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Private Equity, how is the temperature?

Our Private Equity outlook by LPEA Vice-President, Olivier Coekelbergs.

Private Equity: How is the temperature? – March 2017

 

Former editions:

Private Equity: How is the Temperature?_December 2016 (Feb. 2017)

Private Equity: How is the temperature? – November 2016

Private Equity: How is the temperature? – October 2016

Private Equity: How is the temperature? – September 2016

Private Equity: How is the temperature? – August 2016

Private Equity: How is the temperature? – July 2016

Private Equity: How is the temperature? – June 2016

Private Equity: How is the temperature? – April 2016

Private Equity: How is the temperature? – March 2016

Private Equity: How is the temperature? – February 2016

Private Equity: How is the temperature? – January 2016

Private Equity: How is the temperature? – November 2015

Private Equity: How is the temperature? – October 2015

Private Equity in Luxembourg

Private Equity in Luxembourg

3rd Edition, November 2016


Summary


Luxembourg has become one of the leading jurisdictions worldwide and the leading place 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 recognized hub for distribution worldwide. With AIFMD Luxembourg is able to leverages on this unprecedented expertise;
  • Sophisticated infrastructure of service providers with a multilingual and technically skilled workforce;
  • Recognized, renown and proven concepts such as 3rd part AIFMs and outsourcing of back- and middle office functions;
  • Luxembourg is a worldwide recognized brand for investment.


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Foreword by the President of LPEA




Luxembourg is now firmly established as the jurisdiction of choice for the European Private Equity industry. Luxembourg is home today to over 80 Private Equity firms with most of the large European GPs and many of the large US GPs now having established operations in Luxembourg. According to LPEA estimates the industry’s assets under management in Luxembourg have boomed to over $300 billion, a figure we expect to continue increasing as new players discover the many advantages this domicile offers.

Multiple factors have been contributing to the industry’s growth. Besides a legal toolbox second to none (Funds, ManCos, Special Purpose Vehicles), political and economic stability, and predictable taxation on the back of an unrivalled financial infrastructure, Luxembourg boasts a business friendly attitude combined with a strong governmental commitment towards Private Equity.

While a wide range of private equity and venture capital funds have been using Luxembourg’s SPV structure and double taxation treaty network as a hub for their cross-border investments, making their structuring both efficient and neutral, an ever growing number of firms are setting up middle and front office operations in Luxembourg to benefit from Luxembourg’s critical size and expertise as Europe’s leading AIFM-EuVECA-UCITS center. This brochure aims to provide Private Equity professionals (LPs included!) and their advisers with a comprehensive yet focused overview of the general business, legal, tax and regulatory environment that Luxembourg offers to the Private Equity industry. Whether you are exploring Luxembourg for the first time or you are refreshing your knowledge, we trust you will find this brochure useful and we at the LPEA are at your disposal to provide you with any further information you may need.

Jérôme Wittamer

President, LPEA

Message from the Minister of Finance of Luxembourg




Confidence and growth are back in Europe. Notwithstanding the present geopolitical risks, governments and companies have found new optimism and are stepping up their investments. An ever growing number of start-ups all across the European Single Market are looking for investors to fuel their expansion. While bank loans are still the preferred
source of funding in Europe, there is a clear need for alternative solutions. In a time of historically low interest rates, investors are also exploring a broader range of investment opportunities. In this context, the role of Private Equity and Venture Capital (PE/ VC) can only grow.

To facilitate these shifts, the European Union is putting into place the Capital Markets Union (CMU). Pushing forward this ambitious project was one of the priorities of last year’s Luxembourg presidency of the Council of the European Union. Indeed, Luxembourg is a strong supporter of deeper and more integrated capital markets and cross-border funding solutions for companies, in particular start-ups and SMEs.

Major international success stories such as Skype, Wix, Spotify or Yo! Sushi are closely tied to Luxembourg and its Private Equity ecosystem. This is no coincidence. While it is largely known as the host to the world’s second largest fund industry and a prime location for international wealth management, Luxembourg‘s financial centre is also a leading European hub for PE/VC operations.

The world’s top 10 Private Equity players have operations in Luxembourg. The whole sector counts around 6000 PE/VC professionals and €300 billion of assets under management. The State of Luxembourg itself has become a player in this field, through the launch of the €150 million Luxembourg Future Fund, which has started to deploy in the area of cybersecurity, as well as the €20 million Digital Tech Fund, launched earlier this year. In this regard, the government follows the same philosophy that has lead it already in the early 80s to be an investor in SES, which has now developed into the world’s leading private satellite operator. In the same sense, the government’s more recent commitment to the space mining venture is yet another illustration of the pioneering spirit that Luxembourg shares with the PE/VC community.

With mounting uncertainties around the globe, Luxembourg stands out as a highly stable and reliable jurisdiction in the heart of the European Union and the Euro zone, offering an unrivalled legal toolbox, sound public finances with a solid “AAA” rating, well established expertise, and a business friendly environment for the PE/VC industry. Add to this a highly skilled and multilingual workforce, an

H.E. Pierre Gramegna
Minister of Finance of Luxembourg

Guest article: What’s so “private” about Private Equity?

Guest article byNic Mueller, CFA, Wirtschaftspruefer, Senior Manager at KPMG Luxembourg

What’s so private about Private Equity?

pic_nic_Mueller

5/03/2016

In my last post I wrote, inter alia, about the desire of the industry (well, actually mainly me) to standardize and harmonize reporting in order to enhance investor decision making. This is underpinned by the notion of “privacy” (read: “lack of transparency”) which appears to be at the very heart of “private equity”, since it is inherent in its definition … or is it? In this article I’ll be looking into how “private” the industry actually is.

A misnamed Asset Class

Let me start by blaspheming that “Private Equity” is a misnomer: if it was about being “private”, why is everyone so obsessed about IPO’s which – if you believe the Global Private Equity Report 2016 by Bain & Company that was released last week – remain the exit route that offered the best exit prospects, with $60bn cashed in by GPs in 2015, the second-strongest year ever?

Take it one step further: one may argue the idea of “private” it is not about the “limited number of investors in a portfolio company”, but about the limited access to the asset class itself: again, I would be willing to agree if the industry was largely dominated by family offices, private banks and endowments. However, judging by InvestEurope’s (formerly EVCA’s) “2014 European Private Equity Activity” report, 1/3 of the investor base in Private Equity (Buyout, not VC) funds are Pension funds, 1/10 are insurance companies. Broadly speaking, half of the returns earned are for the benefit of every one of us, indirectly through our corporate pensions plans or life insurance policies.

It goes without saying that the “equity” within the denomination is also not nearly capturing all forms of participations that are now being summarized under the term, but let’s look into that later.

Excursus: Books cooked by crooks

Obviously what I was saying above is only half-true [though it seems to have kept your attention]: having control of a company and not being forced to waste resources on compiling quarterly reports that are already outdated when published in order to satisfy a wide (and probably only remotely knowledgeable about your business) shareholder base allows you to focus on what is really relevant. And not allowing Joe Bloggs down the road to put his lifetime savings (directly) in a closed-end funds is probably one of the better ideas of our beloved legislators (you disagree? Leave your comment!)

But the mechanics of the asset management industry still seem to scare the hell out of our elected politicians, who have been trying for almost a decade now to impose regulation that is supposed to increase transparency. After all, wouldn’t we all want to know what happens with our money? It’s the reason Luca Pacioli invented double-entry bookkeeping, the mysterious art logical process which has allowed accountants to feed their families for centuries. Name it Dodd Frank, Volcker Rule, AIFMD, or on a more global scale (focusing on principal rather than fiduciary business) the Basel regulation – all these bits and pieces have been introduced because rule makers confessed that they have no idea what’s on the books of organizations that collectively have the capacity to shift quazillions of cash.

Not so private after all?

Talk about all that with your LPs, and they will burst out laughing. Why?

They are human beings.

They have always sought close contact with their GPs (the physical managers, not the shell company with the fancy name followed by “S.à r.l.”), and always will. When they want to know what’s currently going on in the fund, they will pick up the phone, call the GP and get an answer. If they require to know the exact amount of transaction-based fees, broken down by new portfolio companies, bolt-on acquisitions and broken deals, they’ll ask for it and get an answer instantly … or once your favorite offshore accounting administrator has compiled the information. Many investors claim that their private equity portfolios are actually the most transparent investments in their overall portfolio, because of the close GP/LP relationships maintained nowadays.

Err… but what about this whole harmonization thing?

Everything you can read above seems to contradict everything I have written in my previous post. Don’t worry, I have not gone completely crazy within one week – I wanted to discuss the other side of the story first, before jumping into “why I believe this and that is a good idea”.

I’ve touched on various industry initiatives in my first post, and will devote more space to them in my next articles. Have a great sunday, everybody!

You cal also access this article on Linkedin Pulse.

Private Equity Real Estate 2016

ATTENTION: LPEA was informed on February 10th that this conference has been cancelled.

 

Discussing and addressing the issues and challenges facing the private equity real estate industry.

17 February 2016
Grange City Hotel, London

  • The private real estate opportunity and comparison with other asset classes
  • Current opportunities in Europe
  • Full range of real estate investments covered
  • LP investment opportunities and portfolio construction

Register through the following link to be granted a 10% discount.