Luxembourg’s private debt funds grew AUM by 51pc this year
Luxembourg-based private debt funds grew their assets under management (AUM) by 51 per cent in 2023, to a total of €404.4bn (£346.6bn).
According to the 2023 Private Debt Fund Survey by the Association of the Luxembourg Fund Industry (ALFI) and KPMG, this demonstrates the phenomenal recent growth of the private debt sector and the future potential of the asset class.
“Despite uncertainties, the Luxembourg private debt fund market has demonstrated once again, its attractivity by expanding at a remarkable pace and the outlook for this asset class is optimistic,” said Julien Bieber, partner in tax and alternative investments and co-head of private debt at KPMG in Luxembourg.
“The Luxembourg financial hub managed to capture this phenomenal growth thanks to its cross-border fund raising and investment know-how.
“We’re seeing private debt hit new levels of mainstream acceptance compared to the traditional bank lending, impacting how borrowers access and negotiate debt packages.
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“The demand for debt financing remains robust, such as financing sustainable projects in many economic sectors and major infrastructure. The appeal to this asset class is steadily growing.”
The survey also found that 81 per cent of those investing in private debt funds are institutional investors, while eight per cent are retail investors and 4.5 per cent are private banks. This marks a three per cent and one per cent drop in institutional and retail investors, respectively, and a rise of 2.5 per cent in private banks compared to last year.
Like last year, the investment strategy of Luxembourg-based private debt funds is mainly focused on three debt strategies: direct lending (64 per cent), distressed debt (13 per cent), and mezzanine (13 per cent).
18 per cent of private debt funds are invested in infrastructure and transportation, followed by energy and environment, and chemicals, IT, telecoms and communications at 16 per cent each.
While 98 per cent of all debt funds have a multi-country investment approach, 69 per cent are targeted on the European market.
“The EU remains very attractive for investments since other markets face oversaturation, especially in the US,” added Bieber.
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“Private debt is particularly agile in the new environment, with high inflation, high nominal interest rates and low economic growth: Investors are finding an interesting option to protect their capital with strong risk-weighted returns generated by investment strategies such as loans bearing floating interest rates to well capitalized borrowers.
“Additionally, the EU is beefing up its regulatory framework and ESG integration as a boost to offer high quality pan-European products. The potential for digitalisation and tokenisation to revolutionise this market should not be underestimated, as it bears promises of retailisation, risk reduction and ultimately, helping make better decisions.”
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