A view from Luxembourg – Private credit in Europe

By Nick Smith, Director, Alternative Credit Council

Published: 15 November 2019

The Alternative Credit Council’s (ACC) Nick Smith shares his thoughts on the growth of private credit in Luxembourg

While the Grand Duchy might seem serene on the surface, many locally based firms are quick to report how much activity is now taking place in Luxembourg – with private credit often the fastest growing part of their alternatives business.  This made it an ideal location for the latest ACC roundtable on the future of private credit in Europe, which brought together local asset managers and the Luxembourg Finance Ministry to discuss the findings of our paper on non-bank lending in Europe.  I was also pleased to welcome attendees from the Association of the Luxembourg Fund Industry, Luxembourg Private Equity & Venture Capital Association and European Investment Fund which helped ensure the discussion incorporated a broad range of perspectives. 

Given the location, the discussion unsurprisingly focussed on some of the more pressing legal and regulatory issues facing private credit managers in Europe.  While the legal and regulatory framework in Luxembourg is generally well regarded, there was a strong sense that the current framework for lending in Europe could be improved – particularly for markets in need of alternative sources of finance.   While some in the room felt that a targeted ‘European’ approach could help drive the necessary reforms to iron out these challenges, there was also considerable scepticism about this approach.

Regulating a market into existence is a considerable undertaking, one which can often be accompanied by unintended consequences.   The European Long-Term Investment Fund (ELTIF) regime was cited as a cautionary tale in this respect, with many participants agreeing that engagement with individual Member States was likely to prove the most effective means of growing the European market.  Reform of the ELTIF regime was described by some as potentially transformative for non-bank lenders in Europe.  This is likely to be an area of focus under the next European Commission and the ACC has already begun preparatory work ahead of any formal review.

I also took the opportunity to meet with several member firms during my trip.  It was great to receive a first-hand account of how private credit is growing in Luxembourg and the ‘nice to have’ challenges this is creating for our members.  I look forward to supporting our members as they overcome these ‘good’ challenges as the European market continues to grow.

I would like to extend my thanks to Allen & Overy for supporting this roundtable.  Thank you also to our members and other attendees for making this such an interesting and worthwhile discussion.

You can read more about our previous roundtables below. Next stop Milan.