From a leader in UCITS to a leader in Alternatives
Luxembourg has grown into Europe’s largest fund centre and the second globally, initially due to its pioneering adoption of the UCITS directive in 1988. Over time, it has steadily developed a second robust pillar in the alternative investment fund (AIF) space. Key milestones include the SICAR and SIF regimes (2004, 2007), the modernisation of company law alongside AIFMD (2013), and the launch of the RAIF regime in 2016.
This foundation has positioned Luxembourg as the largest single domicile for alternative funds in Europe, increasing its share of European AIF assets from 15.6% in 2010 to 61.8% by 2022. In parallel, Luxembourg has taken a leadership role in the democratisation of private markets, particularly with the rise of ELTIFs. More than 60% of all ELTIFs are domiciled in Luxembourg, reflecting the jurisdiction’s responsiveness to growing retail demand. The revival of Luxembourg’s Part II UCIs, which provide access to private assets for retail investors, has furthered this trend – particularly with strong interest from North American asset managers.
Luxembourg has grown into Europe’s largest fund centre and the second globally, initially due to its pioneering adoption of the UCITS directive in 1988.
Regulatory modernization in 2023 aligned Luxembourg’s legal framework with ELTIF 2.0 and broader international developments, reinforcing its flexibility for fund managers. These updates have made Luxembourg even more appealing for non-professional investors seeking exposure to private markets.
The Rise of Evergreen and Open-Ended Structures
Evergreen funds – open-ended with ongoing liquidity – are now attracting attention from both institutional and retail investors. Managers are increasingly exploring long-duration or unlimited-duration fund formats, including launching institutional vehicles as limited partnerships with no fixed term.
For retail and private wealth segments, the open-ended Part II UCI SICAV with variable share capital is the preferred vehicle. Previously limited to the SA (public limited company) form, the 2023 updates now allow these to be structured as SCAs, SCSs, or SCSp partnerships with a manager-owner general partner. This has catalysed renewed interest, especially in umbrella fund structures that support multiple sub-funds.
Part II UCIs & ELTIF 2.0: A Powerful Pairing
While Part II UCIs were only used by a limited number of alternative investment fund managers over the past decade, their revival was triggered by private wealth investors’ growing interest in alternative asset classes and private markets players looking into broadening their investor base. Indeed, Part II UCIs allow for the launch of open-ended subscription-based funds, including as feeders or fund-of-fund structures investing in traditional illiquid alternative investment funds that are, normally speaking, restricted to professional investors only. Part II UCIs are also available for all types of investors with minimum investment tickets significantly lower than the EUR 100,000, which apply under other Luxembourg product laws and the marketing to retail or semi-professional investors, subject to certain local restrictions, has been accepted in many European jurisdictions.
Due to their flexibility, Part II UCIs are also expected to remain to be the most popular vehicle for ELTIFs established under ELTIF 2.0, in particular for retail ELTIFs availing of the EU distribution passport to retail investors.
Umbrella Structures and Operational Efficiency
Part II UCIs are set to become a core platform for reaching both private wealth and retail markets. With their flexible umbrella fund setup, managers can combine various strategies – semi open-ended, closed-ended, or ELTIF-labelled – within one legal structure. This approach improves operational efficiency and cost-effectiveness, especially in managing liquidity and sub-fund diversification. These advantages, alongside rapid approvals by the CSSF (Luxembourg’s financial regulator), have bolstered the success of both Part II UCIs and ELTIFs, 75% of which now operate under the Part II regime.
Scaling the Private Capital Value Chain
Eighteen of the top 20 global private equity firms now operate in Luxembourg. The shift from single-fund structures to complex ecosystems – including master-feeder arrangements, parallel funds, co-investments, and carried interest entities – has driven consolidation and professionalization among local service providers and advisors. This sophistication is reinforced by a growing legal sector, increasingly influenced by Anglo-Saxon practices.
Eighteen of the top 20 global private equity firms now operate in Luxembourg.
Even amid a slower fundraising cycle, private capital market prospects remain strong. Luxembourg’s depth of expertise and continued regulatory agility ensure its standing as Europe’s leading hub for alternative funds – well-positioned for future growth across institutional, private wealth, and retail segments.
Source: The ascent of Luxembourg, Alternatives in Europe 2023, Preqin