Who still needs a product law?

Only this time it's not quite true. Luxembourg is not planning a new fund at the moment. And that's exactly what makes it interesting.

On 30 July 2026, bill 8814 introduced what at first glance appears to be a rather technical amendment to Luxembourg's AIFM law. SCS and SCSp, which qualify as alternative investment funds and are managed by an approved EU AIFM, will be able to form several legally separate compartments in the future.

So far, this option has been reserved for Luxembourg funds that are subject to a product law – such as SIF, SICAR or RAIF.

What sounds like a footnote for Luxembourg fund lawyers therefore leads to an astonishingly fundamental question:

Who still needs a product law?

When Luxembourg introduced the Reserved Alternative Investment Fund, or RAIF for short, in 2016, the idea was remarkable: a RAIF does not require prior approval from the Luxembourg financial supervisory authority CSSF and is not subject to direct ongoing product supervision. Instead, it must be backed by an approved AIFM.

Regulation has thus shifted to a certain extent from the product to the manager.

However, the RAIF cannot do without product rules either. It is subject to the RAIF law. Among other things, this enables umbrella structures with legally separate compartments, but at the same time comes with an overall legal package – including the principle of risk diversification in the classic RAIF.

And this is exactly where the problem begins.

Let's take a real assets manager.

He wants to manage various investments on one platform: a wind farm in Sweden, a solar park in Spain, an office portfolio in Germany and two co-investments by institutional investors.

The investments are to be separated from each other in terms of economic and liability law. If the Swedish wind farm is sold in 2032, it should be possible to wind up the compartment in question without touching the other investments.

An umbrella would be made for this.

But the classic RAIF does not help the manager without further ado. This is because its principle of risk diversification applies to an umbrella at the level of the individual compartments.

However, one compartment whose investment strategy is "this one wind farm" is not mixed with risk.

And that's not a design flaw.

An institutional investor who wants to consciously participate in a particular infrastructure project or co-investment has not accidentally forgotten to diversify. He wants exactly this asset.

Apart from special regimes for risk capital, for example, our real assets manager often has a different solution today: he sets up several independent SCS or SCSps for his concentrated investments.

What he lacks is the possibility of combining precisely these investments as legally liability-separated compartments under a single roof .

Bill 8814 is intended to change that.

A Luxembourg SCS or SCSp, which qualifies as an AIF and is managed by an authorised EU AIFM, will in future be able to form several compartments without having to be subject to a Luxembourg fund product law.

The assets and liabilities are allocated to the respective compartments. Creditors of a compartment can only access its assets. Individual compartments can be liquidated separately. Even investments between different compartments should be possible under certain conditions.

For example, our real assets manager could use it to build a single SCSp in the future:

Compartment A: Wind farm Sweden

Compartment B: Solar park Spain

Compartment C: Real estate Germany

Compartment D: Co-Investment I

Compartment E: Co-Investment II

Each compartment is legally sealed.

And each can pursue its own investment strategy – even a highly concentrated one.

That is the real progress.

At this point, a misunderstanding is obvious.

The new structure is often referred to as an "unregulated AIF". That sounds like a fund where Luxembourg has simply turned off the lights for regulatory reasons.

The opposite is closer to the truth.

The prerequisite for the new umbrella capability is precisely that the AIF is managed by an authorised EU AIFM . The regulatory management level of the AIFMD will therefore be retained.

The legislator does not abolish the regulated manager.

He asks another question:

Why does a professional investor also have to accept a fund product law just because he wants to have legally separate compartments?

That's a significant difference.

Perhaps that is why "deregulation" is even the wrong word for what Luxembourg is trying to do.

More appropriate would be:

So far, various functions have been combined into a regulatory package.

If you want compartments with legal ring fencing, you can choose a RAIF, for example. However, this not only gives him the desired corporate law function, but at the same time the other requirements of the RAIF Act.

The new approach, on the other hand, does not require a legal mix of risks or a formal offering document based on a Luxembourg product law. The statutory information obligations under the AIFM regime remain unaffected.

The draft law thus separates things from each other that were previously combined into a package.

Management should be regulated where management is to be regulated.

It should be possible to separate liability masses where liability masses are to be separated.

Risk diversification is to be prescribed where risk diversification is part of the desired product regime.

And even the form in which professional investors receive the necessary information does not necessarily have to be specified by a product law.

What was previously only available as a package is becoming a modular system.

Interestingly, the Luxembourg legislator itself argues in this direction: product laws could entail obligations that are not suitable for the specific fund project and are not necessarily associated with the existence of compartments.

Or to put it a little less legally:

"Here is the legal tool. Build the product you actually need."

Bill 8814 does not abolish AIFM regulation. And it does not place the professional fund industry outside of supervisory law.

In fact, there is a fairly modern idea of regulation behind the draft law: not regulating as much or as little as possible, but as precisely as possible where regulation fulfils a function.

And that's exactly why we should ask ourselves the critical question of why we, especially in Germany , have become so accustomed to regulating things together that don't necessarily belong together.