Luxembourg’s flexible legal structure and regulatory agility are increasingly attractive. Non-regulated vehicles, reserved alternative investment funds (Raifs) and manager-regulated alternative investment funds alone account for 69.5% of the market, says a published on Wednesday by the Association of the Luxembourg Fund Industry (Alfi). This figure illustrates the growing demand from promoters for structures that combine speed of implementation, lower costs and compatibility with cross-border requirements.

Raifs are confirming their success, rising from a single vehicle in 2016 to 226 in 2024. Their appeal is based in particular on their hybrid status, combining the flexibility of specialised investment funds (Sifs) with the efficiency of a launch without prior approval from the Financial Sector Supervisory Commission (CSSF). This is a way of gaining time to market without cutting back on governance.

Another striking fact: the legal form of the special limited partnership (SCSP) remains popular, used by 59% of real estate investment funds (Reifs), notably for its tax transparency and simplicity. The rise in popularity of closed-ended funds, which now account for 67% of vehicles, also reflects greater prudence in liquidity management.

In the face of market volatility and rising interest rates, Luxembourg Reifs are displaying a degree of stability. More than 80% of funds held on to their assets in 2024, preferring to freeze investments rather than liquidate or reallocate. Only 4.5% have suspended redemptions, proof of prudent and anticipatory management, notably via liquidity management tools (LMT).

Leverage remains moderate: almost 43.8% of funds aim to keep their gearing below a 20% loan-to-value ratio, confirming a limited appetite for debt in a less favourable environment.

Sectoral and geographical diversification

Multisectoral strategies are becoming the norm: 53% of funds are targeting several property sectors (residential, offices, logistics, etc.). Whilst Europe remains the leading destination (77% of investments), interest in North America is growing, as is interest in global strategies (8.5% with no specific geographical focus).

The majority of Reifs adopt “core” (36%) or “core+” (22%) approaches, reflecting a preference for stable long-term returns. By contrast, purely opportunistic strategies are limited to 18%.

Whilst 80% of investors remain European, 7.1% of funds have a very diversified investor base. And 67% of Reifs are distributed in several countries, reinforcing the grand duchy’s role as a cross-border distribution hub. Promoters and managers come mainly from the Benelux countries, Germany, the United Kingdom and the United States.

The country is also establishing itself as a leader in European long-term investment funds (Eltifs), with 100 vehicles domiciled in Luxembourg at the end of 2024. The adoption of Eltif 2.0 and the opening up to retail investors are further expanding the range.

Margins for progress on sustainability

On the ESG side, the majority of funds remain classified as article 6 under the SFDR–i.e., integrating sustainability risks without displaying a sustainable objective. However, 24 funds switched to article 8 or 9 categories in 2024, a sign that ESG criteria are being taken into account, even if this remains timid.

This dynamism must not mask certain challenges. Rising interest rates continue to weigh on valuations, and the decline in the use of leverage could impact returns. Furthermore, while Luxembourg’s regulatory flexibility is an asset, it could be called into question if European regulators demand greater harmonisation, particularly on transparency and sustainability.

This article was originally published in .