Private Equity in Luxembourg

PE in Luxembourg

PRIVATE EQUITY IN LUXEMBOURG

Luxembourg has become one of the leading jurisdictions worldwide and the leading hub for setting up Private Equity and Venture Capital funds. Luxembourg can combine unique strengths that cannot be found elsewhere:

The right structures

The large range of available structures ensures that all fund promoters will find the suitable vehicle for their investors. Funds can be set up as regulated or unregulated vehicles for all asset classes with different corporate forms to choose from, as limited partnerships or mutual funds. In accordance with the type chosen, the tax status will vary accordingly. Luxembourg is an onshore EU jurisdiction, a prerequisite for many investors.

AIFM distribution capabilities

Following the introduction of UCITS in 1988, Luxembourg turned into the most recognised hub for distribution worldwide. With AIFMD Luxembourg is able to leverage on this unprecedented expertise. Sophisticated infrastructure of service providers with a multilingual and technically skilled work-force. Established and proven concepts such as third part AIFMs and outsourcing of back – and middle -office functions. Luxembourg is a worldwide recognised brand for investment which results from the combination of its history as a banking and funds centre and an innovative approach that embraces financial sustainability and the adoption of financial technology. In summary, Luxembourg provides an investment environment driven by innovation and by the ever – changing requirements of investors and fund managers.

LUXEMBOURG – A CONDUCIVE ENVIRONMENT TO THE DEVELOPMENT OF PRIVATE EQUITY

Choosing the right location for Private Equity firms means taking into consideration many different factors. The following features are Luxembourg’s strengths – and the combination of these strengths makes Luxembourg attractive to Private Equity.

Political and economic stability

The political stability of Luxembourg is marked by a political culture of consensus where the traditional parties co-exist within the context of broad agreement on key issues. The business-friendly political environment is conducive to welcoming Private Equity promoters and entrepreneurs. Attracting international players is considered paramount in building an efficient business framework and economic growth and has enabled Luxembourg to establish a permanent and innovative business community. With the UK exiting the EU in 2020, numerous players of the financial sector have already re-assessed their current set-up. A considerable number of AIFMs and management companies have decided to set up an own entity or to appoint a third party AIFM in an EU jurisdiction, such as Luxembourg. Against that background, Luxembourg has become the distribution hub for an ever-increasing number of reputed PE houses, which may have previously had these functions based in London. It is expected that this trend will continue.

The strength of the Luxembourg financial services industry

Luxembourg is the largest financial centre for investment funds in Europe and the second largest worldwide. Luxembourg- domiciled investment funds are distributed in more than 70 countries: 62% of authorisations for distribution granted to worldwide funds are allocated to Luxembourg funds.

1. Luxembourg has been able to turn retail EU funds, i.e. UCITS funds, into a brand that stands on its own, not only within Europe but worldwide. In view of the fact that more than 47,000 people are employed in the financial services industry which contributes around 26% of the gross domestic product.

2. it is easy to understand how the financial industry and government are working closely and smoothly together to ensure continued efficiency. Today Luxembourg hosts more than 260 authorised AIFMs and Management Companies and 682 registered AIFMs.

3. In addition, it hosts a large number of support entities such as central administrators, domiciliary agents, law firms, auditors, consultants, depositaries and many more; it is an industry that continues to develop dynamically and is multilingual.

Business-friendly environment

Luxembourg has a unique system of social dialogue that involves regular meetings between the government, employers’ representatives and unions, which is key to avoiding social conflicts and to reaching consensus on important decisions regarding economic and social affairs. The government promotes a regular exchange with associations representing the financial sector, organises and takes part in economic missions abroad and creates a long-term dialogue with companies which are critical to the sector.

Historic development

Luxembourg is not only at the forefront in implementing new EU directives into national law, as was the case with UCITS in 1988 and AIFMD in 2013, but also in creating new, innovative structures that respond to market demand. The SICAR and the SIF, two entities introduced in 2004 and 2007 respectively, were the first regulated PE fund structures with oversight from a depositary. While many promoters shied away from this regulation, AIFMD introduced certain features that SICAR and SIF had already applied well before the arrival of the AIFMD. Similarly, the need for a limited partnership structure lead to the introduction of the Luxembourg unincorporated Special Limited Partnership (“SCSp”) and the revamping of the existing incorporated limited partnership in 2013, removing all inconvenient features inherent in other limited partnership structures existing in the market. In line with AIFMD requirements, Luxembourg was one of the first financial centres to have a considerable number of regulated and highly qualified Alternative Investment Fund Managers (“AIFM”) providing third party management services to PE funds. Last but not least, 2016 saw the introduction of the Reserved Alternative Investment Fund (“RAIF”), a fund structure with the legal and tax features of the well-established SICAR and SIF, without those being subject to direct regulation from the Luxembourg financial supervisory authority but requiring the appointment of an AIFM, itself a regulated entity.

International distribution hub

The AIFMD requires a European marketing passport for AIFs, similar to UCITS. While Luxembourg has become the leading jurisdiction in the world for retail fund cross-border distribution, it is currently building on this experience and repeating this success story for Alternative Investment Funds (“AIFs”).

Proposed new EU legislation on cross-border distribution of UCITS and AIFs

In March 2018, the European Commission published a proposal for a directive amending Directive 2009/65/ EC (“UCITS Directive”) and Directive 2011/61/ EU (“AIFMD”) as well as a proposal of a regulation complementing the draft directive. These proposals have been submitted to the European Parliament Committee on Economic and Monetary Affairs (ECON) which ssued its amendment proposals in December 2018. The purpose of these proposals is to facilitate the cross-border distribution of UCITS and AIF units and to better protect investors by (i) harmonising the regulatory framework in relation to marketing communication to retail investors, (ii) detailing a definition and rules for pre-marketing of AIFs to professional investors (and by excluding the recourse to reverse solicitation in the case of premarketing), (iii) establishing notification procedures in relation to changes to the relevant fund documentation and in relation to the discontinuation of cross-border marketing and (iv) standardising the publication of fees and charges regarding the notification of crossborder marketing. ESMA is mandated to develop draft regulatory technical standards and draft implementing technical standards and to create a central database in respect of fees and charges of national authorities and national legislation regarding marketing.

A highly innovative and dynamic market

Alongside one of its main pillars, namely the financial services industry, the Luxembourg government has identified other major industries as the core sectors to be developed in Luxembourg over the coming years. Major efforts are made to attract innovative companies to set up their FinTech business in Luxembourg. The Luxembourg government is investing heavily in attracting talent from outside Luxembourg and in leveraging on the expertise that existing specialists of the local financial industry bring about.

Skilled and multi-lingual workforce

The Luxembourg labour market offers a pool of highly skilled and multilingual resources. With more than 170 nationalities represented, its workforce is truly international: almost 48% of residents and more than 70% of the active population are well-integrated foreigners. The Greater Region represents a natural extension of Luxembourg’s domestic market and also provides a solid workforce for Luxembourg’s business. Around 190,000 or 45% of the Luxembourg work force commute from neighbouring countries France, Germany and Belgium on a daily basis, contributing to the skillset available in Luxembourg. Many people in Luxembourg speak three or four languages (Luxembourgish, German, French, English, Portuguese, Italian, Spanish, etc.). This, combined with the high level of professional qualifications held by staff has allowed Luxembourg to respond to the requirements of multilingual and multicultural investors.

Commitment to Europe

Luxembourg is also well known for its role within the European Union. As a founding member of major international organisations such as BENELUX, the Council of Europe, the European Union, NATO, OECD and the United Nations, Luxembourg has influence that belies its physical size, especially within Europe. It is host to many European Union institutions amongst which are departments of the Commission, the Council and the Parliament, the Court of Justice, the Court of Auditors and the Statistical Office. Luxembourg also welcomes the headquarters of the European Investment Bank, the European Investment Fund and the European Stability Mechanism.

High quality living standards

Luxembourg has one of the world’s highest per capita gross domestic products and is one of the top ranking countries in terms of Human Development, Quality of Life, Personal Safety and Corruption Perceptions indices.

What people say about us

We have experienced Luxembourg as a very well established centre of private equity and investment management with the ability to attract well-qualified and experienced staff.

Our international investors appreciate the stable and reliable regulatory and fiscal environment offered and sustained by Luxembourg authorities.

Luxembourg is all set to provide the instruments you need to set up international investment projects – since the home market is small, everything is geared to accommodate the legal, fiscal and regulatory requirements to invest both in Europe and overseas. In addition the Government is keen to diversify the economy and open for exchange with GPs.