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Luxembourg alternative investment funds record another year of robust growth

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Three surveys published at the ALFI PE & RE Conference 2019 in Luxembourg on 26 and 27 November reveal continued solid growth in alternative investment funds in the Grand Duchy.

The ALFI/Deloitte Private Equity and Venture Capital Investment Fund Survey 2019 found that the  size of the average private equity fund domiciled in Luxembourg has increased by 50 per cent since 2018, with the number of PE funds holding assets worth more than EUR1 billion doubling over the same 12-month period. Luxembourg now accounts for 4.3 per cent of the global private equity fund industry. The survey also shows unregulated investment vehicles such as RAIFs and limited partnerships saw a 20-point increase up to Q3 2019, following a similar 20-point increase a year earlier, these fund structures now represent 51 per cent of all Luxembourg PE funds.

Luxembourg has now been embraced by large PE houses, especially North American funds who represent 8 per cent of the Luxembourg private equity population, the percentage of non-EU initiators in the market has gone up from 9 per cent to 13 per cent.

The ALFI/KPMG Private Debt Fund Survey 2019 showed a 14.5 per cent climb in assets under management (AuM) in Luxembourg private debt funds, to a total of over EUR56 billion, representing an impressive 40 per cent increase in the last two years. This builds on the 23.5 per cent growth in AuM seen from 2017. The number of private debt funds using a RAIF structure rose from 13 per cent to 20 per cent of total funds in 2019.

Direct lending strategies almost doubled to 32 per cent of the private loan market, up from 18 per cent. High yield bond strategies remained stable at 22 per cent whilst senior loans dropped from 35 per cent in 2018 to 22 per cent in 2019.

The survey also discusses the rise of sustainable finance and green loans as it relates to the industry. The adoption of the European Parliament’s new environmental regulations will oblige firms to release environmental impact assessments making high-carbon investments an increasingly unattractive option moving forward. Green loans are becoming more attractive as their issuance rose up to $60 bn globally in 2018, up more than 30 per cent from 2017.

The ALFI REIF Survey 2019 found a flourishing sector, with asset managers seeing increased interest from non-EU countries and in particular North America; US investments were at 18 per cent of the total in 2019 compared to 11 per cent the year prior. Fewer of these funds are being invested in European countries, with the percentage leaving the EU rising from 23 per cent to 29 per cent. The multi-sector strategy is slightly less prevailing, with only 33 per cent of funds investing in real estate from a variety of sectors, 67 per cent choose to focus on single sector eg with an office, retail or industrial strategy.

The number of launches of Reserved Alternative Investment Funds (RAIFs) focused on property grew from 27 in 2018 to 63 in 2019, an increase of 133 per cent. The number of Alternative Investment Funds has also seen a marked expansion, from 27 manager-regulated AIFs in 2018, to 41 in 2019 – an increase of 51.9 per cent. The increase in the number of fund launches corresponds with a rise in net AuM of Luxembourg real estate funds. As of Q3 2019, it stands at EUR79.93 billion; up by 7.44 billion from EUR70.49 billion at the end of 2018. This represents an increase of 13.4 per cent.

Corinne Lamesch (pictured), Chairperson of ALFI, says: “These reports highlight robust growth across all three asset classes for Luxembourg-domiciled funds as they become increasingly attractive outside the EU, both in terms of new AIFs set up in Luxembourg and the breadth of non-European institutional investment into these funds.

“From a global perspective the next few years should represent an era of significant continued growth for alternative investment funds, having witnessed global AuM tripling to nearly USD9 trillion in the decade up to 2017. With the global AIF industry set to more than double in size over the next five years and over three quarters of investors expecting to increase their allocation to alternatives, we believe Luxembourg-domiciled AIFs are in a strong position to    capitalise on this growth in interest and investment.”

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