Substance not an obstacle for Lux PE funds: Alfi panel

Luxembourg private equity funds have been meeting regulations on “substance” without major hassles, but HR remains a stumbling block, panellists told an industry conference this week.

The comments came during the “Luxembourg as a PE hub: why the trend is accelerating” panel at the Association of the Luxembourg Fund Industry’s Private Equity and Real Estate Conference on Tuesday.

The grand duchy recently tightened its rules on substance, which require firms to show that critical business functions are carried out in Luxembourg and that local branches are not merely pass-through maildrops.

During the conference talk, Claus Mansfeldt, president of the Luxembourg Private Equity & Venture Capital Association (LPEA), noted that the five panellists collectively represented roughly 1,000 people employed in Luxembourg.

Camille Gailey, head of funds legal EMEA & Switzerland at UBS Asset Management, noted that having an established Ucits business in Luxembourg made it easier to expand in a substantial way into alternative funds.

Regulation can be an opportunity, if staff are focused on “value adding” and “not just ticking the box”, said Vanessa Camilleri, senior vice president and head of office at Partners Group in Luxembourg.   

The average size of funds and asset managers has been increasing in any event, observed Christian Heinen, managing director Luxembourg at IQ-EQ (the fund services provider formerly known as SGG). While this consolidation might limit some investor choice, it could be outweighed by more stability and fund firms’ ability to withstand greater regulatory scrutiny.

Heinen later commented on the pressure of retaining “headcount and finding qualified staff”, which has led to salary and title inflation, and needs to be tackled. “We can do much better in making people productive” using fintech and automation, he posited. That would mean “instead of offshoring inefficient procedures, you make it more efficient locally.”

Changing roles

Ian Harcourt, country head Luxembourg and head of institutional banking at RBS International, said fund roles in the grand duchy were becoming more client-facing, evolving from the middle and back office jobs that have long been a staple of the sector here. For example, his team booking deals and doing term sheets in Luxembourg has doubled from 10 to 20. More front office activity will be located here, he predicted. That would put questions of substance further to bed, he implied.  

Harcourt added that one major staffing challenge was labour laws restricting telecommuting for employees who live in neighbouring countries, coupled with the extremely high property prices that discourage many of them from living inside the grand duchy. The lack of “consistent and fair remote working” rules is a topic that “Luxembourg as a country needs to think about.”