As bank lending has retrenched and institutional investors have pursued the credit risk premium, European private credit assets under management have grown rapidly, and a growing share of new direct lending, mezzanine and credit opportunities vehicles is now structured through Luxembourg.

This article is not about the asset class: you already know what private credit is. It is about the structuring decisions that determine whether a Luxembourg private credit fund is built for success. AIFMD II has reshaped the rules for loan-originating funds, and the choices you make on vehicle, leverage, diversification and liquidity before launch will shape both how quickly you reach the market and how smoothly the fund runs once it is there.

Luxembourg’s dominance in private credit is not an accident of marketing. It rests on a stable regulatory environment overseen by the CSSF, an extensive network of double tax treaties, deep service-provider expertise in credit strategies, and a level of investor familiarity that shortens the diligence conversation. For managers, that combination means fewer surprises and a structuring toolkit that allocators already understand and trust.

The practical result is volume. The RAIF, the SIF, and the SCSp are all used at scale for credit strategies, often combined within a single structure. This acceleration has been driven by bank retrenchment and by sustained institutional appetite for the credit risk premium, and the momentum behind Luxembourg fund structuring under AIFMD II shows little sign of slowing.

Vehicle selection is not a formality. The RAIF, the SIF and the SCSp each serve distinct purposes, and the right choice turns on your manager profile, your investor base and the strategy you are running.

The central trade-off between the RAIF and the SIF is speed against regulatory status. The RAIF is not subject to direct product supervision by the CSSF, relying instead on a fully authorised AIFM, which makes it considerably faster to bring to market. The SIF is itself regulated by the CSSF, and direct product oversight can be decisive when particular investors, mandates, or strategies require a product-regulated wrapper. For most managers prioritising time-to-market, the RAIF is the natural default; the SIF earns its place where the investor base values direct regulatory status.

The SCSp, the Luxembourg special limited partnership, has become the preferred structural form for many credit managers. Its contractual flexibility and tax transparency make it especially familiar to US and UK LP investor bases accustomed to limited partnership structures, and it can serve as the fund vehicle itself with RAIF or SIF regulatory overlay.

In practice, the comparison comes down to three points:

• RAIF: fastest route to market and not directly product-regulated but requires an authorised AIFM; well-suited to managers prioritising speed.
• SIF: directly regulated by the CSSF and slower to launch, but advantageous where investors or strategies value product-level supervision.
• SCSp: a tax-transparent partnership offering maximum contractual flexibility, and the form most familiar to US and UK LPs.

If you are structuring a loan-originating fund, AIFMD II is now the starting point rather than an afterthought. The loan-originating fund (LOF) regime is triggered when a fund originates loans and introduces a set of hard constraints that must be built in from the outset rather than retrofitted once terms are agreed.

The headline constraints fall on leverage and concentration. Open-ended LOFs are capped at 175 per cent leverage and closed-ended LOFs at 300 per cent. LOFs must also meet diversification requirements, with exposure to any single borrower generally limited to 20 per cent of the fund’s capital, and originators are subject to risk retention rules that require them to keep economic interest in the loans they originate.

Most private credit managers are opting for closed-ended structures, because closed-ended terms align far better with an illiquid loan book and a 300 per cent leverage ceiling rather than the 175 per cent available to open-ended funds.

Existing funds benefit from transitional provisions, but that is not a reason to wait. Now is the time to map your strategy against the LOF triggers, confirm how leverage will be defined and calculated for AIFMD II purposes, and document compliance before fundraising conversations begin.

Direct lending and mezzanine assets are illiquid, yet investors still expect clarity on when and how their capital will be returned. Managing that tension is among the most consequential structuring tasks you face, and getting it wrong creates problems that are expensive to unwind later.

The tools are well established: lock-up periods, drawdown and capital-call structures, distribution waterfalls, NAV facilities and secondary transfer provisions. Used together, they let you align the fund’s cash-flow profile with the underlying loan portfolio rather than against it. AIFMD II’s practical tilt towards closed-ended structures reinforces this discipline, removing the redemption pressure that sits so awkwardly beside illiquid assets.

In our restructuring experience, the most common failures trace back to liquidity mismatches built in at launch: redemption rights that the asset side could never realistically support. Such problems are resolvable, but the fix typically involves restructuring that careful upfront alignment would have avoided.

Before you launch, work through the following questions:

1. Is the strategy likely to trigger the AIFMD II LOF regime, and if so, is the fund designed to comply?
2. RAIF or SIF: What does your investor base require?
3. Is the SCSp the right partnership wrapper, or does the investor profile favour a corporate vehicle?
4. Open-ended or closed-ended: how does this interact with AIFMD II leverage limits and investor liquidity needs?
5. What liquidity mechanisms are being built into the fund terms, and are they appropriate for the underlying assets?
6. How is leverage defined and calculated for AIFMD II purposes, and does the strategy stay within permitted limits?
7. What diversification requirements apply, and how do they interact with your concentration approach?

Luxembourg remains the strongest European platform for private credit, but AIFMD II has raised the structuring stakes. Managers who resolve the vehicle, leverage, diversification and liquidity questions before launch will move faster, avoid regulatory friction and build stronger investor relationships from day one.

Harneys’ Luxembourg team regularly structures these funds. Contact us to pressure-test your structure before you commit to it, and to make sure your fund is built for success from launch.