In recent years, Luxembourg has solidified its position as a leading hub in Europe’s private debt market, distinguishing itself as a dynamic and attractive destination for investors. The last surveys underscore this momentum as Luxembourg's private debt assets under management (AuM) showed remarkable increase over the year. For a deeper dive into Luxembourg's rise as a private debt powerhouse, please see our previous article “Private Debt in Luxembourg”. This piece delves into the factors propelling the sector's growth, including Luxembourg's robust financial infrastructure, investor-friendly regulatory environment, and the increasing institutional adoption of private debt strategies.
As we progress through 2025, Luxembourg’s private debt market faces a complex landscape shaped by global geopolitical tensions and shifting economic dynamics, particularly the ongoing US–China–EU trade frictions and rising tariff barriers. These issues bring uncertainty to the global financial landscape, but Luxembourg’s resilience and its solid regulatory framework position it as an enduring oasis of stability for private debt investors and finance professionals. This resilience underscores Luxembourg’s ability to adapt and thrive amid ongoing challenges.
A robust market amidst global uncertainty
It’s impossible to ignore the broader macroeconomic forces shaping the investment landscape. The ongoing trade tensions between the United States and its major partners, particularly China and the European Union, continue to disrupt markets. Average tariffs on EU imports from the US rose from around 1.5%–1.7% in 2022 to approximately 2.4% in 2024, according to WTO and OECD data. These rising tariffs, along with trade barriers and shifting global alliances, are contributing to a more volatile economic environment. Businesses face higher production costs, disrupted supply chains, and fluctuating market conditions. This heightened uncertainty impacts investment decisions, particularly for those seeking low-risk opportunities.
Despite the potential for these global challenges to slow growth in some markets, Luxembourg’s private debt sector is demonstrating its remarkable ability to adapt and thrive. Amid broader uncertainty, Luxembourg continues to lead the way in Europe, with its private debt market maintaining its upward trajectory. The rapid growth in AuM and the diverse range of fund structures point to a market that is not only growing but evolving to meet new demands and challenges.
While comprehensive 2025 data specific to private debt funds is still emerging, Luxembourg’s established position and strong fundamentals continue to reinforce its role as a leading European hub for this asset class. It continues to attract institutional investors and high-net-worth individuals seeking portfolio diversification and enhanced yield opportunities. Separately, recent data from the European Fund and Asset Management Association (EFAMA) highlights sustained investor confidence in European fixed income markets. Global long-term funds attracted €394 billion in net inflows in Q1 2025. Europe led with €183 billion in net sales, with Luxembourg-based bond funds notably attracting €21 billion of inflows during this period.
Mid-2025: resilience and market evolution in a changing world
Passing the midpoint of 2025, Luxembourg’s private debt market continues to demonstrate impressive resilience: it remains an attractive hub for investors from around the world.
Below, we explore key developments shaping Luxembourg’s private debt sector, highlighting how the market is navigating challenges and leveraging opportunities in this dynamic environment.
1. Market evolution and regulatory developments
Luxembourg position as a premier destination for private debt funds is supported by innovative fund structures and a robust legal framework. Recent legislative and regulatory advancements in 2025 further enhance the country’s appeal to global investors and fund managers alike.
Dominant fund structures: The Special Limited Partnership (SCSp) and Reserved Alternative Investment Fund (RAIF) remain the backbone of Luxembourg’s private debt market, with SCSp structures comprising approximately 86% of private debt funds, and RAIFs accounting for around 62% of regulated funds. These structures offer flexibility, tax efficiency, and transparency in a complex economic environment, enabling funds to better navigate market complexities.
ELTIF 2.0 implementation: The updated European Long-Term Investment Fund Regulation (ELTIF 2.0), fully adopted in Luxembourg in early 2025, broadens eligible assets and investor categories, improving liquidity and accessibility for private debt strategies focused on long-term investments.
Progress on AIFMD 2: The revised Alternative Investment Fund Managers Directive (AIFMD 2) is on track for national transposition by April 2026. It introduces enhanced governance for loan-originating funds, stricter leverage and risk retention rules, and updated disclosure requirements – strengthening investor protection and market integrity.
Bill No. 8590 – carried interest reform: In July 2025, Luxembourg submitted Bill No. 8590, aiming to establish a permanent, inclusive tax framework for carried interest. The reform aligns manager compensation with investor performance, simplifies eligibility criteria, and enhances fiscal certainty for alternative investment fund managers. While the bill has been submitted to Parliament, it has not yet become law. The legislative process is ongoing, and the proposed changes are expected to take effect from the 2026 tax year, pending approval. For details on this topic, see our publication: Modernizing personal taxation of carried interest.
Together, these developments contribute to a predictable and investor-friendly environment that supports sustained growth and innovation in Luxembourg’s private debt market.
2. Why Luxembourg remains a magnet for private debt capital
There are a number of ways in which the Luxembourg private debt market is keeping itself resilient, relevant and flexible:
Resilience in key sectors
Luxembourg’s private debt funds are increasingly targeting sectors that demonstrate stability and growth potential even during times of economic disruption. Healthcare, technology, and renewable energy stand out as priorities, as these industries are less sensitive to short-term tariff impacts and offer attractive long-term returns.
ESG leadership
Environmental, Social, and Governance (ESG) principles have become integral to Luxembourg’s private debt landscape. Through initiatives such as the Luxembourg Green Exchange (LGX), many funds are now focused on ESG-compliant investments, aligning financial objectives with sustainability goals. These investments tend to be more resilient to geopolitical shocks, emphasizing long-term value creation.
Cross-border access and opportunities
Strategically situated in the heart of Europe, Luxembourg provides unparalleled access to the EU single market and benefits from the bloc’s extensive trade agreements with non-EU countries. This positioning enables private debt funds based in Luxembourg to diversify portfolios internationally and capitalize on stable, diversified investment opportunities despite global trade tensions.
These factors, in combination with its robust regulatory and legal frameworks, underpin Luxembourg’s premier private debt position.
Looking ahead: Luxembourg’s private debt market in 2025
As we move into the latter stages of 2025, we expect Luxembourg’s private debt market to continue its strong growth trajectory. For investors and finance professionals seeking opportunities in uncertain times, it continues to be a compelling choice.
Our private debt experts support clients in all stages of the private debt investment lifecycle. We bring value through our multidisciplinary approach, combining cross-border expertise in tax, audit, accounting, fund administrative services, valuation, consulting, and deal advisory together with our global network. Please don’t hesitate to connect with your KPMG team for more information and insights.
This article has been co-authored by Julien Bieber (Partner, Tax, Alternative Investments) and Waleed Khalid (Manager, Audit, Alternative Investments).
