This year's edition of the annual KPMG "Private debt fund survey", powered by the Association of the Luxembourg Fund Industry (ALFI), has showcased the consistently strong growth momentum of private debt funds domiciled in Luxembourg.

The survey revealed that the sector saw the assets under management (AuM) of private debt funds soar by 40.6% compared to last year, bringing total AuM to a record €181.7 billion. This builds on the 36.2% growth in AuM for private debt funds seen in the 2020 survey.

Camille Thommes, Director General of ALFI, commented: “As this year’s survey once again highlights, the rising star among the so-called alternative investments, private debt, has shown impressive growth year upon year. Private debt funds are fast growing themselves, but they also stimulate growth in the real economy, where other sources of financing do not suffice. They add to the diversity in funding and help to balance liquidity supply and demand for businesses of all shapes and sizes, which makes these funds a cornerstone of the European Commission’s Capital Markets Union initiative”.

Valeria Merkel, Partner Audit, German Asset Management & Co-Head of Private Debt at KPMG, added: “Fuelled by regulation imposed on banks and growing investor awareness, the private debt market continues to go from strength to strength. As we see, investor appetite and the search for financing expand, private debt cements itself as a strong, highly diversified and in-demand asset class. Private debt has not only penetrated the vast majority of investors’ portfolios but it continues to be extremely attractive for both international investors and fund managers. The EU remains the geographical investment target of choice”.

Other main findings included:

  • 36% of private debt funds were structured as reserved alternative investment funds (RAIFs), an increase of 16% compared to 2019;
  • 81.5% of private debt fund initiators were from Europe, 18% from North America and 0.5% from the rest of the world;
  • 33% of private debt funds by environmental, social and governance (ESG) classification were article 8 funds, whilst 6% were article 9 funds;
  • 88% of respondents chose special limited partnership (SCSp) as the vehicle of choice for unregulated AIF debt vehicles.

Moreover, the survey showed that 78% of private debt funds were closed-ended vehicles, whilst 22% were open-ended. The investment strategy of Luxembourg private debt funds was mainly focused on three debt strategies: direct lending (72%), distressed debt (12%) and mezzanine (11%). Compared to last year, this reflects an increase in direct lending (up 34%), distressed debt (up 6%) and mezzanine (up 2%). This can be explained by the fact that direct lending may include other sub-strategies.

Camille Thommes concluded: “The Grand Duchy is a natural choice for initiators of private debt funds, owing to its long-standing experience as an investment fund centre, as well as in the fields of loan origination and secondary market trading. Its toolbox, the wealth of expertise across the ecosystem and the role of the regulator are all factors that contribute to Luxembourg’s success in this segment”.

The full report is available at: https://www.alfi.lu/en-GB/Pages/Setting-up-in-Luxembourg/Alternative-investment-funds-asset-classes/Debt.