Presented at the Association of the Luxembourg Fund Industry’s private assets conference in Kirchberg on 25 September 2024 and published on 26 September, the Alfi-KPMG is based on data from 13 Luxembourg-based depositary banks that together have €510bn in assets under management. AUM have seen growth of 21.5% between 30 June and 31 December 2023, noted , tax partner at KPMG Luxembourg. “The market is becoming more mature,” he said, adding that the growth rate may decrease in the future.
Here are a few takeaways from the survey.
37% are regulated
Just over one-third (37%) of the Luxembourg debt funds in the survey are regulated or indirectly supervised investment vehicles, like reserved alternative investment funds (Raif) or specialised investment funds (Sif). Last year, this figure stood at 55%.
Raifs and SCSP dominate debt funds
Reserved alternative investment funds now account for 62% of indirectly supervised private debt funds, found the survey. That’s an increase of nine percentage points compared to 2023 and an increase of 17 percentage points compared to 2022.
The market share of Sifs, on the other hand, has dropped six percentage points, from 38% in 2023 to 32% in 2024. The Part II framework, added Bieber, has been “revived” for retailisation.
In terms of other alternative investment funds, the Luxembourg special limited partnership (SCSP) dominates, making up 86.2% of other AIFs. It’s a “very flexible” vehicle that “has been a success since it was launched,” said Bieber.
Half-and-half between originating and participating
A debt fund can be debt-originating (meaning it can grant loans) or debt-participating (meaning it can acquire or restructure existing debts from third parties, but it cannot grant loans), noted the survey, which found that funds were split roughly half-and-half between the two types.
49.3% of debt funds were debt-originating (primary market) and 49.5% were debt-participating (secondary market).
Main strategy is direct lending
Looking at investment strategies, “direct lending is really the key investment strategy,” said Bieber, accounting for 62% of funds. That’s followed by the mezzanine strategy, which has “made a comeback” (16%), and distressed debt (8%).
Most funds in the less than €100m range
“Last year, we had a huge increase in terms of percentage of the big funds, while this year, we can see that a lot of small funds have been created,” said Bieber. “It’s not just large players.” Funds in the €0 to €100m range went from 35% of market share in 2023 to 45% in 2024; funds in the €1bn to €5bn range dropped from 30% of market share to 11%.
“We think that it’s mainly because fund managers are still proposing very detailed investment strategies--in the type of debt, the type of risk--which means that they are creating very specific funds, for specific investors and for specific strategies.”
Broad sectors, mostly Europe
The survey found that the economic sectors finance remain “very broad,” said Bieber. The top sectors are chemicals, IT, telecoms, media and communications (18%), infrastructure and transportation (17%), healthcare and life science (16%), and energy and environment, including clean technology (16%). “Real estate is very small in the private debt universe,” he added.
Debt funds are mainly investing in the EU27 (35%), the rest of Europe (25%) and the United States (15%), concluded Bieber. Investment in other regions is “fairly limited,” though the Middle East did see an increase (up five percentage points to 7%) in this edition of the survey.