Despite a strong start to the year, particularly for private debt in the first quarter, with an uptick in private equity deal activity and allocations to the asset class, the second half of 2025 could be more challenging for private capital as Trump’s trade tariffs hit global trade and impact the global economy.
As private markets navigate a post-pandemic world still reeling from macroeconomic shocks—geopolitical volatility, inflation pressures, and now a looming US-led trade war—Luxembourg’s role as a European private capital hub has never been more visible or vital. In a wide-ranging roundtable discussion hosted by Funds Europe, key figures in the private markets sector gathered in Luxembourg to assess the first half of 2025 and beyond.
The panel for the Funds Europe Private Markets High-Level Dialogue 2025 included Micaela Forelli, CEO of M&G Europe; William Gilson, an independent director with a post-Brexit lens; Jonathan De Hemmer Hamborg of KPMG; Stephane Pesch, CEO of the Luxembourg Private Equity and Venture Capital Association (LPEA) and Nick Tabone, partner at Deloitte Luxembourg.
Despite macro headwinds – including Trump-era tariffs making a 2025 comeback – the consensus around the table was one of “cautious optimism.” A striking thread emerged: private markets, particularly those anchored in Luxembourg, are not only surviving volatility: they’re thriving through it.
Few topics framed the discussion as firmly as Brexit’s long tail of consequences – and opportunities. Gilson recalled stepping down from his London-based role the day after the Brexit referendum, presciently pivoting to his home Luxembourg base just as fund managers began relocating. “The first managers I got as an independent were because of Brexit,” he noted.
M&G’s Forelli echoed this. “We moved across £45 billion post-Brexit,” she said, citing Luxembourg’s well-established legal and operational fund ecosystem. Today, M&G Europe manages €138 billion out of Luxembourg – nearly half of it in private markets.
“Luxembourg has become a true headquarters, not just a booking centre,” Forelli stressed, noting headcount growth from 30 to 68 since the UK’s EU departure. She emphasized that this growth was not merely regulatory: it was strategic. “The international market recognizes Luxembourg structures better than UK ones post-Brexit.”
Fundraising in private markets is undergoing a complex recalibration. “More M&A activity means more capital recycling,” said Gilson, noting that LPs are keen to reallocate proceeds from previous vintages. But the long-expected uptick in deal flow still feels months away creating a logjam in new commitments.
“There’s a record amount of dry powder,” said Tabone, “and it’s not aged capital, it’s fresh.” But institutional investors are constrained by the denominator effect and limited ability to rebalance portfolios in illiquid assets.
“Macro-economic uncertainty is certainly a headwind – but it’s not a stop sign. What we’re seeing is a more selective, more disciplined market not a frozen one”, Pesch said.
He added that fundraising will remain competitive but is persuaded that many established funds with a strong track records and clear thesis will get lots of traction anyway.
“Many LPs are recalibrating but not retreating – they’re favouring quality, alignment, and operational value creation which makes sense during more challenging periods”, Pesch added. “Uncertainty is the new normal, but our ecosystem is resilient and robust enough to adapt accordingly”.
“DPI [distributed to paid-in capital] is the new IRR [internal rate of return]”, Pesch said referring to the actual liquidity distributions rather than the potential future profitability, which stresses the importance of steadily returning capital and performance to the investors.
Yet optimism prevails: selected deals are getting done, and new sectors – like climate and energy transition, defence tech, healthcare, AI and data infrastructure – are drawing significant interest.
Forelli added a strategic dimension, noting that “smaller, targeted deals” are rising in importance, particularly those tied to sustainability, regional specialisation, or tech innovation. M&G, for example, is seeing increased appetite in residential and hospitality real estate, even as the broader office sector remains subdued.
Liquidity Is Not Always King
When asked whether private markets offer a superior hedge during volatile periods, the answer was emphatically yes—but with caveats. “The long-term nature of private assets is exactly why they help during market downturns,” said Tabone. “If you’re constantly reacting to public markets volatility, you lose strategic focus.”
De Hemmer Hamborg took it further. “The illiquidity that’s long been viewed as a weakness is becoming a strength. It dampens the noise.” He argued that in an era of social media-fuelled panic and algorithmic trades, private capital’s steady cadence provides psychological comfort and economic ballast.
Forelli emphasized that institutional investors already understand this. “For years, they’ve used private assets as a bedrock. Now we’re seeing high-net-worth and family office investors following that lead, particularly as generational transitions shift priorities toward income and capital preservation.”
Still, education remains critical. “People need to understand that a private debt fund offering 7% annually isn’t magically liquid,” said Gilson. “But with the right structure and disclosures, it’s far superior to a volatile tech ETF that loses 30% overnight.”
ELTIF 2.0: Off to a Cautious but Promising Start
Luxembourg’s embrace of the revised European Long-Term Investment Fund (ELTIF) regulation, dubbed “ELTIF 2.0”, was a recurring theme. M&G launched its inaugural ELTIF under the new regime in late 2023. “We waited for the right framework,” said Forelli, noting that the previous rules were too restrictive.
So far, the results are promising but modest. “We’re seeing momentum, particularly from family offices,” she said. M&G’s strategy involved careful onboarding, supported by educational programs like its “Credit Academy” for wealth advisers.
Yet as Pesch pointed out, “we expected more.” ELTIF 2.0 still faces friction across EU jurisdictions with some countries which still insist on local structures or wrappers. Constructive harmonisation on the distribution front remains a work in progress.” Nevertheless, all agreed ELTIF 2.0 marked a meaningful improvement, and called for a 3.0 to tackle unresolved cross-border inconsistencies.
Democratisation of Private Markets: Reality or Rhetoric?
The panel expressed strong support for making private markets more accessible but stressed that this must be done with integrity. “We’re not talking about mass retail just yet,” said Tabone. “But high-net-worth and affluent investors? That’s already happening.”
Still, operationally, the shift is daunting. “The systems built for closed-ended funds are not ready for frequent NAVs or redemptions,” Tabone said. “You need real-time data, robust distribution networks, and a completely different mindset.”
Gilson offered a stark anecdote: “I tried investing in a private fund. The manager pushed me toward a bank intermediary just to outsource the KYC burden. That tells you the operating model is still stuck.”
Forelli acknowledged the complexity. “We don’t do direct retail in Europe. That’s why we go through wealth managers. But the whole approach needs to evolve, from systems, to onboarding, to reporting.”
Pesch was equally clear: “If we democratise private markets, it must be with quality. These can’t just be repackaged funds. They need the right performance, transparency, governance, and education baked in.”
Education, Transparency, Trust and Track Records
If the consensus favoured private markets as a superior long-term strategy, the pathway there was paved with investor education.
“We need to go beyond liquidity,” Gilson said. “Risk, valuation, governance: those are the real issues. People think they need daily liquidity. What they need is alignment with their goals.”
Forelli agreed, adding that “patient capital” only works when both sides understand the rules of the game. That’s why M&G is investing in training and tools, not just distribution.
Meanwhile, Pesch emphasised a broader mission: “Financial literacy must start in schools. If we want long-term financial resilience, we can’t just wait until people turn 40 to teach them about asset allocation.”
Luxembourg’s UCITS Experience and Private Market Expertise
As the discussion neared its end, the mood was clear. Luxembourg’s hybrid DNA – part traditional asset management centre, part private capital leader – gives it a competitive edge in Europe’s evolving financial landscape.
“Luxembourg knows UCITS,” said Tabone. “Now we’re learning how to scale private markets for a new audience. That’s a powerful combination.”
Pesch concurred, noting that many of the ecosystem’s newest entrants – from defence tech venture funds to dual-use security firms – are choosing Luxembourg as their launchpad.
If the first half of 2025 offered a glimpse of recovery, the second half – clouded by tariffs and trade tensions – will test that resolve. But based on this panel’s consensus, the fundamentals of private markets remain intact, and Luxembourg’s role continues to expand.
The challenge, as the panellists made clear, is not one of demand but delivery. With the right education, governance, and distribution frameworks, private markets can deliver not just returns, but resilience.
As Forelli put it succinctly: “In moments like these, private capital doesn’t just survive – it proves why it’s essential.”
The panel:
Micaela Forelli, CEO M&G Europe
William Gilson, independent director at Investment Funds and Management Companies
Jonathan De Hemmer Hamborg, partner KPMG Luxembourg
Stephane Pesch, CEO Luxembourg Private Equity and Venture Capital Association (LPEA)
Nick Tabone, partner Deloitte Luxembourg
Mark Latham, deputy-editor Funds Europe (moderator)