The jurisdiction's private debt market grew by 24.7 per cent in assets under management between December 2023 and December 2024, according to The Private Debt Fund Survey 2025 by (ALFI). It is based on data provided by 13 Luxembourg depositary banks.

While North America remains a key investment region (17 per cent), Europe dominates with European Union member states accounting for 37 per cent and the rest of Europe for 26 per cent, the survey reveals. Other regions include other the Americas (6 per cent), Asia (5 per cent), and Africa (3 per cent). Investment is broadly spread, with allocations to chemicals, IT, telecoms, media and communications (19 per cent), healthcare and life science (17 per cent), energy and environment (16 per cent), infrastructure and transportation (15 per cent), and consumer goods (13 per cent).

The balance between debt-originating funds (50 per cent) and debt-participating funds (48 per cent) has shifted marginally compared with last year (49.3 per cent and 49.5 per cent, respectively). The share of open-ended funds has declined from 26 per cent to 10 per cent, while closed ended funds account for 90 per cent of the market.

The market for private debt has grown since international banking rules in the aftermath of the 2008 financial crash changed sources of credit, prompting new channels to come into force. To some extent, the rise of private credit mirrors the ascent of private equity as an asset class and is a frequent topic in the world's wealth management sector. 

This publication attended a conference in Luxembourg yesterday to discuss such topics. Among the issues raised was how the private debt market faces important new European rules. (Also, see this report from early April following another ALFI conference attended by WB.)

The funds market
The KPMG/ALFI report said the Luxembourg debt funds use three main debt strategies: direct lending (52 per cent), mezzanine (17 per cent), and distressed debt (11 per cent).

Institutional investors continue to lead the market at 82 per cent, followed by retail investors at 7 per cent, high net worth individuals at 4 per cent and private banks at 4 per cent. Investors are primarily from the EU at 77 per cent, up from 68 per cent last year, the survey reveals.

Environmental, social, and governance (ESG) considerations also remain relevant,  although managers report a more pragmatic approach in today’s higher-rate environment, the firm continued. Seventy-one per cent of funds are classified under the EU’s Sustainable Finance Disclosure Regulation (SFDR) Article 6, a slight decrease compared with last year, while there has been a slight shift towards Article 8 at 25 per cent and Article 9 at 4 per cent classifications.

Luxembourg’s first Distributed Ledger Technology (DLT) agent, approved in July 2025, also shows the country’s role in advancing blockchain and tokenization within private markets, the firm added.

Sixty-four per cent of funds are structured as Reserved Alternative Investment Funds (RAIFs), up 2 percentage points, compared with 2023, the survey shows. Special Limited Partnerships remain the preferred choice for alternative investment funds (AIF) debt vehicles, representing 80 per cent of the market.

“Investor demand and product innovation are driving clear growth in private debt. Luxembourg’s rise in cross-border fundraising vehicles is turning the country into a go-to location for origination and servicing,” Julien Bieber, partner tax, alternative investments, at KPMG in Luxembourg, said. “With ESG checks built into our processes and modern technology streamlining transactions, we are strengthening the market’s resilience and broadening access for all participants.”

“Driven by investor confidence and adaptability, Luxembourg’s private debt market continues to grow and is steadily evolving,” Serge Weyland, CEO at ALFI (pictured below), added. “Its regulatory flexibility, innovative environment, and skilled workforce cement its role at the core of Europe’s alternative investment landscape.”
 

Serge Weyland

Regulatory developments
The implementation of Alternative Investment Fund Managers Directive II (AIFMD II), which will be effective by 16 April 2026, is being transposed into legislation in Luxembourg, and the European Long-Term Investment Fund 2.0 (ELTIF2), is expected to broaden cross-border loan origination and retail access, the firm continued.

ELTIF2 was introduced in 2024 in a bid to make long-term investments more accessible to retail and institutional investors across Europe. “Private assets are moving into the mainstream and ELTIF2 is opening doors,” experts said in a panel debate at ALFI's Private Assets Conference 2025 in Luxembourg this week

However, in a separate debate, they also warned that AIFMD II will significantly increase the regulatory constraints on private debt through new rules for loan origination, including leverage limits, single borrower exposure limits, and a ban on “originate-to-distribute” strategies. It also introduces a 5 per cent risk retention requirement for originated loans, imposes new disclosure and transparency rules. Costs will rise and managers will need to look at tech solutions to help solve this, experts said. "It's the big elephant in the room," they added.

The 2025 survey conducted jointly by ALFI and KPMG (9th edition), draws on data from 13 depositary banks based in Luxembourg with significant exposure to the private debt fund market, and covers more than 1,500 private debt funds and sub-funds.

Since 2017, the survey has included figures for private debt funds domiciled in Luxembourg that have a depositary bank in Luxembourg, regardless of where their alternative investment fund manager (AIFM) is located. The purpose of the survey is to analyse the dynamics and trends of private debt funds in Luxembourg, anticipate future developments and provide data-driven qualitative insights.