Agefi Luxembourg - novembre 2025

AGEFI Luxembourg 26 Novembre 2025 Fonds d’investissement L uxembourg is a leading hub for alternative investments, with private debt driving growth and US managers leveraging it as a gateway to global investors. As of late 2024, net assets fromUS promot- ers domiciled in Luxembourg ex- ceeded €176 billion. (1) This figure excludes unregulated vehicles given the lack of publicly avail- able information and sounder- estimates the even larger exposure US managers have to this segment. This reflects a clear strategic intent: to combine Luxembourg’s reg- ulatoryflexibilitywithglobal distribution capabilities. Within this, the Luxembourg private debt market showsstrongmomentum,fromsemi-regulatedstruc- tures such as many SCSpAIFs prominently used, to moreregulatedformsofAIFsundertheRAIF,SIFand Part II UCI regimes that can offer wider distribution channels.Thisversatilityreflectsmanagers’preference forflexibilityandbespoke solutions, reinforcingLux- embourg’s position as a jurisdiction that presents a wide array of products of varying regulatory advan- tages anddistribution capabilities. The Rise of Private Debt in Luxembourg Private debt has evolved froma niche allocation to a mainstream strategy for institutional investors. Ac- cording to theAlternative Credit Council (ACC), Fi- nancing the Economy 2024 which EY Luxembourg sponsored, the global private credit market reached US $3 trillion in 2024 and is projected to grow to US $3.5 trillionby2028 (2) , drivenby structural shifts infi- nancingandinvestorappetiteforyieldanddiversifi- cation.Europenowrepresentsapproximately30%of thisglobalmarket,growingnearlytwiceasfastasthe USsegment,withassetsapproachingUS$500billion. Luxembourg continues to consolidate itspositionas the leading EU jurisdiction for private debt fund launches, supported by a robust regulatory frame- work, flexible structuring options, and a mature fi- nancial ecosystem. The market has shown strong growth in recent years, with increasing investor ap- petite and expanding fund structures. Beyond the broader growth in private credit, there are also certain trends within themarket: - Direct lending dominates: In Luxembourg, 64% of private debt funds follow direct lending strate- gies. The remaining 10% consists of more special- ized strategies such as special situations, real estate debt, and structured credit, while mezzanine ac- counts for 13%anddistresseddebt for another 13%, making these secondary segments but still grow- ing. (3) - Shift toward open-ended funds: Open-ended structures doubled to 26%of themarket in 2024, re- flecting growing investor demand for liquidity and managers’ search forwider distribution opportuni- ties. This trend highlights a shift towardmore flex- iblevehicles that canaccommodatediverse investor profiles and broaden access across jurisdictions. - Geographic diversification: North America re- mains the largest and most mature private credit market, currently about twice the size of Europe. However, Europe is growingat a faster pace, driven by structural changes in financing as banks reduce lending and investors seek alternative sources of yield. Together, Europe and the US account for nearly90%of theglobal private creditmarket, high- lighting a strong European growth trend. KeyDrivers of Growth - Regulatory clarity Almost a decade before the application ofAIFMD II, which provides for harmonized rules on loan origination funds, including leverage caps and risk retention, Luxembourg’s competent authority had already provided clarification through the FAQonAIFMLaw. This guidance officially stated that loan origination, participation, and acquisi- tion should be considered as permissible activities for AIFs. This has created a solid foundation with legal clarity for Luxembourg’s rise as a private debt hub. - ELTIF hub Themost popular investment strategies under the ELTIF label involve private debt. ELTIF is great label for asset managers that want to benefit from a marketing passport which allows distribution for not only professional investors, but for retail investors as well. Luxembourg is already the pri- mary European environment for ELTIFs, being the domicile of almost 60% of the existing ELTIFs and providing an attractive tax regime with sev- eral exemptions for such funds. - Retailization Among themyriads of fund regimes, Luxembourg has a dedicated regime tailored to retail investors wanting to invest in alternatives. Part II undertak- ings for collective investment (UCIs) do not require a minimum investment and can be set in different forms (such as public limited company, (4) private limited company, (5) special limited partnership (6) ). Moreover, they have flexibility in the level ofman- agement: they can bemanaged internally or exter- nallymanaged (by a management company or an AIFM– registeredor authorized, subject toAIFMD threshold). This flexibility makes Part II UCIs the preferred formfor LuxembourgELTIFs, represent- ing 73% of the ELTIF market. - Flexible Fund Structures Luxembourg offers a wide range of vehicles tai- lored to private debt strategies: o Unregulated funds: this type of vehicle, often times set as an SCSp, does not require prior au- thorization from the CSSF, and benefits from higher flexibility. Unregulated funds set as SCSp mirror the US Delaware LP, offering contractual freedom, no minimum capital, and tax trans- parency. It is unregulated at the fund level but may fall under AIFMD via the appointed AIFM and its other service providers under the purview of the Luxembourg regulator. o RAIFs (ReservedAlternative Investment Funds): RAIFs combine speed-to-market with an initial setup in about 4–6weeks (generally becoming op- erational with all service providers in place in 3-4 months), since they do not require prior authori- zation from the CSSF. They also benefit from AIFMD compliance due to the mandatory ap- pointment of an authorized AIFM, which allows them to be marketed in every Member State to professional investors. It is an ideal product for managers under time pressure to deploy capital. RAIFs can also be structured as umbrella funds with multiple compartments. Example : AUS credit manager launching a European direct lending strategy opts for a RAIF structured as an SCSp, managed by a Luxembourg AIFM, to com- bine operational familiarity with EU passport. This structure could then launch additional compartments, each having different investors investing into varied in- vestment portfolios, all within the same umbrella fund structure. o SIFs (Specialized Investment Funds): Subject to CSSF prior approval, SIFs can be set in different forms, including contractual forms such as FCP, and benefit from management flexibility which permits them to be internally managed or exter- nallymanaged (either by amanagement company or an AIFM – registered or authorized subject to AIFMD threshold). A SIF is a regulated option for investors, mainly institutional, seeking additional oversight. Example : A US manager launching a Euro- pean direct lending strategy could opt for a SIF structured as an SCSp, balancing addi- tional investor protection with operational ef- ficiency. o Part II UCIs: Also subject to CSSF prior approval and benefiting from management flexibility, Part II UCIs differ from the previous regime for being a product made to retail investors meaning that no minimum entry ticket is required. Example : A US credit man- ager launching a European di- rect lending strategy opts for a Part II UCI structure that par- allels their US Business Devel- opment Company (“BDC”) launch and allows for retail distribution with no minimum entry ticket in Luxembourg and, if used in conjunction with ELTIF, across all EU/EEA countries - Tax benefits Luxembourg UCIs, SIFs and RAIFs have several tax benefits such as exemption from income tax, net wealth tax andWHT. Moreover, Luxembourg hasmore than 80 double tax treatments and is cur- rently reforming its carried interest regime to in- crease the scope of eligible persons andprovide for different tax regimes (depending on whether it is a contractual or participation arrangement). - No boundaries via EU Passport Luxembourg offers full access to EU professional investors through theAIFMDmarketing passport, which allows funds managed by an EU-autho- rized AIFM to be marketed across all EEA/EU countries without the need for multiple local au- thorizations. ELTIF Regulation also offers a pass- port allowing distribution in all EEA/EUcountries not only to professional but also to retail investors. o Example: A US manager launching a Luxembourg RAIF (ReservedAlternative Investment Fund) managed by an authorizedAIFM can market seamlessly to insti- tutional and professional investors across the EU/EEA under one regulatory framework. o Impact: This eliminates the complexity of navigating 27 different national regimes and accelerates fundraising timelines. - AMature Ecosystem of Service Providers Luxembourg hosts a dense network of (third- party) AIFMs, administrators, depositaries, legal advisors and auditors ensuring robust governance and compliance. Most global sponsors now cen- tralize not only back-office, but also middle-office functions inLuxembourg, leveraging the country’s expertise in alternative strategies. This operational ecosystemprovides, among other benefits: - Regulatory oversight (including risk manage- ment, compliance, reporting) - Operational scalability for managers without a local presence - Specialized expertise in alternative lending strate- gies, including distressed debt and mezzanine fi- nancing Insight: Over 90% of the top 30 global debt fund man- agers already operate in Luxembourg, leveraging this in- frastructure for pan-European distribution. A key advantage lies in leveraging strong relationships with US service providers and connecting them to local Lux- embourg partners. This existing familiarity enables a streamlined playbook, reducing complexity and service delivery friction compared to other jurisdictions, and ac- celerating time-to-market for US managers. Pitfalls When Setting Up a Private Debt Investment Fund in Luxembourg – and How toAvoid Them 1.Align Product DesignwithDistributionGoals Designing the right product structure starts with understanding the nuances of each market. De- faulting to familiar US approaches (such as using an SCSpAIF as a proxy for aDelaware LP) is com- mon, but can lead to suboptimal structuring and higher costs for investors. For broad distribution strategies, alternative products in dual structures (parallel US and Luxembourg domiciles) can pro- vide flexibility for co-investment and investor alignment. Conversely, for European-focused lending, a ded- icated Luxembourg platform with local holding entities remains the most efficient solution from both tax and regulatory perspectives. 2.Manage Service ProviderDynamics UnliketheUS,wherein-houseteamsdominateeither directly or via significant oversight functions, Lux- embourgreliesheavilyonthird-partyAIFMsandad- ministrators. Tip: Engage early, define clear Service Level Agree- ments (SLAs) such as response times, resolution tar- gets, and quality standards, and ensure cultural alignment to avoid operational friction. Anywhere you can align service provider delivery globallywill also helpwith all of the above items. 3.Adapt Reporting Standards Transitioning fromUSGAAP to IFRS or LuxGAAP requiresplanning, and is oftendrivenby investor re- quests: - IFRSmay lead todifferent consolidationoutcomes, differenttreatmentsofcarriedinterest,andincremen- talorvaryingreportingdisclosurerequirements.En- sure you and your service providers have sufficient expertise. - Lux GAAP is less complex but is principle based similar to IFRSand is aligned to the legal agreements oftheentitiesinquestion(e.g.,flexibilityinamortiza- tion of organizational costs). - US GAAP remains common in the Luxembourg marketandispopularwithUSmanagerstoallowfor global consistency in their financial reporting. Tip: Remember that certainLuxembourg regulatory reporting requirements will be unique compared to similar US entities (e.g., SFDR Annex, AIFMD Re- port). 4.AnticipateRegulatoryChanges AIFMD II (applicable fromApril 2026) introduces, among other: - Loan origination rules mainly in relation to risk re- tention and leverage caps: These include stricter risk retentionrequirementsandleveragecaps,whichwill impact howmanagers structure and monitor credit portfolios. -Liquiditymanagementtoolsforopen-endedfunds: Enhancedmechanismssuchasredemptiongatesand notice periods aim to prevent liquidity mismatches. Early adoption of these tools helps avoid costly re- structuring and reinforces investor confidence. Thedetailedrulesonliquiditymanagementrequire- ments (including sound liquidity management and liquidity stress tests) applicable to open-ended loan- origination fundswhichwill be coveredbya specific delegated act andwill not be adoptedbefore 1Octo- ber 2027 at the earliest. These requirements have been under discussion at the level of the regulator for some time and provide a clear example of the importance of connectivity withlocalserviceproviderstounderstandthetiming and impact of forthcoming regulation changes. Looking ahead Despite macroeconomic headwinds, private credit remains resilient. Deployment volumes grew from $203 billion in 2022 to $333 billion in 2023, (7) and we have seen continued growth through 2024 under- scoring the sector’s structural strength. With Europe representing 30% of the global market and Luxem- bourg at its core, US managers who navigate these nuances will continue to capture the significant op- portunities existing in themarket. Luxembourg is no longer just a fund domicile; it is a strategicenablerforglobalprivatedebtplatforms.For USmanagers, success hinges on three pillars: -Investoralignment (structuringproductsthatmeet liquidity and reporting expectations). - Regulatory foresight (anticipating AIFMD II and ESG requirements), - Operational excellence (leveraging Luxembourg’s ecosystemwithout losing control), and Those who master these dynamics will not only avoid common pitfalls but also position themselves at the forefront of Europe’s fastest-growing alterna- tive asset class. Kyle FRASCA, EY Luxembourg Partner,Assurance Vincent REMY, EY Luxembourg Partner, Private Debt Leader 1)TotalNAVofthefundsdomiciledinLuxembourgwhichhaveprivate debt as asset allocation according toMonterey Report 2025. 2) Financing the Economy: The Future of Private Credit | EY Luxembourg 3)An update on private debt funds in Luxembourg 4) S.A. 5) S.à r.l. 6) S.C.Sp. 7) Financing the Economy: The Future of Private Credit | EY Luxembourg The Luxembourg Private Debt Wave: How US Managers Are Driving Growth andAvoiding Common Pitfalls 800 600 400 200 200 bn 150bn 100bn 50bn 0bn 2018 2020 2022 2024 Number of sub-funds TNAVUSD Source:MontereyReport Evolutionof PrivateDebt in Luxembourg