Navigating challenges with resilience

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.

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.

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.

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 Waleed Khalid (Manager, Audit, Alternative Investments).