Luxembourg’s private market fund industry has grown into a €1.61trn business, according to Jeff Majerus, coordinator of European and Internal Affairs at the Central Bank of Luxembourg, and Romuald Morhs, economist at the BCL. Their working paper estimates that private market funds domiciled in Luxembourg held €1,608.1bn in net assets at the end of 2024, spread across 5,506 entities.
The figure matters not only because of its size, but because it confirms how far Luxembourg has moved beyond its traditional identity as a Ucits hub. The authors conclude that private market funds are now “an important source of dynamics for the financial industry in the Grand-Duchy”, with double-digit annual growth in assets under management in recent years. Assets rose 42.6% between end-2022 and end-2024, while the number of entities increased from 4,349 to 5,506. Assets under management grew 29% in 2023 and a further 11% in 2024.
Private equity dominates
The authors show that private equity remains the dominant strategy in Luxembourg’s private market fund universe, accounting for 49% of assets at the end of 2024. Real assets follow with 22%, private debt with 20% and funds of private market funds with 9%. That leaves the market dominated by buyout and equity-style strategies, while debt and infrastructure-style exposure is now large enough to matter for financing conditions and financial stability.
The legal structuring of the market is equally telling. Non-authorised funds account for 68.3% of assets, with other non-authorised alternative investment funds representing 47.6% and reserved alternative investment funds a further 20.8%. Authorised structures account for 31.7%, led by specialised investment funds at 20.5%, followed by Sicars at 6.1% and Part II UCIs at 5.1%.
For market participants, that reinforces Luxembourg’s appeal as a structuring centre built around speed, flexibility and cross-border distribution. Closed-ended vehicles manage more than 80% of these assets, consistent with the long-duration investment horizon of private equity, private debt and real asset strategies.
A fast-growing pillar of non-bank finance
The authors place the rise of private market funds in the post-2008 shift away from traditional bank lending and towards non-bank financial intermediaries. Tighter banking regulation after the financial crisis coincided with institutional investors’ search for yield in a low-rate world, driving capital into private equity, private debt and real assets. Luxembourg, they argue, has been a major beneficiary of that trend, helped by the expansion of its domestic toolbox, notably the introduction of the SCSp in 2013 and the Raif in 2016.
That growth is also reinforcing Luxembourg’s fund servicing business. The authors argue that private market funds could have important implications for monetary transmission and financial stability, because they sit at the centre of an indirect credit channel operating alongside traditional bank lending. They also note that these vehicles are becoming increasingly relevant as policymakers seek to channel more savings into productive investment under the EU’s Savings and Investment Union agenda.
Opacity remains a central issue
But scale is only part of the story. The central analytical warning is that the underlying risk picture remains blurred.
The authors note that the bulk of portfolio holdings consists of unlisted debt and equity instruments issued by special purpose vehicles used by funds to structure investments. Equity and fund shares account for 75.6% of aggregate assets, while debt securities make up 12.3% and deposits and loan claims 8.8%. On the liability side, shares issued account for 91.7% of the balance sheet, with borrowings and debt securities appearing modest at 5.1% combined.
But they stress that this low reported indebtedness is misleading. The use of SPVs means leverage raised outside the fund itself is not properly captured by BCL statistics, which are based on the “immediate counterpart” principle rather than consolidated positions. That has two consequences: the true embedded leverage of private market funds is difficult to assess, and the geographic allocation of their investments can also be distorted.
The same issue runs through the portfolio data. Luxembourg accounts for the largest share of reported exposures, mainly to investment funds and other financial intermediaries. Yet the final target of the portfolio company is only rarely in Luxembourg. Much of what looks like local exposure is in fact a by-product of structuring. The same problem applies to holdings reported against other euro area countries, the US and the UK, while two-thirds of exposures to the rest of the world are concentrated in SPVs in the Cayman Islands, Jersey and Guernsey.
Dollar exposure shapes valuations
The authors also highlight how heavily the sector is tied to the dollar. On the liability side, 72% of fund shares are issued in euros and 23% in US dollars, while on the asset side 61% of securities are denominated in euros and 33% in dollars. That currency mix helps explain why exchange rate movements materially affect euro-denominated net asset values.
In their econometric analysis, the authors find that a 1% depreciation of the euro against the dollar is associated with a 0.24% fall in the quarterly assets under management of Luxembourg-domiciled private market funds. They also find that public market moves matter more than the industry’s illiquid branding might suggest: a 1% year-on-year rise in the MSCI world index is associated with a 0.09% quarterly increase in assets under management.
The implication is that, despite their long-term horizon and private valuations, these funds remain procyclical and sensitive to public market conditions. Majerus and Morhs explicitly state that private market funds exhibit “some procyclicality despite their long-term investment horizon”.
Rates still matter
Interest rates also weigh on the industry. Their model suggests that a one percentage point quarterly increase in global short-term interest rates reduces quarterly assets under management by 3.9% after one year and by a further 3.8% a year later. Stock market movements and exchange rates together explain 30.8% of assets under management fluctuations over the last decade, while short-term rates account for 18.4%.
That finding is especially relevant for private debt and leveraged structures, where financing costs, discount rates and investors’ search for yield all shape activity. The authors note that after the long low-rate period that fuelled expansion, the rapid tightening cycle affected balance sheets, deal activity and fundraising globally, even if Luxembourg’s private market fund sector continued to grow.
Big market, incomplete picture
The authors are clear that their new database improves visibility, but does not fully resolve the measurement gaps surrounding Luxembourg’s private market funds. Non-authorised funds managed by foreign AIFMs below the BCL reporting threshold are excluded, creating a downward bias. At the same time, the lack of consolidation within fund structures means master-feeder arrangements and holding vehicles can lead to double counting, overstating activity. The time series also suffers from survivorship bias before 2022.
Even with those caveats, the message is hard to miss. Luxembourg has become one of Europe’s main domiciles for private market funds, with private equity, real assets and private debt now at the core of an industry worth more than €1.6trn. But Majerus and Morhs also show that regulators and central banks are still looking through only a partial lens. In a market built on unlisted assets, layered structures and cross-border vehicles, scale is easier to capture than risk.
The full 31-page paper is available here.
