The Association of the Luxembourg Fund Industry’s annual Private Assets Conference kicked off with the presentation of several surveys, including the Alfi-KPMG , on 28 November at Luxexpo. , alternative investments partner at KPMG Luxembourg, had more details on the results.

The data does not cover the entire market and is based on data provided by the 12 depositaries surveyed, which represent 1,495 funds (or sub-funds) investing in private debt. This includes regulated funds and indirectly supervised investment vehicles, such as reserved alternative investment funds (Raif), specialised investment funds (Sif) and special limited partnerships (SCSp).

“We still see some phenomenal growth in this asset class,” Bieber said during a press briefing. Between June 2022 and June 2023, private debt has seen an average growth of 51% in assets under management, and the asset class has €404.4bn in total assets under management. This is “quite sizeable,” he noted.

45% unregulated vs 55% regulated vehicles

The report also includes trends on the proportion of regulated and unregulated vehicles. In 2023, there were more regulated debt funds (55%) compared to unregulated vehicles (45%). “This is the case, because the investor base is mainly made up of institutional investors, who generally prefer regulated vehicles,” said Bieber. “So that is why we have a large portion of the market that is regulated.”

Raifs make up 53% of debt funds

The proportion of specialised investment funds (Sif) has been decreasing over the past years, dropping from 67% in 2020 to 38% in 2023, found the survey. This is “quite a steep decline,” said Bieber.

On the other hand, the proportion of Raifs has increased, rising from 28% in 2020 to 53% in 2023. These are semi-regulated funds, meaning they’re less expensive to operate, he noted.

The proportion of Part II funds has increased a bit, going from 2% to 6%. “It’s also providing some kind of flexibility for institutional investors,” said Bieber.

“The main idea is that the Raif is still increasing,” he said. And “to use a Raif, you need an AIFM [alternative investment fund manager].” “The regulation is made at the fund manager level and not really at the product level, while the Sif is based on the former legislation, where you have regulation at the product level.”

Non-regulated vehicles more or less stable

Regarding the different types of non-regulated debt funds, these are “quite stable,” said Bieber. Luxembourg special limited partnerships made up around 85% of unregulated debt funds in 2023, found the survey. Limited partnerships (SCS) made up 6% of unregulated debt funds, Sarls made up 5.5% and other vehicles made up 3.5%.

Two-thirds use direct lending as investment strategy

Direct lending is still the main investment strategy, said Bieber, cited by 64% of survey respondents. “I would say it’s really the key investment strategy in Luxembourg.”

This is followed by mezzanine financing (13%) and distressed debt (13%). “With the economic environment, the distressed debt may increase, but it’s still limited to 13%.”

Venture debt (5%), fund of funds (3%) and special situations (2%) make up the rest of the investment strategies.

Large drop in number of small funds

Bieber also highlighted the evolution in private debt funds by size. “We have had a large decrease of the small funds--so, below €100m of assets under management.” In 2022, these funds made up 56% of private debt funds; in 2023, their share had dropped to 35%.

This decrease in the number of small funds has been “compensated” by an increase in the number of mid-sized and large funds. “[For funds] between €500m and €1bn, we have an increase from 6% to 11.5%,” noted Bieber.

“And the largest increase we see is for large funds--funds between €1bn and €5bn.” In 2023, these funds made up 7% of private debt funds. In 2023, their share climbed to 30%. “These large players are really driving this growth, which is very interesting to note.”

18% of financing for infrastructure, transport

The survey found that 18% of private debt financing goes to infrastructure and transportation, which are “mainly long-term types of investments,” added Bieber.

This is followed by the energy and environment sectors (16% of private debt financing), chemicals, IT, telecoms, media and communication (16%), health and life science (15%) and consumer goods (12%).

Exposure to real estate and construction, however, are relatively low: 8% of private debt financing goes to real estate, while 6% goes to the construction sector.

Geography: mainly in Europe

Survey respondents’ private debt investments are mainly in Europe, said Bieber. 42% of private debt funds have geographical investment targets in the EU and 29% have targets elsewhere in Europe. 13% are in North America, and the rest are spread through South America (4%), Asia (4%), Africa (3%) and the Middle East (2%).

Find the full results of Alfi-KPMG 2023 Private Debt Fund Survey .