Claus Mansfeldt: Private Equity, a winning game for Luxembourg

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Claus Mansfeldt, President of LPEA from September, shares his view on the Private Equity sector in Luxembourg today.

Interview translated from the French edition published in Paperjam.lu in June 2019.

Claus Mansfeldt: Private Equity, a winning game for Luxembourg

Investment in private equity thrives and the Luxembourg financial center, which has managed to position itself as a European hub for this business segment, intends to take advantage of the growing attraction of investors for this asset class.

“In twenty years, the volume of assets under management in the field of Private Equity in Luxembourg has increased from almost nothing to 500 billion euros, says Claus Mansfeldt, president-elect of Swancap Investment Management, who was recently appointed to the Presidency of the Luxembourg Private Equity & Venture Capital Association (LPEA). Today, 90% of European investment funds in this business segment are domiciled in Luxembourg. The financial center is a hub from which the vast majority of global private equity players operate in Europe. ”

Higher yields

It is an understatement to say that the asset management business in this particular segment is undergoing intense development. The reasons for this success are many. First, and overall, there is a growing attraction for these alternative products. “It has been demonstrated over a number of investment cycles that the returns on the asset class we are dealing with are generally much higher than what the quoted equity market offers,” says the president of the AEPL. In this environment, it is natural for investors wishing to take advantage of the best returns to turn to private equity. ”

Simplicity rhymes with attractiveness

Luxembourg, which has managed to position itself remarkably in this segment, is now directly benefiting from this growing success. For fund managers in this field, the financial center has a lot of assets to make. “Political stability, triple A, the fact that the country is in the euro area are known arguments contributing to the attractiveness of Luxembourg, says Claus Mansfeldt. Added to this is an optimal legal and fiscal framework, offering the possibility of using legal structures, such as the limited partnership, highly appreciated by asset managers in the field of private equity. The tax framework, which is very simple and transparent, with a minimum level of taxation at source, is also a strong asset for better serving investors. In a complex financial environment, the simplicity of the Luxembourg regulatory framework is a clear advantage. ”

AIFMD driving PE in Luxembourg

It is around the implementation of the AIFM directive that Luxembourg has managed to succeed. Anticipating remarkably the opportunities arising from this new regulatory framework, the country has managed to attract many alternative fund managers, among which private equity players. “Luxembourg was able to define, very early on, a clear vision on the interpretation and the way of transposing the directive into national law. This is one of the key reasons that led us in 2013 to position SwanCap in Luxembourg. Many others have joined Luxembourg in this context, “says Claus Mansfeldt.

PE jobs reach a few thousands

And as often, the world attracts the world. “Luxembourg has gradually strengthened its ecosystem, with the arrival of new asset managers in the field of private equity but also the development of many service providers to support them. Today, the LPEA estimates that more than 1000 Luxembourg workers are working directly in this segment, with a multiple of that number also working all along the services value chain. While a significant portion of the business is related to back office functions and fund administration, it can be seen that the substance is also developing in the middle and front office, particularly as a result of regulation. “Published last August, CSSF circular 18/698 set new requirements for substances for managers. “The regulator, in particular, wanted to strengthen the number of independent directors within the management bodies. At the same time, it limited the number of terms a single person can cumulate, explains Claus Mansfeldt. This goes in the right direction, helps to strengthen the substance. However, it is not always easy to find the skills in this context. The LPEA currently estimates 800 open positions in relation to private equity activity.

Federate investors locally

Often still poorly known by investors, this asset class may appeal more. “Yet it is a simple investment to understand, which contributes directly to the real economy. It is a long way from financial engineering, some opaque structuring or other derivatives, says the president of the LPEA. In many ways, investing in private equity is clearer and less risky than investing in other asset classes. Another stake pursued by the association aims to strengthen a real community of investors in the field of private equity in Luxembourg. “Generally speaking, the level of investment in this area is lower than in other countries. We want to be able to better value this asset class with all the players in Luxembourg, whether investors, family offices or pension funds. Without a doubt, private equity still has good margins for growth.