Financial sectors prepare for potential challenges from a trade war, as Luxembourg demonstrates its strategic advantage in navigating global commerce conflicts
Luxembourg Evolves as a Leading Private Capital Hub Amid Global Uncertainties
In the face of ongoing macroeconomic shocks and geopolitical volatility, Luxembourg is transforming its role in the private capital market. Once a traditional fund domicile, the country is now emerging as a more active center for financial structuring [1].
The transition is significant, as Luxembourg adapts to the challenges of the current financial climate by emphasizing quality and governance [1]. This approach aims to navigate the risks of conflicts of interest and maintain fund mandates during volatile times. The rising appetite among Luxembourg-based bankers and fund managers for advanced fund structures signals a shift towards greater financial innovation and resilience.
One of the key factors driving this evolution is the embrace of the revised European Long-Term Investment Fund (ELTIF) regulation. M&G launched its inaugural ELTIF under the new regime in late 2023 [2]. The country's fund industry is also attracting new entrants, particularly in sectors such as defence tech and venture funds, which are choosing Luxembourg as their launchpad.
William Gilson, one of the panelists at a recent roundtable discussion hosted by Funds Europe in Luxembourg, stressed the need for alignment with investor goals rather than focusing on liquidity [2]. Micaela Forelli, another panelist, noted that Luxembourg has grown as a headquarters, not just a booking center, since the UK's EU departure [2].
Private markets are increasingly seen as a superior hedge during volatile periods, but with caveats such as the long-term nature of private assets requiring strategic focus [2]. Institutional investors are increasingly using private assets as a bedrock, and high-net-worth and family office investors are following suit, particularly as generational transitions shift priorities towards income and capital preservation.
Despite the challenges, private capital, including that in Luxembourg, has proven its essential role in challenging times [2]. The illiquidity of private capital is becoming a strength, dampening volatility and providing psychological comfort and economic ballast.
However, the road ahead is not without hurdles. The panel consensus was that the fundamentals of private markets remain intact, but LPs are facing constraints due to the denominator effect and limited ability to rebalance portfolios in illiquid assets [3]. The challenge is not one of demand but delivery, with the right education, governance, and distribution frameworks needed to meet the demands of this evolving market.
The results of the ELTIF 2.0 are promising but modest, particularly from family offices [3]. All panelists agreed that ELTIF 2.0 marked a meaningful improvement, and called for a 3.0 to tackle unresolved cross-border inconsistencies [3].
Stephane Pesch, another panelist, advocated for financial literacy education starting in schools [3]. Education remains critical in understanding the nature of private assets and their illiquidity.
Overall, Luxembourg is positioning itself as a proactive participant in Europe’s private capital landscape, enhancing its capacity to support complex private market transactions despite the backdrop of macroeconomic and geopolitical pressures that are reshaping global investment flows [1][2]. This evolution aligns with the broader imperative within Europe to strengthen capital market integration and resilience to shocks highlighted in recent European forums on private markets [1][2].
The roundtable discussion was moderated by Mark Latham, deputy-editor of Funds Europe, and included Micaela Forelli, William Gilson, Jonathan De Hemmer Hamborg, Stephane Pesch, and Nick Tabone [3]. Tabone stated that Luxembourg's hybrid DNA gives it a competitive edge in Europe's evolving financial landscape [3].
Private markets in Luxembourg experienced a strong start to 2025, but the second half could be challenging due to Trump's trade tariffs affecting global trade and the economy [3]. Despite these challenges, Luxembourg continues to expand its role as a European private capital hub.
[1] Funds Europe. (2025). Luxembourg: A European private capital hub in the post-pandemic world. Retrieved from https://www.fundseurope.com/luxembourg-a-european-private-capital-hub-in-the-post-pandemic-world/
[2] Funds Europe. (2025). Roundtable: Navigating the complexities of private markets. Retrieved from https://www.fundseurope.com/roundtable-navigating-the-complexities-of-private-markets/
[3] Funds Europe. (2025). Navigating the complexities of private markets: A roundtable discussion. Retrieved from https://www.fundseurope.com/navigating-the-complexities-of-private-markets-a-roundtable-discussion/
- The revised European Long-Term Investment Fund (ELTIF) regulation is a key factor driving Luxembourg's evolution into a leading private capital hub, with M&G launching an ELTIF under the new regime in late 2023.
- Private markets in Luxembourg are attracting new entrants, particularly in sectors such as defense tech and venture funds, which are choosing Luxembourg as their launchpad.
- Institutions, high-net-worth, and family office investors are increasingly using private assets as a bedrock, especially during volatile times, due to the long-term nature of private assets providing psychological comfort and economic ballast.
- Stephane Pesch, a panelist, advocates for financial literacy education beginning in schools to help understand the nature of private assets and their illiquidity.
- The road ahead is not without hurdles, with LPs facing constraints due to the denominator effect and limited ability to rebalance portfolios in illiquid assets.
- Despite geopolitical and macroeconomic pressures, Luxembourg's private capital market is poised to continue expanding its role in Europe’s evolving financial landscape, due to its hybrid DNA.
- Micaela Forelli, another panelist, points out that Luxembourg has grown as a headquarters, not just a booking center, since the UK's EU departure, signaling a shift towards strategic focus.
