The Luxembourg Toolbox: Choosing the Right Fund Structure

Four Letters, Four Very Different Funds

Elena Novak was raising a $150 million growth-equity fund for Meridian Growth Partners — a handful of European family offices as anchor LPs, one Nordic pension fund circling, and a first close she badly wanted to hit before year-end. Her Luxembourg counsel, Damien, opened the meeting the way he opens most of them: by drawing four boxes on a whiteboard.

"Four principal routes," he said. "RAIF, SIF, SICAR, or an unregulated SCS or SCSp. Same country, same tax treatment in most cases — but very different trade-offs between speed, oversight, and how your LPs will read the structure on paper."

He started with the one most managers reach for first: the SCS or SCSp — a purely contractual limited partnership, unregulated unless it happens to qualify as an AIF, with no CSSF supervision of its own. It is tax transparent, meaning nothing is taxed at fund level; everything flows through to investors. It is also, by a wide margin, the most-used vehicle in Luxembourg private equity today — Damien put the figure at roughly six in ten managers.

"Fast, flexible, cheap to run," he said. "But no CSSF badge to point to if an LP wants one."

Next came the RAIF — the Reserved Alternative Investment Fund. No direct CSSF approval needed before launch, which shaves real weeks off the timeline, but it is not unsupervised: it is regulated indirectly, through the authorised AIFM that must manage it. About half of the managers Damien advises end up here. Structured under the RAIF-SIF tax regime, it pays no corporate income tax and no net wealth tax, only a light annual subscription tax — 0.01% for private equity and venture capital funds, 0.05% otherwise.

Then the SIF — the Specialised Investment Fund — Luxembourg's older, direct-CSSF-supervised cousin of the RAIF. Same tax treatment, same subscription tax, but the regulator signs off on the fund itself, not just the manager. "Useful," Damien said, "when your investors — or your own board — want the reassurance of the CSSF's name directly on the file, not just on your AIFM's licence."

And finally the SICAR — a risk-capital vehicle built specifically for private equity and venture-style investing, also directly supervised by the CSSF, but narrower in what it can hold.

It Isn't "Which Vehicle" — It's "Who's Really Investing"

Elena's instinct was to ask which structure was "best." Damien pushed back gently. "Wrong question. The right one is: who exactly is putting money in, how much leverage will you run, and how fast do you need to close?"

Two numbers mattered more than she expected. First, the €100 million leveraged / €500 million unleveraged AIFMD threshold — cross it, and an authorised AIFM becomes mandatory rather than optional, whichever vehicle she chose. Second, the risk-diversification rule that applies to the RAIF-SIF regime: no more than 30% of assets tied to a single issuer. For a growth-equity fund planning ten to fourteen positions, that was comfortable. For a concentrated, five-deal thesis, it would have forced a rethink.

There was also the matter of what her family-office LPs wanted to see. Institutional-leaning investors, Damien noted, increasingly ask about CSSF oversight almost reflexively — even when they don't fully need it for comfort. A RAIF, wrapped in an authorised AIFM's own direct supervision, usually answers that question well enough without the extra months a full SIF approval requires.

On timing: unregulated SCS/SCSp structures typically launch in one to three months. Regulated vehicles — SIF, SICAR — run three to six months, largely dictated by CSSF approval. A RAIF sits in between, trading direct regulatory sign-off for AIFM oversight, and often launches faster than a SIF as a result.

Then Her Nordic Pension Fund Asked About Retail Access

Two days into structuring the RAIF, Elena's phone rang. The Nordic pension fund's advisor had a side question: would Meridian ever consider opening a sleeve to semi-professional and retail wealth channels down the line? Private wealth platforms were asking them the same thing.

Damien's answer surprised her. "You don't need a different fund for that. You wrap the one you're already building."

ELTIF is not a legal form of its own — it's a European label that can be layered onto an eligible AIF, including a RAIF, once authorised by the CSSF. Once wrapped, the fund gets a single EU-wide marketing passport to both professional and retail investors — a rare combination in the alternatives world, and one that survived a substantial overhaul under the ELTIF 2.0 Regulation, in force since 10 January 2024.

The numbers told the story of how much friction the reform removed: the minimum share of assets that must sit in eligible investments dropped from 70% to 55%; the market-capitalisation ceiling for listed portfolio companies an ELTIF can still hold rose to €1.5 billion; and the old €10 million minimum-per-real-asset rule disappeared entirely. Diversification caps — 20% of capital in any single portfolio company, real asset or fund; 10% in UCITS-eligible assets — apply only when marketing to retail investors, and fall away completely for funds sold solely to professionals.

"You could launch the RAIF now, exactly as planned," Damien said, "and apply the ELTIF label later, once the retail conversation is real rather than hypothetical. Nothing about the underlying fund has to change."

For managers already running an older ELTIF 1.0 fund, he added one more date worth knowing: those funds are grandfathered under the original rules until 11 January 2029 — but only for as long as they raise no further capital. Any fresh fundraising, or any new launch, falls under the full 2.0 regime today.

A Structure Is Only as Good as the Team Around It

Choosing the legal form was, in some ways, the easy part. What actually determines whether a Luxembourg fund runs smoothly for the next ten years is the ecosystem wrapped around it.

Above the AIFMD thresholds, Elena needed an authorised AIFM — either her own entity, licensed locally, or a third-party AIFM appointed for the purpose. She chose the latter: faster, and well-trodden ground in Luxembourg. The RAIF also needed a depositary bank for asset safekeeping and cash-flow monitoring, a fund administrator to run NAVs, capital calls and investor reporting, and an independent, CSSF-approved auditor — a réviseur d'entreprises agréé.

Then came the part first-time managers most often underestimate: economic substance. Luxembourg law, and CSSF Circular 18/698 specifically, require genuine local decision-making — a registered office, board meetings actually held in Luxembourg, and ideally Luxembourg-resident independent directors who bring real oversight rather than a signature on a page.

Mangis Bay's role, in cases like Elena's, typically starts here: shortlisting and vetting AIFMs against the fund's strategy and cost profile, appointing experienced independent directors to the board, and staying on for the CSSF liaison and provider-performance oversight that a ten-year fund life inevitably demands.

What Elena Actually Chose

Three days after that first whiteboard sketch, Meridian Growth Partners launched as a RAIF, managed by a licensed third-party AIFM, with a Luxembourg depositary, fund administrator and auditor in place, and two independent directors on its board. No ELTIF wrapper — not yet. That conversation stayed open, ready to be picked back up the moment the retail-distribution question moved from "maybe" to "yes."

The comparison Damien had sketched on the whiteboard, cleaned up, looked roughly like this:

None of the four boxes was wrong. They were simply built for different journeys — and the job was never to find the "best" one, but the one that matched hers.