Private Funds in Luxembourg: SCSp & SCA

Luxembourg: Global Hub for Alternative Investment

The Luxembourg investment fund market has experienced exponential growth over the past decade. In 2020, assets under management reached a record value of over **€5,000 billion**, triple their value in 2006. With an ecosystem comprising more than **15,000 investment funds**, Luxembourg establishes itself as the second-largest fund domiciliation jurisdiction worldwide, right behind the United States.

Historically, the Grand Duchy has successfully anticipated market developments thanks to agile and proactive legislation. Notably, it was the first Member State to transpose major European directives, such as **UCITS** and **AIFMD**, into its national law.

Luxembourg funds are segmented into three strategic categories:

• Regulated Funds: Subject to the authorization and direct supervision of the **CSSF** (Commission de Surveillance du Secteur Financier). This category includes UCITS, Specialized Investment Funds (**SIF**), and SICARs.
• Semi-Regulated Funds: Such as the **RAIF** (Reserved Alternative Investment Fund). These vehicles are not directly supervised at the product level but are indirectly controlled through the prudential supervision of their authorized manager (**AIFM**).
• Unregulated Funds: Including Alternative Investment Funds (**AIF**) managed by registered managers (so-called *de minimis*).

In practice, the term **"Private Funds"** primarily refers to the semi-regulated and unregulated categories. These structures are favored for their fast **Time-to-Market** and reduced setup costs, while remaining subject to a strict regulatory framework.

Legal Structures for Private Funds

Luxembourg law, and particularly the **Law of 10 August 1915 on commercial companies**, offers unparalleled flexibility for fund structuring. A distinction is mainly made between:

• Capital Structures: Public Limited Company (SA), Simplified Joint-Stock Company (SAS), or Private Limited Liability Company (SARL).
• Partnership Structures: Common Limited Partnership (**SCS**), Corporate Partnership Limited by Shares (**SCA**), and the famous Special Limited Partnership (**SCSp**).

The Rise of the SCSp and SCS

Luxembourg partnerships have become the go-to vehicles for Private Equity and Real Estate. They offer crucial familiarity for international investors, an exemption from the rigid constraints of traditional corporate law, and an often more efficient tax regime.

The **SCSp**, modeled after Anglo-Saxon *Limited Partnerships* (Delaware, Channel Islands), has achieved resounding success among investors accustomed to *Common Law* jurisdictions.

Architecture of an SCSp Fund (Visualization)

The major distinction lies in the legal personality: while the SCS and SCA possess a distinct legal personality, the **SCSp lacks one**, although it can act in its own name to hold assets or open bank accounts.

Governance and AIFMD Framework

Partnerships qualified as **AIFs** (Alternative Investment Funds) must be managed by AIFM managers. However, structures managed by *sub-threshold* entities benefit from major administrative relief (simple GP registration). Advantages include setup without prior CSSF approval and complete contractual freedom in organizing financial flows (Carried Interest).

Scalability Towards the RAIF

An unregulated SCSp or SCS can upgrade to a **RAIF** regime to facilitate international fundraising. This conversion allows the fund to benefit from the **European marketing passport**, subject to appointing an authorized AIFM, a depositary bank, and an external auditor.