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Luxembourg has a proven track record of turning regulatory challenges into growth opportunities and fund managers know it well. In 2026, the Grand Duchy will face a new wave of reforms set to redefine the European investment fund landscape. From private debt to sustainable finance, every reform is a piece of a bigger puzzle: building a stronger and smarter fund ecosystem.
Your 2026 Checklist
- Know the rules: AIFMD II & UCITS VI will reshape governance and reporting.
- Manage liquidity smartly: Pick tools that build trust, not just compliance.
- Ride the private debt wave: Explore loan origination and semi-liquid strategies.
- Update pay models: Align carried interest structures before 2026.
- Boost digital resilience: DORA makes ICT risk a business priority.
- Think cross-border: SIU and RIS will open new retail channels, so be ready
- Reinforce sustainability commitments: Omnibus package simplifications, SFDR and fund naming rules updates are turning ESG factors into long term advantage.
Private debt: The hidden engine driving Europe’s funds
Luxembourg’s private assets sector, including private debt, has grown at a compound annual rate of 20% over the past five years, reaching €2.65 trillion¹. With AIFMD II, which brings clearer rules for loan origination in Europe, Luxembourg is set to reinforce its status as the go-to jurisdiction for managers seeking efficient structures to set loan origination funds.
Loan origination funds can serve as a strategic complement within a global fund manager’s product mix, particularly for managers seeking to diversify across geographies and asset classes
Vincent Remy
EY Luxembourg Partner, Private Debt Leader
Our advice:
- Start early: Assess the impact of AIFMD II now.
- Focus on liquidity: Select the required liquidity management tools, prepare stress-testing and governance frameworks for debt funds.
- Plan for reporting: Build systems to meet new transparency requirements ahead of 2026.
Carried interest reform: a strategic tax shift
The new carried interest tax regime expected in 2026 will allow Luxembourg-resident individuals working with AIFs to benefit from a reduced 11.45%² personal income tax on contractual carried interest and exemptions for participation-linked carried shares eligible for tax exemption, subject to conditions.
The carried interest reform, which has followed other tax reforms to attract qualified workers, is essential for Luxembourg to attract alternative experts, remain a strong financial ecosystem, and position itself as a hub for the alternative fund industry
Christian Schlesser
EY Luxembourg, Head of Tax
Our advice
- Review remuneration models: Align carried interest structures with the new regime.
- Segment beneficiaries: Employees, advisors, and independent directors may qualify differently.
- Update governance and documentation: Ensure compliance and clarity before end of FY 2026.
Compliance: UCITS and AIFMD II
Starting April 2026, the revised UCITS and AIFMD frameworks will raise the bar on governance, risk, and liquidity management, while introducing enhanced reporting and disclosure obligations. This isn’t just a compliance exercise; it’s a strategic moment for fund managers.
Liquidity management will no longer be a back-office detail. Firms that act early – by embedding robust stress-testing and governance frameworks – will not just meet regulatory expectations, they will earn investor trust and unlock growth opportunities.
Technology will play a starring role. Expect rising demand for real-time liquidity monitoring tools, integrated dashboards, and data-driven decision-making. Those who invest now will set the pace for the next generation of fund operations,
Jens Schmidt
EY Luxembourg Partner, Wealth and Asset Management Consulting Leader
Our advice:
- Think beyond compliance: Treat governance and liquidity as value drivers, not constraints.
- Prepare for cross-border growth: Monitor SIU reforms and Retail Investment Strategy to position for new distribution channels.
- Invest in agility: Build tech-enabled frameworks that adapt quickly to evolving rules.
Tokenization: The Next Frontier for Fund Distribution
Tokenization is set to redefine how investment products are created, distributed, and accessed. By converting fund units into digital tokens on blockchain platforms, managers can unlock new efficiencies, reduce settlement times, and broaden investor access especially in private markets.
In 2026, we expect a tremendous tokenization growth in Real-World Assets (RWA), driven by clear regulations like MiCAR, institutional adoption, and the emergence of compliant platforms, which will be making tokens available for various asset classes. In this context, we would also expect a shifting focus from crypto trading to infrastructure upgrades, with Europe potentially leading the market in security tokens. In detail, we expect for 2026:
Tokenization of real assets (real estate, funds, private credit, stocks) will move from proof-of-concept to institutional adoption, solving issues like settlement delays and complex capital management. Major players and potentially banks will launch platforms, supporting issuance and trading of tokenized commercial paper and notes, facilitated by compliance frameworks.
Romain Swertvaeger
EY Luxembourg Partner, Fintech Leader
Our advice:
- Start with strategy: Assess which asset classes and fund structures are best suited for tokenization.
- Engage regulators early: Luxembourg’s proactive stance on digital assets can be an advantage, use it.
- Invest in infrastructure: Blockchain-based platforms and smart contracts will be key to scaling tokenized funds.
SIU: Unlocking Cross-Border Potential
Expected in 2026, the Retail Investment Strategy (RIS) and the Savings and Investment Union (SIU) aim to channel retail savings into productive investments and deepen EU market integration. Expect then updates to PEPP (Pan-European Personal Pension Product), IORP (Institutions for Occupational Retirement Provision), EuVECA (European Venture Capital Funds) and cross-border rules that could reshape distribution.
These reforms could unlock new cross-border distribution channels and strengthen Luxembourg’s position as Europe’s fund hub
Robert White
EY Luxembourg Assurance Real Estate Partner, Clients & Industries Leader
Our advice:
- Stay agile: Prepare for rapid regulatory shifts.
- Invest in tech: Digital onboarding and compliance tools will be key to capturing retail flows
Sustainable Finance: a core driver of investment strategy
In 2026, as part of Omnibus simplification package major frameworks such as SFDR, CSRD and EU Taxonomy will be streamlined to cut compliance costs and complexity while making ESG-related risks and opportunities clearer and disclosures more efficient for both investors and the industry.
Funds that integrate ESG rigorously and communicate their impact credibly, continue to attract capital from institutional and retail investors alike.
Vanessa Müller
EY Luxembourg ESG Services and Consulting Banking & Capital Markets Lead
Our advice:
- Go beyond compliance in your ESG journey: Embed ESG into product design, risk management, oversight and reporting.
- Stay ahead of the regulatory updates: Anticipate regulatory changes through timely impact assessments, improving the data quality, capacity building and automation.
Summary
Luxembourg has a proven track record of turning regulatory challenges into growth opportunities and fund managers know it well. In 2026, the Grand Duchy will face a new wave of reforms set to redefine the European investment fund landscape. From private debt to sustainable finance, every reform is a piece of a bigger puzzle: building a stronger and smarter fund ecosystem.
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