Luxembourg proposes compartments for SCS/SCSp AIFs [Paperjam]

Luxembourg’s new bill would allow SCS/SCSp AIFs to adopt compartment structures, potentially expanding structuring options for co-investment vehicles and parallel funds.

Luxembourg has long been waiting for a reform of this kind. For years, market participants in the fund industry that wished to create legally segregated compartments within a special limited partnership (SCSp) or a common limited partnership (SCS) had to opt for a product regime. Although the existing product-law frameworks may offer compartmentalisation, they also entail specialised legal regulatory requirements, such as diversification requirements and minimum capital requirements, which may sit uneasily with the rationale for choosing a compartmentalised SCSp or SCS in the first place.

A new Article 28bis

It is against this AIFM Law background that the bill amending the Law of 12 July 2013 on alternative investment fund managers introduces a clear objective: to enable Luxembourg AIFs established in the form of an SCS or an SCSp, and not already subject to a Luxembourg product law, to adopt a compartmentalised structure. The proposed text draws on a mechanism already familiar in Luxembourg fund law, notably under Article 49 of the law on reserved alternative investment funds (RAIF Law), itself inspired by Article 71 of the law on specialised investment funds (SIF Law).

Filling the gap between simple partnerships and product regimes

The core of the reform lies in paragraph 1 of the new Article 28bis of the AIFM Law. It allows for the creation of multiple compartments in an SCSp or SCSp-AIF, each corresponding to a distinct part of the AIF’s assets and liabilities without the need to be established under a specific fund product law. The bill expressly excludes from its scope vehicles already governed by specific product laws, namely Part II UCIs, SIFs, SICARs and RAIFs, so as to avoid any ambiguity as to how the different regimes interact. That clarification is welcome, as it confirms that the reform does not disturb existing frameworks but instead fills an intermediate gap between a simple partnership structure without a statutory segregation mechanism and product-law vehicles that come with specific product requirements.

The principle of asset segregation

By enshrining the principle of asset segregation, the bill introduces what is arguably its most significant legal innovation: a clear statutory basis for the segregation of assets and liabilities within a single SCS or SCSp-AIF. As a result, the rights of investors and creditors connected with a compartment are, in principle, limited to that compartment’s assets; those assets may thus be used only to satisfy claims linked to that compartment; and unless the constitutive documents provide otherwise, each compartment is treated as a separate entity in the relationship among investors.

Parallel funds

This reform is particularly important for cross-border parallel structures, as the parliamentary documents note that SCSs and especially SCSps are used alongside foreign vehicles such as U.S. Series LLCs, and statutory compartmentalisation at partnership level allows the Luxembourg vehicle to replicate compartment by compartment the economics of the foreign structure more closely, thereby reducing the risk of mismatch that arises when Luxembourg law requires the use of a RAIF or another product-law vehicle to achieve the same result.

Co-investments

A similar observation can be made for co-investment series structures. In practice, the absence of compartments at partnership level meant that a sponsor wishing to organise several legally segregated co-investment sleeves within a single Luxembourg unsupervised vehicle had to rely on a compartmentalised RAIF-type structure. Yet that remained challenging for vehicles in which each compartment should be dedicated to a single asset due to the diversification requirements of the RAIF Law. The reform would therefore remove a gating requirement and allow Luxembourg unsupervised partnerships to host single-asset co-investment series directly within one umbrella vehicle. In turn, this would allow sponsors to combine compartment-level ring-fencing with the economies of scale of a simple vehicle, reducing formation, governance, and administration costs compared with the creation of separate vehicles for each co-investment opportunity.

The requirement for an authorised AIFM

It should also be noted that the bill expressly applies this new regime to AIFs managed by an AIFM authorised in Luxembourg or another Member State of the European Union. Accordingly, this possibility is not open to SCSs or SCSps managed by non-EU AIFMs or by AIFMs registered under Article 3(2) of the AIFMD that are not fully authorised.

Compartment-level disclosure

Paragraph 2 of Article 28bis of the AIFM Law requires that both the possibility of compartmentalisation and its operating rules be expressly set out in the constitutive documents. It also provides that the investment policy must be described in accordance with Article 21 of the AIFM Law. On this point, the AIFM should have the flexibility as to the medium through which such information is provided and should, for example, be permitted to issue a separate private placement memorandum (PPM) for each compartment.

Separate liquidation and cross-investment

Finally, akin to the RAIF regime, the bill provides that each compartment may be liquidated separately without triggering the liquidation of the others, and only the disappearance of the last compartment results in the liquidation of the SCS or SCSp-AIF itself. The bill also permits cross-investments between compartments, subject to safeguards designed to avoid circular investment structures and the suspension of voting rights attached to the relevant interests so held. Lastly, separate annual accounts may be prepared for each compartment, provided that aggregated information for the SCS or SCSp-AIF as a whole is appended.

A technical and strategic reform

By enabling the SCSp and the SCS-AIF to operate through compartments with true asset segregation, but without the constraint of a product regime, the bill would introduce into these partnership-based AIFs a statutory feature already widely used and well understood in Luxembourg structuring, while preserving the flexibility that has made them so attractive in practice. This combination has the potential to reshape market expectations, offering sponsors and managers a new structuring option that is both familiar in its legal form and materially expanded in its capabilities. If adopted, this bill could thus once again redefine and significantly enrich the Luxembourg structuring toolbox.

Authors : Joachim Cour & Héloïse Boisguérin.

This article was first published in Paperjam (July 2026). For further information, please visit [Paperjam].