Facing the same issue with KVM enabled L2 VM  on following setup

CPU Model - Skylake-Client

L0:
Ubuntu 16.04.3 LTS
Kernel - 4.4.0-98-generic & 4.4.0-101-generic

libvirtd (libvirt) 2.5.0-3ubuntu5.5~cloud0
QEMU emulator version 2.8.0(Debian 1:2.8+dfsg-3ubuntu2.5~cloud0)

L1:
Ubuntu 16.04.3 LTS
Kernel - 4.4.0-98-generic

libvirtd (libvirt) 1.3.1-1ubuntu10.15
QEMU emulator version 2.5.0 (Debian 1:2.5+dfsg-5ubuntu10.16)

Able to launch L2 VM in qemu mode.

With same L0,L1 configuration able to launch L2 VM even with KVM on
SandyBridge Machine

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https://bugs.launchpad.net/bugs/1682077

Title:
  nested KVM fails  - KVM: entry failed, hardware error 0x0

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