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Fueling Future Stability: Luxembourg’s edge in energy and defence investment

14 November 2025

In an era marked by geopolitical instability around the world and in light of the current economic landscape, energy security concerns, and increased defence needs and spending, the financing of energy and defence projects has become a critical priority for governments and private stakeholders. Traditional sources of funding, such as public financing and bank loans, have proven to be no longer sufficient and are constrained due to fiscal pressures, regulatory hurdles, and risk aversion in the banking sector. Against this backdrop, Luxembourg investment funds have emerged as efficient financing solutions, being highly attractive vehicles for financing energy and defence and other sectoral projects, offering a broad range of legal, financial, and operational advantages. Indeed, Luxembourg remains one of the World's leading financial centres and a global hub for investment funds. The country is the largest fund domicile in the European Union and it offers a wide range of fund structures, from unregulated funds in various alternative sectors to supervised and regulated investments funds investing in listed assets.

Why Luxembourg?

Access to private capital

While public budgets are stretched and banks are reluctant to finance high-risk projects, private capital has become an indispensable source of funding. Therefore, Luxembourg funds offer the ability to pool private capital from professional investors either institutional, high-net-worth individuals or family offices. Over 90% of the top 30 global credit fund managers are already present in Luxembourg. Luxembourg funds also provide investors with confidence and compliance with EU standards. The AuM in Luxembourg private credit funds reached a record of over €510bn in 2024, reflecting a substantial increase from previous years (a 21,5% growth compared to 2023).

Flexibility

Luxembourg investment funds structures are highly flexible and can be tailored to meet the specific needs of energy and defence projects, whether they involve infrastructure development, renewable energy initiatives, or advanced defence technologies. Luxembourg has become a preferred domicile for so-called energy transition funds e.g., focusing on wind farms, solar parks, and hydrogen infrastructure, through equity, debt, or hybrid instruments. Luxembourg funds can also be used to support more traditional energy projects, such as natural gas pipelines, which are critical resources for energy security in Europe.

Investment funds are also increasingly recognised as effective vehicles for financing ambitious space projects, including satellite development, space exploration technologies, and the establishment of critical space infrastructure and Luxembourg stands as a preferred jurisdiction for such types of initiative, thanks to its local agency and regulatory framework on the exploration and use of space resources.

Similarly in the defence sector, investment funds can be structured to finance research and development (R&D) in cutting-edge defence technologies, cybersecurity initiatives and platforms, and the production of advanced military equipment. Thanks to its expertise in the space sector and its commitment to technological innovation, Luxembourg has successfully positioned its space capabilities as a major asset for strengthening security and defence, an initiative which will continue to evolve with the EU Space Act. For example, satellites, which are essential for secure communications, surveillance, and intelligence, illustrate this synergy between space and defence.

Closed-ended vehicles with long-term investment horizons are particularly suitable for defence projects.

Tax framework

Luxembourg is also known for its tax-efficient environment offering tax neutrality for most fund vehicles. Moreover, thanks to the extensive network of double taxation treaties that Luxembourg has adhered to, cross-border investments in energy and defence projects all over the World are facilitated.

Stability and regulatory standing

The Luxembourg supervisory authority is renowned for its pragmatism. Obviously, Luxembourg adheres to EU Directives, but has further built upon these legal frameworks by implementing its own local regulations. Fund managers also have access to the EU marketing passport and Luxembourg-based funds comply with European standards which provide for governance and investor protection safeguards. These robust foundations are highly valued by fund sponsors, particularly in the energy and defence sectors which require a stable and investor-friendly framework.

Sustainable finance

Luxembourg is a pioneer in sustainable finance and offers a range of tools and frameworks to integrate Environmental, Social, and Governance (ESG) considerations into investment strategies. For energy projects, this could involve financing renewable energy initiatives or improving energy efficiency. For defence projects, ESG integration could focus on cybersecurity, ethical supply chains, and compliance with international humanitarian law.

In summary, Luxembourg investment funds have demonstrated their capacity to attract private capital, offer flexible investment structures, and operate within a stable and transparent regulatory framework, making them a perfect tool for meeting Europe's energy and defence needs.

As the World continues to navigate through an era of uncertainty, Luxembourg's investment fund ecosystem will undoubtedly play an important role in shaping the future of energy and defence financing.

Stakeholders in these sectors should consider leveraging Luxembourg's unique advantages to secure the funding needed to drive innovation, enhance security, and build a more sustainable and resilient future.

Authored by Pierre Reuter and Mathilde Soetens.