ALFI Private Assets Conference

Luxembourg prepares to adopt AIFMD II as private asset funds continue to boom

In an environment of growing economic and political turbulence, international trade disputes and overt conflict, Luxembourg continues to develop its leadership in the European private asset investment fund market, notably as the primary hub for Europe’s fast-growing private debt market, according to speakers at ALFI’s Private Assets Conference 2025. The event took place at the Grand Duchy’s LuxExpo The Box conference and exhibition centre on 30 September 30 and 1 October 1.

Luxembourg’s investment fund assets now total around EUR 7.45 trillion, with private asset and other non-UCITS funds accounting for more than two-thirds, EUR 2.65 trillion, after 20% growth over the past year, according to ALFI chairman Jean-Marc Goy. He also pointed out that fully regulated structures are now close to the historic record of EUR 6.00 trillion; the Grand Duchy also is home to at least 137 of the EU’s 236 European long-term investment funds.

Mr Goy argued that the future of the sector and of the financial industry as a whole will depend on Luxembourg’s ability not only to attract some of the talent it needs from abroad but to develop skills at home. To address this need, the University of Luxembourg’s Faculty of Law, Economics and Finance has added a private asset track to its master’s in finance, while McGill University in Canada has launched a new master’s in management and finance.

Private asset outperformance

Laura Merlini, managing director for Europe, the Middle East and Africa at the CAIA Association, noted that historically private assets have outperformed both private markets and the classic institutional asset allocation model of 60% equities and 40% bonds; private equity has delivered average annual growth of 15% between 2005 and 2024, compared with 10% for public equity markets. Not surprisingly, private assets under management worldwide have grown at a compounded annual rate of 10% over the past five years, and by 12% in Europe, led by infrastructure investment and more recently private debt.

However, she also pointed out that, since 2025, capital calls on investors have outpaced the level of distributions, which has prompted rapid growth in the secondary market over that period. Amid increased dispersion of returns, manager selection and ongoing due diligence have become even more critical for investors, Ms Merlini said.

Eric Deram, managing partner and CEO of Flexstone Partners, part of Natixis Investment Managers, reported that private asset funds, with the exception of hedge funds, rarely, if ever, lost money between 1971 and the early 2020s, reflecting not only rising annual returns but sharply lowered portfolio volatility—although, in this respect, Georgi Kyosev, executive director of Robeco Indices, suggested that valuation lags might also play a part.

Mr Deram argued that these trends help explain why the institutional asset allocation model of 60:40 plus some real estate and possibly a small amount of hedge fund investment prevalent two decades ago has now given way to a split of 40% equities, 30% bonds and 30% private assets.

Heading off ESMA oversight of fund industry

Anticipation was high for the address of Luxembourg’s finance minister Gilles Roth, who said the government was committed to helping Luxembourg’s financial industry maintain its growth momentum. He framed this effort within a broader goal of strengthening Europe’s resilience amid challenges in areas such as defence, security (including cyber-security) and technological development.

He pointed to the financial industry’s central role in Luxembourg’s economy, including sectors such as banking, capital markets and insurance as well as funds, which last year directly employed more than 73,000 people and generated a similar number of jobs indirectly through its demand for goods and services. Mr Roth said the government is seeking to develop new partnerships, negotiate double taxation treaties and establish contacts with industry leaders abroad to promote business growth and remove barriers to business activity, for instance, through legislation to facilitate tokenization and blockchain.

He also appealed to industry members to support lobbying efforts to head off a proposal, backed by some EU governments, to grant the European Securities and Markets Authority supervision powers over the fund industry in the same way that the European Banking Authority does for the largest credit institutions.

Mr Roth argued that the change, backed by some EU member states, would only increase the sector’s administrative burden and compliance complexity, and that its goals are already being met through regulatory convergence around high standards. With the European Commission set to publish proposals in December to address risks in various areas of the financial system, he said: ‘Success is the strongest argument we have.’

Grand Duchy prepares to adopt AIFMD II

The finance minister also assured conference participants that progress is well under way for Luxembourg to transpose the EU’s revised Alternative Investment Fund Managers Directive—the legislation that paved the way for the Grand Duchy’s emergence as Europe’s leading hub for private asset funds more than a decade ago. Parliamentary bill no. 8628, which amends both Luxembourg’s investment funds law of 2010 and its AIFMD adoption legislation of 2013, was submitted to the Chamber of Deputies on 3 October 2025.

Senior ministry civil servant Maureen Wiwinius said that work on drafting the legislation started a year ago. The EU has set 16 April 2026 as the deadline for all 27 Member States to enact the revised rules, which will take effect on that date. However, Ms Wiwinius noted that Luxembourg’s timeline will depend on whether the advisory Council of State requires significant changes to the text.

She said Luxembourg’s expertise in alternative funds had given the country a strong voice in EU negotiations on the updated directive, which began with a first draft in November 2021. This influence helped counter proposals from some member states to impose greater restrictions on the delegation of core fund functions, such as portfolio management, to providers in non-EU countries, a central feature of Luxembourg’s fund model. In the end, the AIFMD II directive was ‘very targeted,’ Ms Wiwinius said: ‘evolution rather than revolution.’

As a quid pro quo for preserving the current delegation arrangements, Luxembourg also had to accept strengthened reporting obligations. As for the draft legislation being placed before parliament, she said the finance ministry has avoided any ‘gold-plating’ of the EU text, which is to be transposed on a one-to-one basis and includes all available options. Among these is a ban on Luxembourg and other alternative investment funds granting consumer loans in the Grand Duchy, after industry members indicated they were not interested in being authorised to do so.

Luxembourg’s big lead as ELTIF domicile

Nearly two years after the introduction of the so-called ELTIF 2.0 Regulation drastically overhauled the European Long-Term Investment Fund regime, Luxembourg continues to dominate the market, according to Silke Bernard, partner at Linklaters Luxembourg and the firm’s global head of investment funds. As of 26 September, just under 60% of the 236 ELTIFs established to date were domiciled in the Grand Duchy, she added, with the ability to create semi-liquid open-ended products, a key attraction of the new rules.

Authorisation of new products can take as little as six weeks between application and final approval, according to Tara Drai, assistant vice-president at Blackstone Group, which has just established its second ELTIF, the first under the new regime. However, she underlined that a great deal of internal preparation is also required. Kai Nemec, head of risk management and valuation at Union Investment Luxembourg, said the entire process took around 16 months, including the training of bank advisers to serve end-investors.

The launch of a private assets track for the Master’s degree in Finance and Economics of the University of Luxembourg’s faculty of law, economy and finance promises to help the sector develop the talent it needs to grow, according to professor of finance Ulf von Lielenfeld-Toal. ‘Our goal is to create a new generation of private assets leadership,’ he said. The track is one of several options available to master’s students in their second year, which also include risk management, investment management and sustainable finance.

At the same time, the McGill Luxembourg Centre for Finance, part of Montreal-based McGill University’s Desautels Faculty of Management, is launching a Master of Management in Finance, a part-time, graduate-level programme designed for active professionals in the financial sector. According to Patrick Augustin, the director of the Luxembourg Centre, a unique element of the course is the ability to learn asset management hands-on with Desautels Capital Management, a student-run investment business with four funds and around CAD 10 million in assets under management.

Warm welcome for Luxembourg’s carried interest bill

Negotiating fund access terms can become complicated if limited partners’ legal professionals are brought in too late, according to Melanie Martin, legal counsel of the Abu Dhabi Pension Fund. By then, she said, terms may already be locked in through an agreement in principle, leaving less room to negotiate. When business and legal specialists are involved together from the start, discussions are likely to involve less friction.

Kalin Lei, legal counsel at Aviva Investors Luxembourg, also favours involving both in-house and external counsel early in the process. She shared that institutional investors are becoming increasingly demanding, and not just on the details of the limited partnership agreement, often raising issues in areas including risk policy, frequency of reporting and granularity of data. Ilva Diaco, conducting officer for portfolio management at IntReal Luxembourg, commented: ‘We can’t compel LPs to invest, so we concentrate on what we can affect. Communication is vital, and being open to change is not just nice to have.’

Conference speakers warmly approved the Luxembourg government’s draft law revising the country’s legislation on the tax treatment of carried interest. Magnus Pantzar, global head of tax and structuring at Stockholm-headquartered private equity firm EQT, described the legislation as a good outcome offering very competitive tax rates: ‘predictable and sustainable to attract a highly mobile workforce.’

Mr Pantzar contrasted the Grand Duchy’s approach with that of Sweden, where the government announced last month that planned changes, two years in preparation, would not be introduced. He also referenced the UK, which is revising its carried interest regime, saying Luxembourg wins out for its predictability and clarity.

Paddy Croft, head of tax at Astorg Asset Management, cautioned that the legislative change would not alter Luxembourg’s competitiveness overnight. However, he said firms will undoubtedly take taxation into account when deciding where to base their investment professionals, noting that if a jurisdiction is appealing to senior dealmakers, junior staff are more likely to follow. Mr Pantzar added that the near absence of deal opportunities in the Grand Duchy matter, noting that EQT has staff in Munich working on UK deals: ‘Carry tax could be a tipping point for a PE house in moving people or expanding.’

Digitalisation in fund distribution

Can digitalisation and tokenization technology play a bigger role in connecting asset managers with distributors and end-investors? Steffen Pihlmann, managing partner of Stockholm-based private wealth distribution specialist ROYC, said the focus on digitalising assets should not overshadow the importance of transforming distribution processes.

Georges Bock, CEO and founder of InvesTRe, the first control agent to be authorised under Luxembourg’s Blockchain IV legislation, argues that there is no need to strike a balance between regulation and innovation in the Grand Duchy: ‘Asset managers, policy-makers and regulators are all ready to go.’

He said there’s still too much paper circulating in the industry, such as faxes, but noted that the firm has conducted 3,000 tokenizations in the past three months: ’Everything that can be digitalised, will be.’ Mr Bock predicts that stablecoins will replace S.W.I.F.T. as a tool for money transmission, and that ordinary people will soon be paying bills with money market funds.

Private funds fill bank lending gap

According to Julien Bieber, tax and alternative investments partner at KPMG Luxembourg, assets under management in Luxembourg-domiciled private debt funds increased by between 20% and 25% last year, as private funds continued to fill the lending gap left by banks. He presented the ALFI/KPMG Private Debt Fund Survey 2025, based on data from 13 depositary banks and covering more than 1,500 private debt funds and sub-funds.

He said the sector's growth of 24.7% last year was underpinned by new fund launches and the prospect of regulatory reforms, including the EU's AIFMD II and Luxembourg's updating of carried interest legislation, as well as increased interest in private debt among retail investors.

Other highlights of the survey include the continuing dominance in the sector of indirectly supervised alternative fund structures, particularly special limited partnerships, which represent 80% of the market. The survey also notes the increasing lead of RAIFs over SIFs, with the latter being regulated funds. Institutions still account for 82% of investors, while direct lending is the main investment strategy with 52% of allocations, and more than 66% of management fees are less than 1%.

Marceau Visano, counsel at DLA Piper Luxembourg, observed that the AIFMD II provisions relating to private debt mean the directive can no longer be considered purely a manager law, since it now incorporates product provisions such as the 5% risk retention requirement and leverage limits on loan origination funds. Noting the additional reporting requirements introduced by the directive, Micaela Oliveira, head of Veld Luxembourg, observed that it would be hard to justify increased costs to US investors.

Ms Oliveira was echoed by Forbes Fenton, portfolio management conducting officer at M&G Luxembourg, who said that although reporting costs are set to increase, the CSSF is very pragmatic and open to dialogue, understanding the challenges firms face, although technology should help. He also observed that ongoing valuation would be a bigger challenge under ‘mark-to-model’ requirements. While it was of lesser importance for closed-end funds, it will be a more significant issue for semi-liquid funds open to retail and non-sophisticated investors.

Authorisation process for Luxembourg AIFMs

According to Veronica Aroutiunian (who, at the time of the conference, was a Loyens & Loeff partner), the number of AIFMs in Luxembourg continues to decline due to consolidation and the growing popularity of third-party management company models. Nevertheless, new AIFMs continue to be established by groups seeking to keep all of their investment-related operations in a single jurisdiction, especially since Brexit closed off the UK from the EU single market. But how long does authorisation take?

Marc Neubert, head of the CSSF’s investment fund managers division, said that 45 full AIFMs have been established in the past five years. While the process takes on average around 10 months, this figure incorporates outliers—many require less than eight months, but some take more than 15. Mr Neubert commented that the key to speeding up the process is good preparation of applications, which can reduce the number of comment rounds, each of which take 30 days. Ms Aroutiunian recommends that applicants appoint a conducting officer before it becomes mandatory to better manage the process.

Investing in natural capital and the blue economy

The second day of the conference opened with a focus on sustainability, including the role of natural capital in investment portfolios and the fast-rising profile of the ‘blue economy’—that of the world’s oceans—which sustains the wellbeing of a large proportion of humanity and plays a critical role in regulating the Earth’s climate.

Natural capital embraces investment areas such as sustainable forestry, regenerative agriculture and nature-based carbon solutions, according to Martin Berg, CEO of London-based Climate Asset Management. As an example of the firm’s approach, he cited the purchase of a sugarcane plantation in Queensland, Australia, which was converted to macadamia nut cultivation to meet regional demand in Asia while reducing pesticide run-off into the ocean near the Great Barrier Reef. In many cases, such as the Olympic rainforest in the US state of Washington, the fund generates profit by selling carbon credits rather than timber.

Demand for high-quality carbon credits

Caroline Bouquet, investment director for natural capital at Natixis-owned fund boutique Mirova, said the market now consists of USD 40 billion under management in listed equities and private assets. The two main market drivers, she added, were the need for sustainable and resilient supply chains in the face of climate change, and increasing demand for high-quality carbon credits to meet companies’ emission reduction commitments.

Carbon credits are the biggest enabler of cash flows that will appeal to private investors, said Margot Clarvis, head of global nature-based solutions at London-based carbon project developer Bridge Carbon, citing three types of projects that the firm undertakes: low-cost landscape restoration, community-based woodland, and plantations, which deliver diverse cash flows from both carbon and non-carbon sources.

The ocean risked being left behind in natural capital considerations, according to Simon Dent, co-founder of Outrigger Impact, a blue economy fund manager. The company provides capital and support to projects in small island developing states in the Pacific, contributing to economic resilience as well as environmental protection. It’s also frequently overlooked because 90% of employment and 80% of revenue in the sector come from small and medium-sized businesses that are too small to attract major investors, according to Chris Gorell Barnes, founding partner of Ocean 14 Capital.

Kristian Atkinson, Fidelity International portfolio manager, noted that the biggest obstacle to scaling up blue economy SMEs was pricing and calculating the value of common resources such as fish stocks, making large companies reluctant to invest without pressure from governments and investors.

UN High Seas Treaty set to come into force

Mr Dent also noted drily that it’s hard to move beyond the exploitative character of relationships with the ocean economy. He added that fishing remains central to the global South, accounting for as much as 80% of food consumption for some island states. Full data on the economic and climate impact of industrial fishing is lacking, but Mr Barnes pointed out that the United Nations High Seas Treaty—designed to address governance gaps affecting the ocean, set out clearer ways to conserve ocean biodiversity, and regulate marine genetic resources, including fair and equitable sharing of benefits—will enter into force on 17 January 2026, after being ratified by the required minimum of 60 countries (out of 145 signatories) as of 19 September 2025.

Despite its landlocked status, the Grand Duchy is closely engaged with the blue economy. Serge Wilmes, minister of the environment, climate and biodiversity, presented the Luxembourg Blue Natural Capital Financing Facility, designed to provide investment that protects community economies while supporting biodiversity and climate goals. He said the initiative’s disbursement of EUR 4 million in grants has unlocked a total of EUR 17.5 million in funding from impact investors and development banks.

Infrastructure is among the fastest growing areas of the private asset market, both for  Luxembourg funds and investors worldwide. Grant Thornton audit partner Mehdi Mansoury said the sector has gained new momentum from the application of artificial intelligence, such as the emergence of predictive maintenance.

Globalisation and the digital transition are presenting a range of opportunities, with investors attracted by high returns and protection against inflation, according to Rosa Villalobos, head of the Luxembourg office of Macquarie Infrastructure and Real Assets. The firm’s investee companies worldwide operate assets used daily by 290 million people and employ 230,000 people.

Renewal of legacy infrastructure

Much of the current buzz surrounding infrastructure investment focus on the need for AI data centres, but Tilo Reichert, head of risk and compliance at Swiss Life Asset Management in the Grand Duchy, said the strong demand for renewing legacy facilities is equally important: ‘Seventy-five per cent of the infrastructure that will be in place in 25 years does not yet exist.’ He also cited the need to manage threats ranging from climate change to cyber-crime.

Mobilising European savings for risk capital

Mr Augustin introduced a study conducted by ALFI in partnership with McGill University, examining how pension and household savings in Europe could be mobilised to scale up productive risk capital. The authors concluded that employees in countries with capitalised pension systems, such as Canada, Australia and Sweden, own between two and three times more risk-bearing assets than those in countries with pay-as-you-go retirement provision models, notably France and Germany—and also Luxembourg.

According to Mr Augustin, countries that have switched to partly capitalised systems since the 1990s have accumulated significantly larger pools of investable assets, while between them France and Germany have foregone almost EUR 10 trillion in potential risk capital. He argued that incremental reforms reduce transition costs and allow the building of political support—an important lesson for France and Luxembourg in particular.

This could be done through a pan-European ‘super-default’ fund like Sweden’s AP7 or the UK’s Nest workplace pension scheme, as well as opening institutional funds to individual investors. Closing the capital gap, he concluded, would not only protect the adequacy of retirement schemes but strengthen Europe’s competitiveness, innovation and resilience.

Irresistible rise of REITs

Tobias Steinmann, public affairs director of the European Public Real Estate Association, highlighted the benefits of real estate investment trusts (REITs). These vehicles have become a core element of property investment over the past two to three decades, as they have been gradually adopted by successive countries.

However, they account for just 47.7% of total property investment in Europe, compared with 98% in the US. This reflects the absence of a REIT regime in Sweden, and the fact that Germany does not cover residential property. ‘REITs are a proven concept and brand,’ he said, noting that there are around 900 worldwide, including 240 in 14 European jurisdictions. ‘By nature, they are liquid, available to investors in small purchases at low cost—benefits private real estate funds cannot offer. They also bring a total annual tax contribution of EUR 4.1 billion to European governments.’

Property investment is closely tied in with the concept of green cities, which has been warmly embraced by Luxembourg’s capital. Jürgen Primm, managing director of Landimmo Real Estate, the Heintz Van Landewiyck subsidiary overseeing the redevelopment of the tobacco manufacturing group’s former industrial land in the south of the city, noted: ‘The development cost is the same whether it is green or not, although redevelopment of brownfield sites does entail extra costs.’

The challenges include providing public access to land for parks and public transport, notably a new tram line, planting 30,000 trees by 2030 (on top of the existing 22,000 in the capital) both for aesthetic benefits and to reduce the heat island effect, managing water to balance drought and flooding risks, providing soft mobility solutions such as bicycle lanes, and ensuring high air quality. ‘By providing green spaces in the city, it means residents do not have to drive to the forest to find it,’ Mr Primm said.

Financing war and peace

The conference concluded with an often-spirited debate about investing in defence and, in particular, whether it is compatible with ESG goals. Andra Migiu, head of the security and defence division at the European Investment Bank, says the EU financing institution agreed a year ago that security and defence would in future be one of its eight strategic priorities, and this year it has a EUR 3.5billion lending support ceiling.

This approach, reflecting the changing priorities of EU governments over the past four years, runs completely counter to the principles of Steyler Ethik Bank, a private bank and asset manager owned by the Steyler missionary order. ‘This is part of our DNA,’ said Thekla Swart, ethics and sustainability manager. ‘We long ago excluded doing any business involving weaponry. It doesn’t fit at all.’

Wim van Hyfte, global head of ESG investment and research at Luxembourg asset manager Candriam, noted that, in the past, there was a consensus that defence had no role in sustainability, but today’s security has been cited as a human right. In any case, he argued, the area is very vaguely defined and with multiple grey areas. For example, the ‘controversial weapons’ eschewed by many ESG policies has no common agreed definition, and many aerospace and defence groups have a military/civilian product mix, including dual-use technology that does not fall neatly into either category.

There’s also the question of whether companies involved in defence activities are able to meet the Sustainable Finance Disclosure Regulation criterion to ‘do no significant harm’. But Mr van Hyfte concluded the debate by saying: ‘I don’t know why Europe should need sustainable finance for defence companies anyway—they are swimming in cash.’

The conference underlined the growing position of private asset funds as a central pillar of Luxembourg’s financial industry as well as their critical role in the European economy. The imperatives of investment diversification, democratisation of sophisticated and complex strategies and asset classes hitherto largely reserved to institutional investors, and the urgent challenges of a turbulent geopolitical environment and volatile economic climate all point to these trends continuing for the foreseeable future.

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