During a recent meeting with journalists, the CEO of the Luxembourg funds industry discussed the popularity of alternative funds, what he thinks about risks to sectors including credit, and the need to get more European savers' money out of low-yielding cash.

The overwhelming majority of Luxembourg-domiciled funds that are in the alternative investments space – such as private equity and hedge funds – are closed-ended and should withstand a liquidity crisis, the European jurisdiction’s funds industry argues.

ALFI – the Association Of Luxembourg Fund Industry – says Luxembourg is home to €7.6 trillion ($8.9 trillion) in assets under management in funds, of which about a third are in alternative investments. The jurisdiction, like others, has seen a rise in popularity of private market investments, including those in the private credit space.

Some senior organisations are starting to fret about private credit – occasionally dubbed “shadow banking.”

Last week, Kristalina Georgieva, head of the International Monetary Fund, reportedly said the potential risk from private credit “keeps me awake every so often at night...We know that the non-banking financial institutions do not enjoy the same level of regulatory oversight as banks do.” Concerns about the $3 trillion sector have been sparked by the collapse of US subprime auto lender Tricolor, and auto parts supplier First Brands. In April 2024 the IMF said the sector poses risks but they are not systemic.

Asked how robust Luxembourg’s funds sector is in the face of a potential market blow-out, Serge Weyland (pictured), ALFI’s CEO, told journalists in London that the closed-ended nature of most alternative funds was protection against the kind of pullout rush that can affect open-ended portfolios during tough market conditions.

“If a liquidity crisis hits I’m not too concerned about risks to Luxembourg to that extent,” Weyland said.

Alternative investment funds (AIFs) and the regulatory environment created by the European Union after the 2008 financial crisis, with its focus on stress-testing, controls on liquidity and disclosure requirements, were important changes to consider in thinking about risks, Weyland continued. 

“The regulatory framework cannot be compared with what existed before 2008,” he said. “Investors have a better understanding of what liquidity is,” he said, referring to understanding “gating” on investments, special liquidity provisions and so forth.

Another benefit of widening the array of asset classes, Weyland said, is that this diversifies sources of return and that’s positive from a risk point of view.

According to The Private Debt Fund Survey 2025 by KPMG and ALFI, issued a few days ago, Luxembourg's private debt market grew by 24.7 per cent in assets under management between December 2023 and December 2024. Luxembourg debt funds use three main debt strategies: direct lending (52 per cent), mezzanine (17 per cent), and distressed debt (11 per cent).

Taking more risks to boost growth
Separately, Weyland reflected on a recent report from ALFI and McGill University – see here – on how European policymakers must encourage investors to put more into risk assets to boost the region’s long-term economic performance. 

With €2.6 trillion of alternative assets funds in Luxembourg, growth is likely to continue; deal activity has picked up in recent months after a difficult period in the aftermath of the pandemic and after the rise in interest rates, Weyland said. 

Structures such as the European Long Term Investment Fund, aka ELTIF, and its second iteration – ELTIF 2.0 – is a product that is “gaining momentum,” he continued. ELTIF 2.0 was introduced in 2024 to make long-term investments more accessible to retail and institutional investors across Europe.

Across continental Europe, retail investors are some way off from participating in such investments, and they still have a long way to go before deploying money into more traditional listed markets, he said. “Most individuals are still sitting in cash!” Weyland said.