The CSSF issued Circular 25/901 on 19 December 2025 as part of a broader effort towards modernisation, clarification and simplification. The circular applies to investment companies in risk capital ("SICARs"), specialised investment funds ("SIFs") and Part II undertakings for collective investment ("UCIs") and repeals several previous circulars including CSSF Circular 06/241 on the concept of risk capital under the law of 15 June 2004 relating to the investment company in risk capital, as amended. The circular brings together several texts ensuring consistency in terminology used.
Part I of our series of articles on the circular concentrates on the changes to the SICAR regime. Part II and Part III deal with the changes to the SIF and Part II UCI regimes respectively.
In conjunction with the circular, the CSSF has also published a compilation of key concepts and terms used in the field of investment funds. The compilation is not intended to be legally binding but aims to clarify the most common concepts by placing them in their relevant contexts and to explain how the CSSF understands them.
Scope
The circular does not apply where a SICAR is a closed-ended fund or compartment authorised before the circular came into force, nor to SICARs with the ELTIF, EuVECA or EUSEF label.
Refined Risk Capital Concept
The circular clarifies that the object of a SICAR is to invest its assets in securities representing risk capital, defined as the direct or indirect contribution of assets to entities with a view to their launch, development or listing on a stock exchange, targeting private equity strategies, venture capital strategies, and potentially debt financing strategies for non-listed undertakings.
Risk capital is now characterised by the combination of two elements: an intention to develop the target entity through steps taken to create value (with an expected increase in financial value), and a specific risk that goes beyond mere market risk. The reference to “specific risk” differs from Circular 06/241 which referred to “high risk". “Buy and Hold” strategies are now explicitly prohibited for SICARs.
A key criterion is the exit strategy: contrary to a holding company which acquires assets to hold them, the objective of a SICAR consists in acquiring financial assets in order to resell them with a profit after a holding period. The investment must be limited in time.
In general, the SICAR must have a certain degree of control (supervision) to ensure the amounts invested will ultimately be used to develop the target entity. Whilst a SICAR often actively intervenes in the management of target entities, active intervention is not necessarily required where other factors, such as the financing mode used, the type of parties involved or their remuneration, indicate that the investment qualifies as risk capital.
Investment flexibility and restrictions
Like Circular 06/241, the circular provides that the contribution of assets by a SICAR may take various forms, including capital contributions, loan origination, bond subscriptions, bridge financing or mezzanine financing.
Investments in listed securities do not necessarily fail the risk capital criterion. The circular specifically references securities listed on stock exchanges not meeting UCITS Directive regulated market requirements as eligible. Investments in ABS, CDOs and similar securities are not, in principle, eligible.
SICARs may temporarily invest cash awaiting investment in liquid securities with low market risk. Cash awaiting investment, reinvestment or distribution must be managed in accordance with the prudent person rule. It is also now specified that a SICAR may hold cash to meet liabilities.
The restrictions on a SICAR using derivatives for purposes other than hedging is maintained but the rationale for the restriction is now explicitly stated, i.e. that derivatives are not used, in principle, to create value in itself or to contribute to the development of the target entity.
The detailed real estate criteria in circular 06/241 has been removed. Investment in real estate and infrastructure is now subject to the general risk capital criteria.
Investment in commodities is addressed for the first time. A SICAR cannot, under any circumstances, directly invest in commodities. However indirect investments are possible and acceptability will be assessed on a case-by-case basis.
Enhanced transparency requirements
The CSSF expects compliance with the risk capital requirement to be described in the authorisation file. The sales document must include information on risk capital criteria, notably the exit strategy and expected holding period.
The SICAR Law does not refer to the principle of risk-spreading, though this does not prevent SICARs from setting investment limits in their sales documents. A SICAR which sets investment limits may also provide for ramp-up and wind-down periods during which these limits do not apply.
To the extent that a SICAR provides for redemptions or invests in other funds or investment vehicles there are certain additional disclosure requirements (for more information see Part II in this series of articles).
It is now clearly specified that the offering document must also include a description of the procedures that can be implemented to modify the investment policy or to make any other material change.
Extensions
The circular expressly provides that extensions of the life of a fund or compartment by one year, up to a maximum of three times, are possible if such extensions are necessary to allow the investments to reach their full potential and if the funds’ instruments of incorporation or the compartments offering document provide for such a possibility. In exceptional circumstances, the CSSF may grant derogations from the above based on a duly motivated justification. This applies equally to SIFs, SICARs and Part II UCIs.
Conclusion
CSSF Circular 25/901 represents a welcome modernisation of the SICAR regime, providing greater clarity on the risk capital concept and consolidating previous guidance and adapting it to market practice whilst at the same time allowing the CSSF to grant derogations from its provisions on a duly motivated justification.
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