Luxembourg continues to strengthen its ranking as the world’s second-largest fund domicile after the United States: the assets under management of Luxembourg-domiciled funds stands at almost of EUR 4.7 trillion as at September 2020. This increase is not only based on the growth of traditional Luxembourg-domiciled undertakings for collective investment in transferable securities (UCITS) funds, but also due to the continued strong growth in respect of alternative investment funds, including private equity, real estate, infrastructure and debt. As large private equity houses embrace Luxembourg as their fund-structuring jurisdiction, the results of a survey issued at the end of last year show that private equity vehicles structured either under the reserved alternative investment fund regime or as unregulated limited partnerships increased by close to 20 per cent up to the third quarter of 2019, following a similar 20 per cent increase a year earlier, now representing 51 per cent of all Luxembourg private equity funds. 

Concurrently with the surge in the alternative investment funds market, Luxembourg has seen a significant development in fund finance activity, supported by the possibility of implementing efficient security packages in the context of credit facilities for funds. Recent years have been particularly active as regards fund finance transactions in Luxembourg, with positive growth, strong credit performance and absence of credit defaults. While capital call subscription credit facilities and bridge facilities are still used and continue their steady growth, permanent leverage facilities have become increasingly popular.

This overview published in Global Legal Insights to: Fund Finance 2021 - Luxembourg, presents the key legal aspects of fund finance related to the leverage under the AIFMD and the AIFM law, the structuring of a security package and the involvement of depositaries in the transactions.