Luxembourg’s depositary banking sector is undergoing a structural shift as demand for alternative investment funds (AIFs) continues to rise. The latest ABBL–KPMG survey shows a significant expansion in assets under depositary (AuD) for RAIFs, private equity funds, and other alternative structures.
In 2023, assets under depositary for Reserved Alternative Investment Funds, or Raifs, grew by 144 billion euros, while other AIFs, such as partnerships, increased by 180 billion euros. Private equity funds saw a further 108 billion euro rise in assets, underscoring investor appetite for private market exposure.
In contrast, traditional investment vehicles like Ucits continued their steady growth, rising 6 percent year-on-year to 4 trillion euros, but alternative funds are clearly driving the most dynamic expansion in Luxembourg’s financial ecosystem.
«This encouraging development, however, brings its own set of challenges,» said David Claus, chair of the ABBL Depositary Banking Cluster, in the survey’s foreword. «Unlike the largely streamlined and automated processing of Ucits funds, alternative funds require more customized handling. To sustain this momentum, we must strike a delicate balance between advancing digitalization and enhancing value-added services.»
AIFs differ significantly from Ucits in that they lack standardized workflows and require manual oversight, particularly in asset verification, compliance monitoring, and transaction reconciliation. The increase in non-traditional assets, such as private equity, infrastructure, and partnerships, has placed greater demands on Luxembourg’s depositary banks to enhance their operational frameworks and risk management systems.
To support this growth trajectory, banks are accelerating efforts in digitalization and automation, particularly in data processing, investor reporting, and regulatory compliance, the survey noted. However, the transition to more technology-driven solutions remains a work in progress, as many alternative funds still require case-by-case handling due to their bespoke investment structures.
The expansion of AIFs is also contributing to shifts in workforce dynamics within Luxembourg’s depositary sector. Banks are increasing specialist hiring efforts while maintaining a 1:1 ratio of local to international staff, reflecting the global nature of fund administration. However, the industry faces challenges in attracting and retaining skilled professionals, given the technical expertise required to manage alternative fund structures.
Market concentration remains high, with the top 10 depositary banks holding over 78 percent of total AuD. As AIFs continue to scale, Luxembourg’s competitive edge will depend on its ability to adapt, ensuring that regulatory compliance keeps pace with innovation while reinforcing the country’s role as Europe’s leading center for fund administration and depositary services.
Assets under deposit, broken down by fund type
Source: ABBL-KPMG survey on depositary banking.