The Luxembourg private debt fund market has reached a significant milestone, with assets under management (AuM) surpassing €500 billion, according to the 2024 KPMG Private Debt Fund Survey commissioned by the Association of the Luxembourg Fund Industry (Alfi).

The survey has shown that from June to December 2023, AuM increased by 21.5%, reaching €510 billion, reflecting investor appetite for private debt funds domiciled in Luxembourg despite global market uncertainties.

The survey also highlighted Luxembourg’s continued growth as a private debt hub, building on last year’s 51% AuM growth. It also underscored the diversity in fund strategies and the increasing appeal of regulatory frameworks tailored to the private debt market. Another trend is the dominance of Special Limited Partnerships (SCSp), which account for 86% of indirectly supervised private debt fund vehicles, while Reserved Alternative Investment Funds (Raifs) represent 62% of regulated funds, up by 9% since June 2023.

European investments remain a focal point, with EU member states representing 35% of all investments, and the rest of Europe contributing 25%. North America also remains a key area of interest, accounting for 15% of investments. The researchers also noted the trend of sector diversification, with chemicals, IT, telecoms & media (18%), infrastructure (17%) and energy and environment (16%) among the leading sectors.

A shift in fund structures has also been observed, with the gap narrowing between debt-originating and debt-participating funds, now almost evenly split. Open-ended funds have seen substantial growth during the period, doubling to 26% of the market, although closed-ended funds continue to dominate at 74%.

The introduction of AIFMD II has positioned Luxembourg as a key destination for complex fund structures, providing greater clarity around loan origination strategies, said the researchers.

While ESG integration remains cautious, with 76% of funds classified under Article 6 of SFDR, the share of Article 8 funds has risen to 21%, indicating a gradual shift towards sustainable investment practices. 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.

Julien Bieber, partner tax, alternative investments & co-head of private debt, KPMG Luxembourg, said: “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. Additionally, a confluence of favourable factors such as high interest rates, growing appeal among investors, demand for tailored solutions by borrowers, and a shift away from traditional bank lending has shaped a dynamic landscape.

“Lastly, we believe Luxembourg’s leading position will be sustained through its strategic use of data and technology, access to a highly skilled and diverse workforce, expansion through retailisation, and a supportive regulatory framework.”

Serge Weyland, CEO at Alfi, added: “This survey highlights the sustained appetite for private debt, with Luxembourg emerging as the domicile of choice, supported by its robust regulatory environment, political stability, and highly skilled workforce. We expect the growing momentum for retailisation to bring further sophistication and opportunities to the Luxembourg private debt market.”