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Alternative Investment

Private debt, real estate and infrastructure assets surge by up to 45%

Private debt assets under management in Luxembourg jumped 45% in the 12 months to June 2022, sustaining gains witnessed in previous years and in defiance of a wider alternative assets fundraising slowdown. Real estate and infrastructure funds also increased by 26% over a similar period, two surveys from consultancy KPMG and the Luxembourg fund industry body Alfi, published today, show.

Both leaps show the resilience of alternative assets at a time of volatility – led by private debt.

“The demand for financing remains robust, despite inflation, recession risks and geopolitical tensions,” said Valeria Merkel, co-head of private debt at KPMG. “Meanwhile banks are further reducing their lending activities due to ongoing regulatory capital needs and expected loan loss provisions.”

Sustainable finance missing out

Although private debt assets under management in Luxembourg grew 45.4% to €267.8bn over the 12 months to June 2022, the proportion with a sustainable investment objective appear to have shrunk year on year, according to the survey. Funds classed as article 9 under the Sustainable Finance Disclosure regulation, with a sustainable investment objective, accounted for only 2% of the funds that responded in the 2022 survey, compared with 6% in the 2021 survey.

Meanwhile the proportion of article 6 funds – those that do not integrate any kind of sustainability into the investment process – grew in proportion from 61% of debt funds in the 2021 period to 75% in the 2022 period.

Article 8 funds – those that promote environmental or social characteristics – also shrunk year on year from 33% in the 12 months to June 2021 to 23% in the same period 2022.

KPMG was unable to give more detail on this at the time of publishing.

Real estate and infrastructure resilience

Meanwhile, assets under management in Luxembourg Reifs reached €131.3bn in the third quarter of 2022, a 26% increase over the last 12 months.

However, the shape of the market has changed year on year.

“Bigger funds appear more prevalent in 2022 with Reifs having a net asset value above €100m representing now 53% of the surveyed Reifs and multisector diversification is continuing,” said Christophe Masset, co-chair of the Alfi Reif Survey working group.

The significant cost of inflation as well as dwindling risk appetite has also decreased leverage in Reifs. According to the survey, 46% of funds aim to keep their gearing below 20% loan-to-value ratio, while a further 49% aim to keep LTV levels to below 60%.

“With numerous new funds launched by initiators and AIFMs in Europe and the USA, and few REIFs encountering special situations over the period surveyed, the REIF market seems resilient although the impact of geopolitical uncertainties is yet to be seen,” said Emmanuel Gutton, the director of legal and tax at Alfi. 

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