Have a look at https://github.com/lxc/lxd/blob/master/doc/storage.md
There is a table with the available storage backends (i.e. filesystems) and there is also a section for the recommended storage backends. Spoiler: use ZFS, or btrfs if ZFS is not available.
In your case, are you able to repartition the disk? It would be greatly beneficial to create a separate partition to put the storage. Because LXD has the feature to be able to create the ZFS (or btrfs) storage on a loop file (of repartitioning is a no no).
When you run
sudo lxd init for the first time, you will be asked for the following. We accepted the defaults (new storage pool, to be named default, select ZFS, new ZFS pool, and finally use an existing block device). You specify the partition device (here, it was /dev/sde5). This partition should be empty. Do not create a ZFS filesystem in there because LXD will do this for you.
Do you want to configure a new storage pool? (yes/no) [default=yes]:
Name of the new storage pool [default=default]:
Name of the storage backend to use (btrfs, dir, lvm, zfs) [default=zfs]:
Create a new ZFS pool? (yes/no) [default=yes]:
Would you like to use an existing block device? (yes/no) [default=no]: yes
Path to the existing block device: /dev/sde5