Luxembourg introduces multi-compartment structures for unregulated AIF limited partnerships

A major legislative development for private fund structuring

On 30 July 2026, the Luxembourg government submitted bill of law No. 8814 (the Bill) amending the law of 12 July 2013 on alternative investment fund managers, as amended (the AIFM Law), to allow SCS and SCSp qualifying as alternative investment funds (AIFs) and not being subject to a special fund regime to adopt a multi-compartment structure, provided they are managed by a Luxembourg-authorised AIFM or by an AIFM authorised in another EU Member State under the alternative investment fund managers Directive as amended (AIFMD).

This represents one of the most significant structural enhancements to Luxembourg's private fund toolkit in recent years. For the first time, sponsors and fund managers will be able to consolidate multiple investment strategies, investor classes, or fund-level structures within a single unregulated limited partnership — without having to resort to a special fund regime. The practical consequences for how private equity, real estate, infrastructure, and private credit funds are structured in Luxembourg are far-reaching.

Background

Currently, only the following special fund regimes permit the use of multi-compartment structures for AIFs: the SICAR law of 15 June 2004, the SIF law of 13 February 2007 (SIF Law), the RAIF law of 23 July 2016 (RAIF Law), and Part II of the UCI law of 17 December 2010, each as amended.

The Bill's objective is to expand and modernise Luxembourg's investment fund toolbox by offering the possibility to establish limited partnerships (i.e., sociétés en commandite simple and sociétés en commandite spéciale — SCS and SCSp), qualifying as AIFs within the meaning of the AIFM Law with multiple compartments.

The gap that the Bill addresses has long been a source of friction in fund structuring practice. SCS and SCSp vehicles are frequently used in Luxembourg to establish parallel vehicles for funds set up in foreign jurisdictions. Promoters wishing to replicate such structures have to date been obliged to use a vehicle subject to a special regime such as a RAIF, which carries additional obligations that are not intrinsically linked to the multi-compartment feature. The Bill directly and deliberately resolves this structural limitation.

Key change: New Article 28bis — A fundamental shift

The bill introduces a new Article 28bis in the AIFM Law providing the possibility for SCS and SCSp AIFs within the meaning of the AIFM Law to adopt a multi-compartment structure, provided they are managed by a Luxembourg-authorised AIFM or by an AIFM authorised in another EU Member State under the alternative investment fund managers Directive (AIFMD). The bill does not envisage compartments for unregulated SCS/SCSp managed by sub-threshold AIFMs or non-EU AIFMs. The new provision is modelled on Article 49 of the RAIF law, which is itself largely inspired by Article 71 of the SIF law.

The main features of Article 28bis are as follows:

Constitutive documents: The use of a multi-compartment structure and its modalities must be expressly provided for in the AIF's constitutive documents, and the specific investment policy of each compartment must be described in accordance with Article 21 of the AIFM Law.

Ring-fencing: The rights of investors and creditors in relation to a compartment are limited to the assets of that compartment, unless the constitutive documents provide otherwise, and each compartment is treated as a separate pool of assets as between investors.

Separate liquidation: Each compartment may be liquidated separately without triggering the liquidation of any other compartment, and only the liquidation of the last remaining compartment results in the liquidation of the AIF itself.

Cross-compartment investments: A compartment may, subject to the constitutive documents, subscribe, acquire, or hold interests in one or more other compartments of the same AIF, provided the target compartment does not in turn invest back, and that any voting rights attached to such interests are suspended for as long as they are held by the investing compartment.

Annual reporting: A separate annual report may be established per compartment, provided it includes the aggregate information of all compartments.

The Bill does not introduce any specific tax provisions. It confirms that, within a multi-compartment umbrella vehicle, each compartment is treated as a distinct entity vis-à-vis investors — unless the constitutive documents provide otherwise — in line with the approach already established under the securitisation and regulated product law frameworks. Given that this segregation operates solely at the level of investors, an umbrella SCSp/SCS should, in principle, continue to be treated as a single entity for Luxembourg tax purposes. The reform may however require further tax clarification such as regarding Form 205 filing obligations for SCSp/SCS AIFs, the application of the CIV exemption from the reverse hybrid entity rules, and a potential update or extension of Circular L.I.R. No. 100/1 of 13 July 2007 on disposals of interests in compartments of collective investment vehicles and securitisation entities.

Why this is a major change: Practical implications for fund structures

The introduction of multi-compartment SCS and SCSp structures outside the special fund regimes is a landmark development. It gives sponsors and managers a highly flexible, lightly regulated vehicle that can accommodate the full spectrum of modern private fund structuring needs. Below we set out the key use cases that will benefit directly.

1. Parallel Vehicles

Parallel vehicles are commonly established to accommodate investors with specific requirements while pursuing the same investment strategy as the main fund. Traditionally, this required separate Luxembourg entities, each with its own documentation, governance, and administration.

2. Co-Investment Vehicles

Co-investment opportunities have traditionally been structured through dedicated SPVs or standalone vehicles, resulting in additional cost and complexity.

3. Parallel Funds for Different Investor Profiles

The compartmentalised structure also enables fund managers to offer differentiated products, including:

1. currency-specific compartments (e.g., EUR, USD or GBP);
2. alternative fee, carried interest or distribution arrangements; and
3. portfolios designed for specific regulatory or investor requirements.

4. Continuation Vehicles

Continuation vehicles facilitate the transfer of selected assets from an existing fund into a new structure, typically allowing investors to choose between a liquidity option and a rollover investment. Historically, this has required the establishment of a dedicated vehicle.

Benefits of the multi-compartment structure

The introduction of compartments for SCS and SCSp AIFs provides fund sponsors with a flexible framework capable of accommodating a wide range of structuring needs within a single legal entity. Whether used for parallel vehicles, co-investments, investor-specific arrangements or continuation transactions, compartments may operate under distinct terms while remaining legally and economically segregated from one another. This approach can substantially reduce the cost, complexity and administrative burden associated with establishing and maintaining multiple standalone vehicles, without compromising creditor protection or investor segregation.

Comparison with unregulated securitisation vehicles

Luxembourg’s Securitisation Law of 22 March 2004, as amended most recently by the law of 9 February 2022 (the Securitisation Law), has long enabled the use of multi-compartment structures, including by unregulated securitisation vehicles. The proposed introduction of multi-compartment SCS/SCSp AIFs under the amended AIFM Law therefore invites a meaningful comparison between these two frameworks and raises the question of whether the new regime may offer an attractive alternative to certain structures currently established under the Securitisation Law.

Conclusion

1. The proposed amendment to the AIFM Law is a welcome and pragmatic enhancement to Luxembourg's fund toolkit, offering sponsors greater flexibility when structuring multi-compartment SCS and SCSp vehicles outside the special fund regimes.
2. More broadly, the reform is a landmark development that fundamentally expands the range of strategies that can be implemented within a single Luxembourg limited partnership. The ability to consolidate parallel vehicles, co-investment sleeves, differentiated parallel funds, and continuation vehicles within a single multi-compartment SCS or SCSp AIF — each with statutory ring-fencing, separate liquidation mechanics, and tailored constitutional provisions — places Luxembourg at the forefront of private fund structuring in Europe.
3. When considered alongside the existing unregulated securitisation vehicle framework, Luxembourg now offers two distinct but complementary multi-compartment tools for the private markets: an equity-focused, AIFMD-compliant vehicle in the form of the multi-compartment SCS/SCSp AIF, and a debt-focused, tax-neutral vehicle in the form of the unregulated securitisation vehicle. The optimal choice will depend on the specific transaction objectives, and in many complex structures, the two may be used in combination.
4. The CSSF and ALFI were consulted in the preparation of the Bill, which will now follow the standard legislative process, including review by the Conseil d'État and the Chambre de Commerce. Herbert Smith Freehills Kramer will continue to monitor the progress of this bill and will provide further updates as developments occur.