We are pleased to present the 7th edition of the KPMG Luxembourg Alternative Investments Substance Survey.
Building on the strong foundation of previous years, this year’s survey offers an in-depth look at the operating models and organizational substance of Luxembourg alternative investment players in 2025. It highlights how the market continues to evolve, surfaces emerging trends across asset classes and player sizes, and provides valuable insights to help industry participants benchmark their own positioning in a rapidly changing environment.
While our approach is primarily quantitative, we also engaged in discussions with participants about the future of the Luxembourg fund industry and other jurisdictions, as well as the direction of travel of tax. These conversations shed light on Luxembourg fund substance requirements and evolving European alternative funds compliance standards.
Our participants in numbers
The highlights of 2025
The 2025 results offer a clearer view of where Luxembourg’s substance landscape is heading, and, in many ways, where it has already settled. With 62% of this year’s respondents also participating in FY24, the survey provides a stable year-on-year baseline, allowing long-forming trends to come into sharper focus.
Many of last year’s themes hold steady.
- The quest for greater sophistication remains a clear theme this year. Nearly all respondents report using Luxembourg Alternative Investment Funds to a slightly greater extent than in FY24. More tellingly, many also indicate that they increasingly leverage tax substance on the back of regulatory substance, rather than treating the two as separate exercises.
- Full-time equivalent (FTE) levels remain broadly unchanged on a comparable sample basis (although the wider sample shows more employees), and the AIFM personnel’s expertise and skillset continues to play a key role across SPV management in terms of substance. However, the data also captures a slow, deliberate shift: stronger hiring intentions, more mature control frameworks, and a general sense that platforms are tightening the bolts of their operating models.
- Our statistics also show that externalization remains a core pillar of asset managers’ business models and organizational profiles.
What follows is a closer look at the most notable developments of 2025 - and how the industry is quietly but decisively recalibrating.
AIFM regulatory substance
Still the center of gravity
Within the population of our sample having a Luxembourg’s in-house AIFM, substance isn’t just a regulatory requirement - it has become a defining structural feature. This year, the AIFM functions as a bridge, transferring expertise and governance discipline across broader alternative fund structures in Luxembourg. 69% of AIFM employees also support SPVs, either part-time or full-time - up from 59% in 2023. The AIFM acts as a bridge, transferring expertise and governance discipline across the broader platform.
Board-level involvement reinforces this dynamic. Half of the Luxembourg in-house AIFM in our sample have at least one of their conducting officers also sitting on the boards of Luxembourg SPVs, and in 55% of these cases, the officer responsible for portfolio management assumes that board role.
These models tend to come with higher staffing levels, clearer outsourcing strategies, and stronger substance self-assessments. The message is clear: the presence of a Luxembourg AIFM continues to anchor governance and operational depth across the platform.
Substance and platform staffing
Doing more, differently
Average headcount per sponsor now stands at 22.1 employees, with a median of 15 (up from 14 in FY24). Yet among participants having participated in the survey for two consecutive years, overall FTE levels remain essentially flat.
Managers appear to be delivering more with roughly the same resources, while layering in targeted additions where it matters most. Several respondents pointed to ongoing optimization initiatives, offering context for the following observations:
On the SPV side, operations reveal a focus on efficiency.
Overall, firms dedicate an average of 12.3 employees - full-time or part-time - to SPV structures alone.
Across all participants, employees (excluding AIFM staff) manage an average of 9.4 SPVs each. When AIFM personnel are integrated into SPV-related processes, the figure drops to 5.9 SPVs per employee - a sign that integrating AIFM personnel can distribute workload more evenly while raising governance standards.
The talent picture adds another layer. Nearly half of asset managers (48%) plan to hire, aiming for an average of 2.2 new employees in the next six months - a 21% increase from FY24. The appetite for specialized skills persists even amid disciplined headcount management.
Still, Luxembourg’s labor market presents real headwinds. Competition for qualified talent remains fierce, and retention is no less challenging. One quarter of respondents cited talent attraction and retention as a primary point of attention - underscoring why hiring ambitions remain elevated even as overall FTEs hold steady.
The operating model: internalization vs outsourcing
The SPV operating model is strongly relying on delegation and/or outsourcing (except for COSEC) with oversight kept in Luxembourg. This is motivated by cost and efficiency KPIs.
Tax and accounting continue to be the most extensively outsourced activities. By contrast, corporate secretarial work (CoSec) is primarily internalized, a model driven by rising quality expectations and the seniority required to execute these responsibilities effectively. This is a valid point: from a tax perspective, board minutes are frontline documents for foreign tax authorities during audits.
What emerges is a model where oversight stays anchored in Luxembourg, even as operational tasks are distributed across alternative fund structures. The degree of outsourcing grows with manager size, reflecting Qa pragmatic search for efficiency: large players are reshaping their mix of internal and external resources to focus on value-added work and push more commoditized services to specialized providers.
The board composition and decision-making process is generally appropriate from a tax substance viewpoint, specifically for players with an AIFM.
Such players are leveraging AIFM regulatory substance.
Local governance: Robust, disciplined, and increasingly professionalized
Governance across Luxembourg platforms remains notably strong. Board sizes are stable and tailored to the roles of each entity, and 71% of respondents now rely on independent directors - a crucial source of technical expertise and impartial judgment. At the same time, fewer than one in five use directors drawn from trust companies or asset servicers, signaling a more deliberate and disciplined approach to board composition and independence.
This year’s data also confirms last year’s findings: the evidence points to a characteristic board structure consisting of a majority of Luxembourg-resident professional directors, complemented by a foreign internal director who travels to Luxembourg when needed. The result is a governance model that blends local presence with group alignment while still satisfying regulatory expectations.
Notably, this setup mirrors the conclusions of our most recent substance and beneficial ownership survey spanning 31 jurisdictions across the EU and EEA, conducted by the KPMG EU Tax Centre. When assessing the place of effective management of SPVs - and, by extension, their tax residency - local tax authorities tend to focus on several core criteria:
This outlines that the Luxembourg governance and substance setup of our participants is robust.
Control and readiness: A steady, watched landscape
Whilst tax audits remain significant across the EU for the panel, most of the participants finds their model strong enough specifically the ones with an AIFM which would bring the qualitative substance needed.
Governance across Luxembourg platforms remains strong. Boards are stable, tailored to each entity, and increasingly rely on professional, independent directors. The structure supports Luxembourg fund substance requirements and aligns with cross-border compliance considerations.
From a control and readiness standpoint, the environment has remained remarkably stable. Tax scrutiny has not intensified: 43% of recurring respondents reported a direct foreign tax audit or a tax enquiry in 2025, virtually unchanged from last year. Platforms continue to formalize substance and governance frameworks, enhancing confidence in Luxembourg AIFM compliance/AIFMD substance while demonstrating resilience in a closely watched environment.
Confidence levels, however, tell a deeper story. Respondents rate their substance posture at an average of 4.2 out of 5, reflecting both assurance and awareness. Behind that rating lies a set of increasingly common practices:
- 64% have conducted a tax health check in the last two years,
- most engage regularly with advisors, and
- 58% have formalized their substance and governance frameworks in written manuals or any sort of documentation.
Taken together, these behaviors signal a continued maturation of internal control framework: less reactive, more methodical, and increasingly codified.
A quest for efficiency, without disruption
Efficiency efforts are gaining momentum across Luxembourg platforms. 71% of respondents say they are actively reshaping processes or implementing measures to optimize costs and streamline operations - evidence of a sector pushing for refinement rather than reinvention.
Managers consistently identify artificial intelligence, digitalization, and a reevaluation of outsourcing models as their top priorities, reflecting alternative investment trends in Europe for 2025. Together, these initiatives suggest a shift toward targeted efficiency: upgrades designed to sharpen day-to-day execution without upending the operating model.
Still, the industry’s approach to AI remains measured. Among those pursuing optimization, 79% acknowledge that their use of artificial intelligence does not yet extend beyond routine, narrowly defined tasks. For now, the gains will come from process enhancements and selective tooling. The more transformative potential of AI - its ability to reshape operating models at scale- remains on the horizon, expected to unfold gradually in the years ahead.
Cross border positioning
While we observe competition from neighboring jurisdictions, Luxembourg remains the preferred fund platform hub.
Cross-border structuring continues to shift, though only at the margins. Just 6 percent of respondents make use of UK QAHCs - and typically only in targeted circumstances, such as UK-focused investments or specific investor profiles like sovereign wealth funds. Despite a challenging market backdrop and evolving investor expectations, Luxembourg remains the primary and preferred fund platform hub, retaining its central role in European and global structuring strategies.
Conclusion
Refinement over reinvention
In 2025, Luxembourg platforms are refining rather than redefining their operating models. Governance continues to deepen; AIFM regulatory substance remains a strategic pillar, and outsourcing - while still foundational - is increasingly complemented by selective digitalization that could spur measured insourcing over time.
The market’s discipline is paying off. Although the proportion of tax audits remains steady, the ongoing formalization of substance frameworks is strengthening confidence. The result is a landscape that is both stable and forward-looking—one that reaffirms Luxembourg’s standing as a leading global fund platform.
