004