KPMG/ALFI Private debt fund survey reveals 40.6% growth for Luxembourg private debt industry

• AuM of private debt funds increased by 40.6% in 2021 to a total of EUR 181.7 billion;
• 36% of private debt funds are structured as RAIFs, an increase of 16% compared to 2019;
• 81,5% of private debt fund initiators are from Europe, 18% from North America and 0.5% from the rest of the world;
• 33% of private debt funds by ESG classification are article 8 funds, 6% article 9;
• 88% of respondents chose special limited partnership (SCSp) as the vehicle of choice for unregulated AIF debt vehicles.

The annual edition of the KPMG Private debt fund survey powered by the Association of the Luxembourg Fund Industry (ALFI) showcases the consistently strong growth momentum of private debt funds domiciled in Luxembourg. It reveals that the sector saw AuM of private debt funds soar by 40.6%[1] compared to last year, bringing total assets under management 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 said: “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.”

Julien Bieber, Partner Tax, Alternative Investments & Co-Head of Private Debt at KPMG added “The European Commission just released a raft of draft legislations which impact the structuring and servicing of private assets funds in general. The draft directive[2] amending Directive 2011/61/EU on Alternative Investment Fund Managers will in particular affect the way loan origination funds operate. Fund managers will need to take into account these evolutions and potentially restructure their operations as needed. Luxembourg has given some official guidelines regarding its transposition of EU interest limitation rules into domestic law, providing some clarity to market players, and is also modernising its securitisation law to allow for more flexibility and agility, facilitating CDO/CLO transactions. The relentless efforts of Luxembourg to adapt its framework is enabling the market to reach its full potential.”

Other topics and findings of the research were:

• Fund structures: Depending on their investment strategy, private debt funds can either be debt-originating or debt-participating, making up 45% and 55% of the industry respectively. The survey shows 78% of private debt funds are closed-ended vehicles, and 22% are open-ended;
• The rise of ESG: Social and environmental issues, particular climate change, have climbed the agendas of corporates, investors and governments, increasing the need for market players to integrate ESG elements into their risk, performance and impact management;
• The investment strategy of Luxembourg private debt funds is 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 (+34%), distressed debt (+6%) and mezzanine (+2%). This can be explained by the fact that direct lending may include other sub-strategies.

Camille Thommes concludes: “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.”

Download the full ALFI/KPMG Private debt fund survey 2021

[1] Average growth based on data provided by depositaries surveyed.

[2] Proposal for a directive of the European Parliament and of the Council amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (link).

For more information, please contact:

Anna Ferreri

Head of Communications, ALFI

Tel: +352 22 30 26 – 48
communications@alfi.lu

Notes to editors:

The Association of the Luxembourg Fund Industry (ALFI) represents the face and voice of the Luxembourg asset management and investment fund community, championing mainstream, private assets and sustainable investing. ALFI seeks to promote Luxembourg’s fund sector internationally, and to cultivate for the benefit of its members a collaborative, dynamic and innovative ecosystem underpinned by the most robust regulatory framework. ALFI’s ambition is to empower investors to meet their life goals.

Created in 1988, the Association today represents over 1,500 Luxembourg domiciled investment funds, asset management companies and a wide range of business that serve the sector. These include depositary banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax advisory firms, auditors and accountants, specialised IT and communication companies. Luxembourg is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg domiciled investment funds are distributed in more than 70 countries around the world.

To keep up with all the news from ALFI and the fund industry in Luxembourg, follow us on LinkedIn, Twitter (@ALFIfunds), YouTube and Flickr.

For more information please visit www.alfi.lu.