Trade sector prepares for potential obstacles due to trade wars, as Luxembourg solidifies its position as a strategic powerhouse
Luxembourg's private capital markets are facing significant challenges in a global economic landscape marked by renewed US-led trade tariffs, ongoing macroeconomic volatility, and the impact of Brexit. Despite these headwinds, the city-state remains a vital European hub for private capital, particularly in private equity, private debt, and securitisation markets.
The first half of 2025 showed signs of recovery and increased deal activity in private equity and private debt in Luxembourg. However, the second half of the year is expected to be more challenging due to a resurgence of US trade tariffs impacting global trade and economic growth, creating an uncertain environment for private capital markets globally.
Luxembourg's strength lies in its modernised and tax-neutral regulatory framework, which includes amendments to the 2004 Securitisation Law that facilitate Collateralized Loan Obligations (CLOs) issuances. This competitive edge, coupled with strategic geographic position in the EU, makes Luxembourg an attractive destination for institutional investors like pension funds and insurance companies. Approximately €400 billion in securitised assets are managed through over 1,300 active vehicles in Luxembourg.
The impact of Brexit has been somewhat mitigated by Luxembourg's growing prominence as a European private capital hub, with post-Brexit repositioning making the country more attractive for fund domiciliation and capital flows previously routed through London.
Looking ahead, while ongoing geopolitical tensions (including trade wars) and inflation pressures remain risks, market participants in Luxembourg display cautious optimism around portfolio diversification and private capital opportunities, especially in credit and alternative asset classes that may offer attractive returns amid volatility.
A roundtable discussion hosted by Funds Europe was held in Luxembourg with key figures in the private markets sector to assess the first half of 2025 and beyond. The panel, which included Micaela Forelli, William Gilson, Jonathan De Hemmer Hamborg, Stephane Pesch, and Nick Tabone, emphasised the importance of making private markets more accessible but stressed that it must be done with integrity. They agreed that if private markets are democratized, it must be with quality, not just repackaged funds. They need the right performance, transparency, governance, and education baked in.
Education remains critical to understanding the nature of private assets, according to Gilson. He shared a stark anecdote about the operating model still being stuck, as a private fund manager pushed him towards a bank intermediary to outsource the KYC burden. This underscores the need for a better understanding of private assets among market participants.
Despite the challenges, Luxembourg's private capital markets are considered resilient and continue to thrive, benefiting from regulatory certainty, strong financial infrastructure, and strategic geographic position in the EU. Selected deals are getting done, and new sectors like climate and energy transition, defence tech, healthcare, AI, and data infrastructure are drawing significant interest.
In summary, Luxembourg's private capital markets are navigating a complex global backdrop shaped by trade tariffs, Brexit repositioning, and macroeconomic uncertainty. Thanks to a supportive regulatory environment and strategic shifts post-Brexit, Luxembourg's role as a European private market hub is strengthening, with a future outlook of cautious optimism amid ongoing global economic challenges.
[1] Source: Funds Europe [2] Source: Financial Times [3] Source: PwC [4] Source: European Central Bank
1.piteous uncertainties in private capital markets worldwide due to resurgence of US trade tariffs, the allure of Luxembourg as a European hub for investment funds persists, thanks to its tax-neutral regulatory framework and strategic EU location that attracts institutional investors like pension funds and insurance companies.
2.Regardful of the impending second half of 2025, with anticipated increase in US trade tariffs and global economic instability, stakeholders in Luxembourg's finance sector express cautious optimism towards portfolio diversification and private capital opportunities in credit and alternative asset classes, despite persistent geopolitical tensions and inflation pressures.
3.The expertise of Micaela Forelli, William Gilson, Jonathan De Hemmer Hamborg, Stephane Pesch, and Nick Tabone, pivotal figures in the private markets sector, highlighted the significance of democratizing private markets, prioritizing quality over quantity via transparent governance, education, and performance, to help market participants comprehend the intricacies of private assets.
4.In an effort to foster better understanding of private assets, Gilson underlined the perplexing anecdote where a private fund manager solicited him to outsource KYC responsibilities through a bank intermediary, underscoring the necessity for enhanced knowledge and transparency in the sector.
5.The vitality of Luxembourg's private capital markets endures amid the international economic turmoil provoked by US-led trade tariffs, Brexit's impact, and unpredictable macroeconomic conditions, bolstered by regulatory certainty, powerful financial infrastructure, and the lucrative potential of emerging sectors like climate and energy transition, defence technology, healthcare, AI, and data infrastructure.
