What are the key findings from the KPMG “Private debt fund survey 2025”?

Julien Bieber. – “Our provisional figures indicate approximately 20% to 25% growth in assets under management for 2024 compared with 2023. This is supported by the withdrawal of banks from the corporate lending market, which has created opportunities for private funds to fill the gap, and by the launch of several European long-term investment funds (Eltifs), among other growth drivers beyond the usual institutional investor vehicles. Some studies have suggested that evergreen “Part II” funds are sold more frequently than Eltifs, possibly because the former cater more to private banking and wealth management clients.

This strong growth is notable given the size of the market, which reached €510bn in assets under management (AUM) last year for private debt funds with a Luxembourg depositary. It is important to clarify that these figures exclude non-regulated funds without a depositary and differ from CSSF statistics, which focus on Luxembourg-­­based alternative investment fund managers (AIFMs) managing domestic or foreign debt funds. Luxembourg remains highly attractive for cross-­border investments and investors.

Specialised investment funds (Sifs) demonstrated resilience with 3% growth and now account for 35% of the regulated reserved alternative investment fund (Raif)/Sif category. Many institutional investors, such as insurance companies and pension funds, often prefer regulated and bespoke investment vehicles. Sifs also provide easier categorisation and processing, for example in the context of tax treaties.

The special limited partnership (SCSp) structure and alternative investment funds (AIFs) remain dominant. Although the SCSp itself is not regulated, and AIFs are not regulated as products, they are supervised through their AIFMs. Their flexibility is a significant advantage, enabling them to adapt to the terms of a principal fund from, for instance, an American investor, and to act as parallel funds for Luxembourg-based investors.

This year, we have seen a significant increase in Luxembourg-originated funds, rising from 5% to 30% in our provisional figures. This suggests that more entities now hold their AIFM licences in Luxembourg to manage debt funds. While many American managers continue to view Luxembourg as a gateway to Europe and see it as a growth relay compared with the mature US market, the delegation model remains prevalent, with investment management often taking place elsewhere – such as in the US, UK or Switzerland – while risk management stays in Luxembourg.

Do you see a trend of more management activities moving to Luxembourg?

“Not yet. While Luxembourg has been moving up the value chain for several years, with more middle-office functions such as investor relations and certain roles shifting from London after Brexit, investment management largely remains elsewhere under the delegation model. However, the recently published draft law on carried interest is expected to serve as a powerful incentive for Luxembourg  to continue climbing the value chain by attracting deal team members  and investment committee participants to be based in Luxembourg.

Could you elaborate on these  general market trends beyond Luxembourg-specific cases?

“Based on interviews with fund managers, we have observed several notable trends. One is the increasing specialisation of market participants. With such a vast market, many boutique players are positioning themselves in specific asset types or niche strategies. This specialisation helps them build track records and support fundraising, whether by sector or by asset class, such as mezzanine debt.

Liquidity management remains another key point of focus. Unlike private equity funds, which are tied to exit strategies, credit funds often manage liquidity through asset-­generated payments like interest and repayments. This is particularly relevant given the trend towards retailisation and increasing sales to family offices. Evergreen funds and Eltifs are becoming more significant, offering semi-liquid--or semi-illiquid--solutions that balance liquidity and returns.

Retailisation, or the participation of non-institutional investors, is attracting significant attention. Many American players are leveraging their brand strength to capture European retail savings. While this remains a relatively niche segment compared with institutional investments, the industry views it as a long-term growth opportunity. Luxembourg plays a key role here, especially through Eltifs and evergreen Part II funds, which are appealing for their lighter liquidity restrictions.

Finally, digital transformation represents a broad and accelerating trend. Luxembourg has advanced blockchain legislation, making it an attractive hub for tokenisation and other blockchain-related initiatives. The current regulatory developments in the US are expected to accelerate adoption further, and Luxembourg’s established ecosystem continues  to draw significant interest from American players.

What are the competitive advantages of Luxembourg and areas for improvement?

“Luxembourg’s share pledge enforcement laws are highly relied upon and have proved effective. The ability to enforce pledges, such as acquiring claims from a bank or a lessor, directly affects valuations when acquiring discounted or non-performing debt. This remains a key driver for credit funds to use Luxembourg vehicles. However, non-performing loans currently represent only a very small portion of the market, as most clients focus on performing loans.

Challenges remain around know-your-client (KYC) procedures and banking access, which have been longstanding issues and are exacerbated by the rapid growth of the market. The upcoming unified AML regulation and the creation of a European supervisory authority could help simplify processes. For credit funds, know-your-asset (KYA) requirements present further constraints due to the high volume of transactions compared with private equity. Managing these demands effectively is costly, and the industry is looking towards technological solutions to improve screening and compliance.

What are the regulatory developments concerning AML and AIFMD II?

“A unified AML regulation will be implemented across Europe, overseen by a single European authority, which should harmonise procedures. The AIFMD II directive will also be transposed into national legislation in Luxembourg and other EU member states. Loan origination will be ­formally recognised as an activity for AIFMs throughout the EU, representing a significant shift away from the historical dominance of banking monopolies. However, the directive allows individual countries to adopt more restrictive approaches, meaning national rules may continue to differ.

This framework supports the development of both purely domestic debt funds, such as German funds investing within Germany, and pan-European funds, which are likely to remain concentrated in Luxembourg. As regulatory competition increases in a more standardised environment, Luxembourg will need to sustain its attractiveness. AIFMD II also introduces new rules and caps on leverage at the fund level, and its impact on debt fund growth in Europe – including how committed capital and special-­purpose vehicle debts are defined--will require careful assessment.”

This article was written for the October 2025 issue of Paperjam magazine, published on 24 September. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. Click this link to subscribe to the magazine.