Private asset markets are moving mainstream
– and Luxembourg is ready

With retailisation accelerating and long-term capital flows being redefined, fund initiators in the alternatives space need more than just a back-office – they need partners who bring stability, structure, and long-term alignment with their needs. The team at Banque de Luxembourg Asset Servicing weighs in on how Luxembourg is stepping up.

As private markets move into the mainstream, fund initiators are navigating an environment shaped by tighter regulation, higher interest rates, and increasing pressure to tap into retail capital. Their most urgent challenge? Raising that capital – particularly through scalable, cross-border vehicles.

“Initiators need stability, but their most pressing challenge remains raising capital,” says Nicole Thomé, Head of Business Development at Banque de Luxembourg Asset Servicing. “Luxembourg plays a key role in addressing this. Its toolbox is well suited to private assets, with structures such as retail-friendly ELTIFs, SPVs, and master-feeder formats. And most importantly, the country’s legal and regulatory framework allows many of these vehicles to be passported across jurisdictions.”

Retail appetite and innovation reshape the market

Indeed, in order to meet capital-raising challenges, fund initiators are increasingly turning to new investor bases. Retail channels – once hardly accessible for private assets – are opening up, particularly thanks to frameworks like ELTIF 2.0. According to the Association of the Luxembourg Fund Industry (ALFI), around 40 ELTIFs have already been launched in early 2025, with the majority of cross-border ones domiciled in Luxembourg.

There’s strong political support, too. ALFI has called on the European Commission to introduce measures to unlock Europe’s €10 trillion in household savings – 41% of which currently sits idle in cash accounts.

In parallel, private banks are stepping up their allocations to private assets, reflecting changing portfolio strategies focused on diversification and yield. “Private asset markets are moving mainstream – private banks are increasing their allocations to this asset class, and open-ended structures are paving the way for retail capital,” says Vincent Willem, Deputy Head of Banque de Luxembourg Asset Servicing. “At the same time, ineluctable pension reforms and financial education are going to reshape how long-term capital flows across Europe.”

Private Equity vs. Public Equity & Cash: performance in Europe (Source : Hamilton Lane Data via Cobalt & Banque de Luxembourg Asset Servicing)

The shift is especially relevant as governments across the continent will have to push for new retirement savings solutions. Private assets, with their long-term nature, align well with these goals.

Operational costs and compliance issues are also top of mind for initiators, who are looking to reduce their cost structures in order to remain competitive. “Luxembourg is definitely catching up on the innovation front”, confirms Vincent Willem. Finance Minister Gilles Roth has underlined the country’s commitment to digital finance through AI, fintech, and blockchain initiatives. In December 2024, Luxembourg passed Blockchain Law IV, which increases flexibility and improves the legal use of distributed ledger technology.

More than a domicile: Luxembourg’s execution edge

In a context of increasingly harmonised European regulation, Luxembourg’s differentiation lies in execution. “Luxembourg is much more than just a back-office,” Thomé notes. “It offers real substance – stability, talent, infrastructure, and unmatched connectivity between managers and investors.” The country’s AAA credit rating underlines its reliability.

Fund initiators, particularly those launching in private markets, seek long-term partners. They are cautious about volatile environments, especially for products exposed to public markets. Private assets – such as real estate or infrastructure – are often seen as inflation hedges, and initiators are increasingly selective about their providers’ stability and track record.

The long view: commitment matters

It’s not just the domicile that needs to be stable – it’s the service providers too. “Over the last few years, we’ve seen a wave of consolidation in the fund industry,” Willem explains. “Many providers are now owned by private equity firms, with short investment horizons focused on the next exit. That’s not always aligned with the needs of long-term investors.”

In contrast, Banque de Luxembourg Asset Servicing has been active in the sector for 40 years and is backed by Crédit Mutuel Alliance Fédérale, a non-listed group and one of the Eurozone’s most highly rated and best capitalised banks. “At Banque de Luxembourg, we continue doing what we’ve always done – offering skilled local experts, a client-centric approach, and the long-term alignment with our clients that comes from being part of a group with a sustainable vision.”

Sustainable finance as a strategic priority

Luxembourg is also emerging as a sustainability hub for the fund industry. The country is home to nearly one-third of the world’s microfinance investment vehicles, representing over 50% of global microfinance assets under management.

As a B-Corp certified bank, Banque de Luxembourg is going further – aligning its operations with broader environmental and social values. “That’s increasingly important for reinforcing trust with initiators seeking to channel capital into meaningful, long-term solutions,” Willem concludes.