Securitisation Vehicle vs Alternative Investment Fund: Competitors Or Best Friends For Debt Strategies?

As we advance into 2025, the global landscape is marked by escalating geopolitical and economic tensions, prompting the European Union to seek innovative solutions to revitalise its competitiveness. The Draghi report on EU competitiveness ¹ highlights the immense financing needs required to achieve the EU’s strategic objectives, estimating an additional annual investment of €750bn to €800bn on top of the European Commission’s latest budget estimates ².

In this context, private debt has emerged as a promising asset class, offering a viable alternative to traditional bank lending. This market has garnered significant interest from fund promoters and investors, delivering competitive returns even amidst global uncertainties, such as those in the real estate sector.

The private debt market’s robust performance is expected to continue, with the internal rate of return projected to rise from 8.12 per cent in 2017-2023 to an average of 12.03 per cent between 2023 and 2029³. In particular, Luxembourg has positioned itself as a key player in this arena. At the beginning of 2024, the Grand Duchy’s private debt fund market experienced impressive growth, recording a 21.5 per cent increase and reaching a total of €510 billion in assets under management⁴. Concurrently, Luxembourg’s securitisation market remains strong, with nearly 2,900 securitisation vehicles (SVs) created since the enactment of the securitisation law, and around 1,488 active as of March 2024⁵. This underscores Luxembourg’s status as a leading European hub for securitisation.

From the perspective of Luxembourg law, securitisation vehicles and debt funds are the primary instruments used to finance a debt strategy. Although distinct, these instruments share several similarities, and recent trends indicate a move towards combining them to leverage the best of both worlds. This article delves into the competitive landscape between securitisation vehicles and debt funds, exploring their regulatory frameworks, key features, and the potential for synergistic combinations to enhance investment strategies.

Part 1 – Key Features: SV vs Debt Fund

	SV		Debt Fund
Regulatory framework	Law of 22 March 2004 on securitisation (the Securitisation Law).   Regulation (EU) 2017/2402 laying down a general framework for securitisation.		Luxembourg law on commercial companies.Law of 12 July 2013 on alternative investment fund managers.Additional fund product laws, as applicable (eg law on reserved alternative investment funds (RAIF), law on specialised investment funds (SIF), law on investment company in risk capital (SICAR)…).
Loan origination permitted ?	Yes		The AIFM II directive (AIFMD II) has introduced a regime for the granting of loans by investment funds, with the aim of creating a level playing field for loan origination activity across the EU6.
Underlying assets	Underlying assets include any types of risks relating to claims, other assets, or obligations assumed by third parties or inherent to all or part of the activities of third party financial instruments without restrictions, either through an origination or acquisition strategy. Some examples below: Loan-based assets (eg NPLS, CLOs, mortgages).Receivables-based assets (eg trade receivables, SME financing receivables, consumer loans, public sector receivables).Equity and fund positions (eg minority positions in debt funds).Other asset types (eg commodities, IP rights, aircraft and shipping loans, green and ESG-linked assets). Synthetic exposure to assets (eg shares, indices), based on a pre-established formula, and that acquire underlying assets and/or enter into swap agreements.   SVs can carry out securitisation in Luxembourg by issuing financial instruments (which includes debt or equity) or contracts, any type of loan, whose value or yield depends on the underlying risks.	Any types of assets, without restriction.
Corporate form	Main corporate forms available in Luxembourg, and usually structured as a company (eg SA, SCA) or a partnership (SCS, SCSp). SVs can also be structured as securitisation funds. Both SVs and Funds can take the form of umbrella vehicles, if they abide by a specific product law.
Type of remuneration / remuneration scheme	Sponsors’ standard remuneration scheme for SVs are: Arrangement fee.Servicing fee.Excess spread/exit fee (to capture performance).		Sponsors’ standard remuneration scheme for debt funds are: Right to carry interests and/or performance fee.Investment adviser/manager’s fees.
Set-up costs / Service providers	Generally less expensive and quicker to set up. The minimum service providers required for non-regulated SVs are: Administrator (ie corporate service provider and domiciliation agent).An approved statutory auditor.		Set-up legal fees are higher for a debt fund than an SV.   A debt fund is also more complex in terms of structure, especially for a fully regulated AIF, which will require at least: An AIFM.A depositary.An administrative agent, registrar and transfer agent. andAn approved statutory auditor.
Investors’ protection	Bankruptcy remote vehicles benefiting from limited recourse and non-petition rights under the Securitisation Law, avoiding risk of contamination with the sponsor. No restrictions as to the applicable law of the securitisation.   Capacity to create ring-fenced compartments.   While the SV would abide to Luxembourg law, the instruments issued to its investors can be subject to a different law than Luxembourg law, such tool to provide an additional layer of comfort depending on the targeted jurisdiction.		Most of the time, investors in a debt fund will become a shareholder/limited partner and be granted with the minimum level of protection imposed by the Luxembourg law of 10 August 1915 on commercial companies, as applicable, and subject to any specific arrangements set out in the debt fund‘s documentation.   If they are allowed to set up in the form of umbrella vehicle with several compartments, those compartments will be ring-fenced so that investors and creditors will have their rights and claims limited to the assets of such compartment.   Debt funds can also issue debt financial instruments to potential investors, but this option should be carefully considered, as some leverage limitations may be applicable.
Listing	Yes – Investors would then benefit from additional protection offered by the related rules and regulations pertaining to transparency towards the market.
Portfolio management	SVs have been traditionally treated as a pass-through to accommodate investors’ exposure. Currently, active management of a debt portfolio is allowed if funds are not raised from the public.		Investors grant a mandate to the asset manager with a view to deploy the funds into an agreed investment strategy. Hence, invested assets are usually not known in advance.

Part 2 – Combining SV And Debt Fund In The Same Structure

The use of both vehicles within the same structure/transaction has gained significant traction over the past years, as each regime benefits from key advantages. The combination of both results in more flexible and cost-efficient structures:

• Fund as junior investor or co-investor – SVs allow institutional investors or credit institutions to invest in a project via debt, ranking senior to fund investors. Debt funds often face leverage restrictions. To address this, asset managers may use an SV to bundle investment exposure. The SV, placed beneath the investment fund, can issue bonds or enter into loan agreements with credit institutions or other debt investors, while fund investors gain exposure by subscribing to a different tranche issued by the SV or by holding shares. In a debt-based strategy, the SV can reinvest and recycle funds under predefined criteria without involving a depositary or custodian. Beyond CLOs, mortgages, NPLs, and factoring, SVs are often used with real estate and infrastructure debt funds to invest in property or infrastructure projects.
• SV as a feeder vehicle of a debt fund – SVs can act as feeder vehicles by acquiring an interest in a debt fund and issuing financial instruments to investors who want exposure to the debt fund’s activities without investing in equity.
• SV loan originator below the Fund -In some jurisdictions, SVs may be a more suitable loan originator than a debt fund. Although AIFMD II aims to harmonise legislation across the EU, some non-EU (or even EU) jurisdictions may still restrict or limit the ability of debt funds from originating loans. Therefore, SVs may be used to originate loans instead of the fund for certain transactions.
• Minority equity stakes – Lux SVs can also securitise equity positions, such as minority stakes in private securities, allowing them to perform mezzanine financing transactions.

An Evolving Landscape

In 2025, Luxembourg’s competitive landscape between SVs and debt funds is evolving, driven by the EU’s strategic objectives and the demand for innovative financing. Both instruments have shown strong performance, particularly in the private debt market.

Luxembourg has established itself as a key European hub for securitisation and private debt funds, supported by a robust regulatory framework. The distinct advantages of SVs and debt funds, including their regulatory frameworks, underlying assets, and investor protections, highlight their potential for synergistic combinations.

Combining SVs and debt funds offers a flexible and cost-efficient approach, addressing regulatory constraints and enhancing investment opportunities. This dynamic interplay presents a promising landscape for investors and fund promoters, optimising investment strategies and contributing to the EU’s economic goals. Luxembourg’s role in this sector underscores its importance in shaping the future of private debt and securitisation markets in Europe.

1. Mario Draghi, “Report on the Competitiveness of the European Union”, European Commission, 2024 (The Draghi report on EU competitiveness). ↩︎
2. Currently at €2.018 trillion, according to the EU budget (EU budget today). ↩︎
3. Prequin, “Global Report: Private Debt”, 2025. ↩︎
4. KPMG/ALFI, “Private debt fund survey”, 2024. ↩︎
5. PwC, “Securitisation in Luxembourg : a comprehensive guide”, 2024. ↩︎
6. For more detail, please refer to our latest publication on the topic: Private debt funds and loan origination activities under Luxembourg law – high-level summary around the current regulatory status in view of AIFMD II ↩︎