Agefi Luxembourg - septembre 2026

AGEFI Luxembourg 32 Septembre 2026 Fonds &Marchés By Bruno COLMANT, Ph.D., Member of the Belgian Royal Academy U .S. public debt now exceeds $39 trillion. It is no longer me­ rely one budget imbalance among many; it is becoming the organi­ zing principle of U.S. economic po­ licy as a whole. The United States is no longer borrowing to get through a recession, finance an exceptional war, or respond to a pandemic. It is borrowing conti­ nuously, even when the eco­ nomy is growing and unemployment remains low. The federal deficit is expected to reach another $1.9 trillion in 2026, or nearly 6% of GDP. At this pace, public debt could rise to 120% of GDP by the middle of the next decade. Donald Trump will never seriously tackle these deficits. His policy rests on a fundamental contradic­ tion: he simultaneously promises tax cuts, high­ er military spending, preservation of major social programs, and a protectionist industrial policy. None of these priorities can produce a spontaneous reduction in the deficit. All of them make it worse. His tax reform has already added several trillion dollars to projected deficits. On top of that now comes the cost of a war whose duration no one can predict, but whose military, logistical, and energyrelated expenses will be substantial. A president engaged in a costly foreign confronta­ tion, hostile to tax increases, and politically unable to cut social spending, has no credible path back to a balanced budget. The central question, therefore, becomes: Who will absorb the growing volume of securities issued by the U.S. Treasury? The first answer is the Federal Reserve. In his initial decisions, the new chair appears intent on preserving a degree of autonomy and keeping price stability at the heart of the Fedʹs mandate. But that indepen­ dence may soon be tested. Donald Trump has long demanded lower interest rates and a central bank more responsive to the political priorities of the White House. The larger the debt, however, the more fiscally burdensome higher interest rates become. Interest pay­ ments are consuming an increasing share of fed­ eral revenue. The Fed could therefore be pres­ sured to hold bond yields artificially below the level the market would normally require. Economists call this fiscal dominance: monetary policy is no longer conducted in response to infla­ tion, but according to the governmentʹs financing needs. Debt monetization would not necessarily take the dramatic formof printing vast quantities of money. It could occur through repeated bond purchases, a prolonged period of negative real interest rates, greater tolerance of inflation, or per­ manent support for liquidity in the Treasurymar­ ket. This is what Richard Nixon imposed in the early 1970s. The United States could also seek more coercive forms of external financing. Major foreign finan­ cial institutions, Asian central banks, and sovereign wealth funds could be encouraged to increase their purchases of U.S. securities. Military protection, access to the U.S. market, diplomatic guarantees, or favorable trade treat­ ment would then become the implicit quid pro quo for that financing. But this system has a limit. The rest of the world will eventually demand a rising risk premium to hold debt whose volume is growing faster than the political systemʹs capacity to stabilize it. Investors will require higher interest rates to com­ pensate for inflation risk, dollar depreciation, and the weakening of U.S. institutions. If, by contrast, the Fed prevents yields from rising, real interest rates could once again turn negative. Creditors would appear to be repaid in full but would in fact be partly expropriated by inflation and by the decline in the dollarʹs purchasing power. This would amount to a silent restructur­ ing of the debt: no formal default, but a gradual erosion of its real value. This financial risk is compounded by an even more troubling institutional risk. If Donald Trump were to challenge the results of the November 2026midtermelections, or, more seriously, the out­ come of the 2028 presidential election, markets would no longer face only a political crisis. They would discover that the very continuity of the U.S. government could be called into question. Allegations of fraud, challenges to votecounting procedures, pressure on individual states, or a refusal to concede defeat could trigger a pro­ longed constitutional crisis. Yet U.S. debt rests less on the governmentʹs physical assets than on con­ fidence in its institutions, its currency, its courts, and the peaceful transfer of power. The financial consequences would be consider­ able. The dollar might initially strengthen as a safehaven reflex, as it often does during interna­ tional crises. But that move would probably be temporary. Over the longer term, a currency issued by a country that monetizes its debt, weak­ ens its central bank, and challenges its own elec­ tions can only lose part of its status. The bond market would be trapped in a destruc­ tive dilemma. If investors demand a higher risk premium, bond prices will fall, and longterm interest rates will rise. If the Fed intervenes to prevent that increase, bonds will be protected on paper, but their real returns will be eroded by inflation. Equity markets would also be affected. A sus­ tained rise in interest rates would compress valu­ ation multiples, particularly for technology com­ panies whose earnings are expected far into the future. The cost of capital would rise, investment would slow, and heavily indebted companies would become more vulnerable. Even nominal profits inflated by rising prices would not neces­ sarily offset the increase in discount rates. The American danger, therefore, lies not only in the size of the debt. It stems from the convergence of four trends: permanent deficits, a costly war, the possible subordination of the Federal Reserve, and the erosion of democratic norms. Wall Street might then discover that a reserve cur­ rency rests on more than military power, the depth of a financial market, or the size of an econ­ omy. Above all, it rests on a political promise: that the borrowing government will remain pre­ dictable, that its central bankwill remain credible, and that its institutions will outlast the leaders who temporarily occupy them. When that promise disappears, the worldʹs safest debt gradually ceases to be safe. U.S. debt enters the danger zone O ver the past decade, the secondaries market has experienced sustained growth and expanded well be­ yond its traditional role within private equity. What was once considered a niche segment has become an increasingly impor­ tant part of the private markets ecosystem. Today, secondaries represent a growing share of fundraising activity, attract a broader range of investors and are extending into additional asset classes. As a result, they are increasingly viewed as a main­ stream component of private markets rather than a specialised liquidity tool. This evolution is not solely the result of recentmarket conditions.While liquidity constraints have undoubtedly con­ tributed to increased activity, broader structural factors are also driving de­ mand. Longer holding periods, slower distributions and increasingexpectations from investors regarding liquidity and portfolio management have created an environment inwhichalternative liquid­ ity solutions play amore prominent role throughout the lifecycle of private funds. In that context, liquidity solutions are becoming increasingly embedded in private market structures and are no longer limited to addressing temporary liquidity gaps. Rather than isolated transactions, they increasingly form part of the broader capital lifecycle through which private capital plat­ forms channel institutional capital and adapt ownership structures over time. Theyarenowused to support fundlevel portfoliomanagement, underlying asset management and investment strategy objectives across a range of situations. Why liquidity has become a central consideration One of the key developments in recent years has been the concentration of liq­ uidity pressure during the holding pe­ riodof investments.When exit timelines become longer anddistributions decline, the effects are felt across the entire fund structure. Investors may seek liquidity or wish to rebalance their portfolios. Fundmanagers may require additional flexibility to support existing assets or execute their investment strategy. At manager level, liquidity may also be needed to support platform develop­ ment or future growth initiatives. As a result, liquidity considerations are increasingly being addressed through­ out the lifecycle of a fund rather than solely at the point of exit. This develop­ ment has contributed to the growing use of a wider range of liquidity solu­ tions across private markets. One challenge, multiple solutions Because liquidity needs can arise at dif­ ferent levels of a structure, no single so­ lution is appropriate in every situation. LPled secondaries remain one of the most established approaches. They allow investors to transfer their interest in a fund to another investor and obtain liquidity before the endof the fund’s life. While these transactions have become increasingly familiar to market partici­ pants, they continue to require careful consideration of economic rights, un­ funded commitments, transfer restric­ tions and governance arrangements. Continuation vehicles address liquidity froma different perspective. They allow managers to retain selected assetswhile providing existing investors with a choice between liquidity and continued participation. These structures can also attract new investors and additional capital, creatingflexibility for bothman­ agers and investors. As these transactions have grown in scale and sophistication, GPled pro­ cesses increasingly resemble, in their structuring and negotiation dynamics, transactions more commonly associ­ atedwith regulated or strategically sen­ sitive M&A. NAV financing represents another im­ portant solution where liquidity needs are primarily linked to cost and timing considerations. Rather than transfer­ ring assets or investor interests, these facilities provide financing at fund or asset level and may be used to support distributions, refinancing initiatives, followon investments or other liquid­ ity requirements, while preserving the existing structure. This involves fewer costs and enables access on a much shorter timeline. At manager level, liquidity solutions may include GP stake transactions and GPfinancing arrangements. Depending on the circumstances, the former can be structured asminority investments that do not transfer operational control, allowing the manager and the investor to establish a longterm economic rela­ tionship and preserve operational con­ tinuity, while also supporting platform development, GPcommitments, succes­ sion planning or other capital needs. Although these solutions differ signifi­ cantly in their design and objectives, they reflect the same underlying trend: portfolio and liquidity management is becoming an increasingly important part of private market structures. Growing importance of governance and execution As the market has evolved, execution has become an increasingly important consideration. The successful imple­ mentation of liquidity solutions requires more than selecting an appro­ priate structure, particularly in the con­ text of continuation vehicles, where managers may be involved on both sides of a transaction. In such situations, conflicts of interest must be identified, managed and dis­ closed appropriately. Governance mechanisms, valuation processes, in­ vestor disclosures and communication, as well as, where relevant, LPAC in­ volvement contribute to transparency and investor confidence. More broadly, the increasing sophisti­ cation of liquidity transactions requires close coordination across legal, regula­ tory, tax, financing and transactional workstreams. Transactions that are structured and prepared early are gen­ erally better positioned to achieve effi­ cient execution and investor alignment. Luxembourg as a structuring hub Luxembourg continues to play an im­ portant role in the implementation of secondaries and alternative liquidity solutions. The jurisdiction offers a broad range of fund and holding structures together with an established regulatory frame­ work that provides a high degree of certainty for market participants. Its ecosystem of fund managers, lenders, administrators and advisers has devel­ oped extensive experience in support­ ing increasingly sophisticated private market transactions. Luxembourg also benefits from a ma­ ture financing environment and well­ established financing and security frameworks that support solutions such as NAVfinancings andGPfinanc­ ings. Combined with its experience in crossborder transactions, this con­ tributes to Luxembourg’s role as a structuring hub for private market liq­ uidity solutions. Looking ahead The development of secondaries and alternative liquidity solutions reflects a broader shift in how liquidity is man­ aged across private markets. As the market continues to evolve, the focus is increasingly pivoting from whether these transactions will take place to how they can be structured and implemented effectively. Governance, transparency, preparationand coordina­ tion will continue to play an important role in delivering efficient outcomes for both investors andmanagers. Lynn ALZIN, Partner, Finance & Capital Markets Błażej GŁADYSZLEHMANN, Partner, Corporate Law, M&A Carlos RODRIGUEZ, Counsel, Investment Management Arendt & Medernach Secondaries and alternative liquidity solutions: From niche market to mainstream component of private markets