(Ahead of the Paperjam Club’s , which will take place on 19 November at the Kirchberg Kinepolis, we have decided to give the floor to key players in the financial centre. We’re publishing their guest contributions every morning until the event. Today, the CEO of the Luxembourg Private Equity & Venture Capital Association, , and Emilie Moray, legal & regulatory coordinator at the LPEA, share their analysis.)

Luxembourg, the second largest global fund centre with €5.65trn in assets under management (AUM) of total net asset value (Nav) as of September 2024, is laying the groundwork for its financial future. The nation’s flexible toolbox, robust operational framework, international, skilled workforce and position as a leading hub for alternative investment funds (AIFs) in the EU have established its global financial standing. Looking ahead to 2035, private equity (PE) is set to play a key role in supporting Luxembourg’s competitiveness and driving its economic growth.

In this article, we have identified five key enablers that will, by 2030, strengthen further the competitiveness and position of Luxembourg’s PE Industry in the global economy, which are: the increasing importance of alternative investment funds and the PE industry, technological advancements, democratisation of finance, ESG value creation circle and the capital markets union framework.

1. Rise of the alternative investment funds industry

Alternative investments in PE, venture capital, secondaries, private debt and fund of funds, have indeed become increasingly significant within Luxembourg’s financial ecosystem. AIFs, which account for €2trn in net asset value and 40% of Luxembourg’s total Nav at the end of 2023, provide a strong foundation for the industry. The demand for PE, in particular, has grown, as institutional and retail investors seek diversification and high, recurring and resilient returns. This growth is supported by a national experienced ecosystem that allows Luxembourg to meet investors’ needs through regulatory efficiency, operational excellence, customised servicing and helps the financing of the real economy, the support of innovation and job creations in Luxembourg, the EU and worldwide.

2. Technological operational excellence

Technology, led by artificial intelligence (AI) and digitisation, will be a core driver of efficiency and competitiveness in the private capital markets. AI applications are and will be transforming multiple aspects of the industry, such as:

—Deal sourcing: AI-driven and automated tools will streamline the identification of high-potential investment opportunities by analysing large datasets.

—Due diligence: Automation will enhance the accuracy and speed of due diligence processes, and will reduce operational costs.

—Portfolio management: Predictive analytics will allow fund managers to monitor portfolio performance very quickly (after a thorough data consolidation process), and facilitate proactive decision-making.

—ESG reporting: AI will simplify and improve the collection, analysis, and reporting of environmental, social and governance (ESG) data, ensuring compliance with growing regulatory requirements.

Luxembourg’s private capital sector is also supported by different local technology providers and fintechs, which could operate as a recognised KYC repository for ongoing due diligence data. By reducing administrative burdens and ensuring regulatory compliance, such tools will further strengthen Luxembourg’s competitiveness in a global private equity market.

3. Democratisation of private assets

A key trend shaping the PE landscape is the democratisation and access to private markets. Traditionally limited to institutional investors, PE is now accessible to a broader range of participants, thanks to a quite flexible toolbox, an increased interest from new investors, the creativity of private bankers, insurance firms and wealth managers who have developed dedicated products, in addition to some technological innovation proposed by advanced digital platforms.

AI will further increase the potential to increasingly and comprehensively reach clients’ expectations in terms of services tailored to their specific financial goals, risk appetite and investment preferences, notably through automated digital solutions, customised portfolios and reporting. The tokenisation of assets could even go one-step further in the enhancement of this democratisation movement by rapidly opening access to high-value investments, adding liquidity and simplifying the entire investment experience.

Such initiatives position Luxembourg as a leader in the modernisation of the fund management industry, enhancing its appeal to a global, broader and savvy investor base. In that regard, Luxembourg is also extremely well positioned as key excellence centre for wealth management, private banking and family office hub in Europe.

4. ESG value creation in PE

Sustainability has become a priority for the financial industry and also PE funds, with ESG principles now embedded in investment strategies worldwide. Luxembourg’s regulatory framework supports ESG compliance and positions the nation as a leader in sustainable finance. PE funds increasingly channel investments into sectors such as renewable energy, clean technology, energy transition and social impact projects, aligning with global priorities.

With companies enhancing their data gathering and reporting practices, with the help of automation and AI, the quality of data will quickly improve further and reinforce the attractiveness for investors. This holistic approach will not only benefit to the transparency, reporting expectations, financial returns but also lead to a resilient business model that drives both economic and social values.

Luxembourg also leverages on initiatives such as the Luxembourg Green Exchange, which promotes green finance and attracts socially conscious investors. By prioritising ESG-aligned investments, Luxembourg enhances its value proposition to investors while contributing to broader environmental and social goals.

5. The capital markets union: A framework for growth in the real economy

A high-performing capital markets union (CMU) is essential to Luxembourg’s 2035 strategy. As a European initiative, the CMU aims to create a unified capital market, foster simplified cross-border investments and contribute to the financing of the real economy. The CMU’s harmonised regulatory framework will offer significant advantages for our industries:

—Enhanced resource allocation: the CMU will enable PE funds to channel resources into selected high-growth sectors.

—Market access: Simplified cross-border regulations will make it easier for funds to scale operations across Europe.

—Support for SMEs: PE-backed financing can address funding gaps for small and medium-sized enterprises, fostering innovation and job creation, notably in the field of technology, which is key in supporting the digital competitiveness.

Luxembourg’s involvement in the CMU will further strengthen its ability to attract global investors and enhance its role as a bridge between capital markets, investment funds and investments.

Addressing and capitalising on opportunities

As Europe and Luxembourg prepare for 2035, several opportunities must be properly addressed to enhance its digital competitiveness and create the digital momentum in PE:

—Global competition: Experienced financial hubs abroad are not sleeping either and an intensified competition for capital flows, talents and technological advantages is on its way.

—Regulatory complexity: Balancing strict compliance requirements with the agility to support new products, trends and innovation is and will be crucial.

—Talent development: Attracting and building a trained workforce digitally and technologically skilled in finance and private markets is necessary to sustain the upcoming growth of volumes and value chain.

—Digital transformation: Advanced technologies can further streamline operations, enhance efficiency, automate and open doors to further customisation of customers’ needs.

—Sustainability leadership: Luxembourg’s commitment to ESG principles positions it as a natural hub for sustainable finance.

—European integration and partnerships: The CMU offers a platform for scaling PE operations across borders. Public-private partnerships will also be a key in financing the real economy by direct or indirect means.

Luxembourg in the driving seat of the European private equity scene

Luxembourg’s financial centre is well-positioned to drive, inspire and facilitate the next growth cycle of the European and global PE markets by 2035. Its strengths in regulatory, operational excellence, technological innovation and ESG will provide a solid foundation for another robust success story. Through the integration of technology and AI, the democratisation of private equity and the involvement with the capital markets union, Luxembourg will enhance its competitiveness in an evolving financial landscape.