The Luxembourg private debt fund market, with its assets under management soaring to 404.4 billion euros, marks a stunning 51 percent growth year-over-year, showcasing its robust position in the European financial landscape, according to the latest edition of the annual private debt survey by KPMG and industry association Alfi.
At the heart of this growth lies a mix of both regulated and unregulated investment vehicles. Regulated vehicles, under the vigilant eye of the Commission de Surveillance du Secteur Financier (CSSF), cater to well-informed investors, including institutions and professionals. These include Reserved Alternative Investment Funds (Raifs), Specialized Investment Funds (Sifs), and Part II funds.
The survey takes stock of the changes in the private debt market in Luxembourg between June 2022 and June 2023. The study underlines the strong growth in the use of Raifs as vehicles for private debt funds, at the expense of SIF funds. Unlike SIFs, a Raif is subject to a less stringent reporting and approval regime; only its AIFM is subject to direct supervision and not the fund itself.
As per June 2023, Raifs dominate the Luxembourg private debt market, accounting for 53 percent. Only four years ago, SIFs accounted for 67 percent. Some 85 percent of private debt vehicles have opted for a Luxembourg SCSp structure, under the special regime for investment partnerships. Some 86 percent of the market is now made up by closed-end funds.
In terms of fund size, a number of big funds are increasingly taking market share. The 1 to 5 billion euro segment now accounts for 30 percent of total assets under management. That was only 4.5 percent in 2021, when the measurements started.
Flexible framework
Unregulated vehicles are gradually becoming increasing popular in Luxembourg and now account for 45 percent of the total, compared to 40 percent in 2020. These unregulated vehicles, pivotal to the market, according to KPMG, offer heightened flexibility and lower costs. These include various partnership models and companies, each tailored to specific project needs, particularly in acquiring portfolios in targeted industries.
The market predominantly favours direct lending, accounting for 64 percent of investment strategies. Diverse sectors such as infrastructure, energy, and healthcare are the focus, reflecting a balanced investment approach. The funds’ primary geographical targets are the European Union, other European countries, and North America.
Investor Insights
Institutional investors form the backbone of the investor base, followed by retail investors and private banks. The majority of these investors are from the EU, reinforcing the market’s European orientation. In terms of financial reporting, euros are the primary currency, with fair value being the prevalent valuation method. Management fees typically range between zero and one and a half percent.
A typical debt fund in Luxembourg has only a handful institutional investors. Some 47 percent of the funds are held by no more than 5 different investors. Only six percent of all funds have more than a hundred investors.
Debt fund by debt size (in mln euro)
Click here to access the survey on KPMG’s website.