Despite global market challenges, assets under management in Luxembourg’s private debt market increased by 21% to €510bn from June 2023 to December 202, compounding on last year’s AuM growth of 51%, according to a survey by KPMG and the Association of the Luxembourg Fund Industry (ALFI).
As well highlighting the ongoing appetite for private debt funds domiciled in Luxembourg, the annual KPMG Private Debt Fund Survey 2024 reveals that while North America continues to be an area of strong investment focus (15%), investments in Europe continue to dominate, with EU member states accounting for 35% of investments, and the rest of Europe 25%. Asia-Pacific makes up 3% while the Middle East accounts for 4%.
The top four sectors attracting investments are Chemicals, IT, Telecoms, Media & Communications (18%), Infrastructure & Transportation (17%), Energy & Environment (16%) and Healthcare & Life Science (16%).
The survey also reveals that the gap has narrowed between debt-originating funds (49.3%) and debt-participating funds (49.5%), a notable difference from last year’s division (42% and 57%, respectively). Meanwhile, the share of open-ended funds has nearly doubled, from 14% to 26%. Closed-ended funds continue to dominate, however, representing 74% of all funds.
For indirectly supervised AIF fund vehicles (other than RAIF), the Luxembourg SCSp represent 86% of the market. Where a regulatory regime is opted for (eg, RAIF or SIF) Luxembourg RAIF has strengthened its position, accounting for 62% of private debt funds, marking a 9% increase from last year. Conversely, the number of SIFs has fallen from 38% to 32% this year.
The majority of Luxembourg private debt funds (62%) have direct lending strategies, a 2% decrease from last year. Mezzanine accounts for 16% of strategies, an increase of 3%, supplanting distressed debt (8%) as the second most popular strategy.
Similar to last year, the majority of investors in private debt funds are institutional investors (80%), followed by retail investors (6%), sovereign wealth funds (5%) and private banks (4%). 68% of these investors are from European countries.
Most funds (76%) continue to be classified under Article 6 of SFDR, compared to 21% under Article 8 (an increase of 3% from last year). In particular, the survey found that the number of Article 9 classified funds has fallen by 2% to only 3.5% of funds. reflecting a more cautious approach to ESG integration.
The introduction of AIFMD II has provided clearer guidelines on loan origination, positioning Luxembourg as a top destination for complex fund structures and investment strategies.
Julien Bieber, Partner Tax, Alternative Investments & Co-Head of Private Debt at KPMG in Luxembourg said: “Luxembourg is now recognised as one of the most attractive domiciles for private debt funds, reflected in the impressive growth of assets under management. In the future, the AIFMD II will offer a more robust and aligned framework for loan origination, which is poised to harmonise regulations across Europe.”
