“What do brands like Burger King, Interflora, Bugaboo, and TMF have in common?” asked Hind El Gaidi, head of financial information and valuation at Astorg, at the beginning of her presentation. “They are all private-equity backed companies.”
El Gaidi focused on why private equity is a strong, high-performing industry during her talk, using a “three-legged stool” as an illustration. “To create greatness through private equity, I’m a strong believer in the three-legged stool model: digital, innovation and governance.”
If we don’t have the third leg, the stool is not balanced. Governance is crucial and very critical
Digital--a combination of data and technology--involves diving deep into processes, removing redundancies and allowing employees to focus on value-added work, explained El Gaidi. The innovation “leg” means changing behaviour through training management teams, ensuring that they know how to “harness the power of data insights,” and helping them to design strategies that take their company further.
“The third leg--governance. If we don’t have the third leg, the stool is not balanced. Governance is crucial and very critical,” El Gaidi emphasised. “By selecting the right management teams, who will promote growth and excellence while remaining humane with their people, we are making an impact.”
“Sleeping beauty” Eltifs and tackling climate change
Several of the evening’s presenters discussed the Eltif--the European long-term investment fund--and their expectations from the revised regulation. Constanze Jacobs, head of transactions, structuring & asset advisory of Commerz Real, talked about how Eltifs are expanding access to assets and how they can help fight climate change.
“When the Eltif was launched in 2015, it was not a success. For retail investors, it was unattractive because of its high entry ticket of €10,000, and for institutional funds, there were plenty of other vehicles available in the market,” said Jacobs. “But the regulation set the ground for retail investments in infrastructure on a long-term basis. That was a completely new concept.”
With Eltif 2.0 abolishing the high entry ticket and aligning the distribution to Mifid , the ‘sleeping beauty’ has been awakened
“Now with Eltif 2.0 abolishing the high entry ticket and aligning the distribution to Mifid [Markets in Financial Instruments Directive], the ‘sleeping beauty’ has been awakened and is about to exit this niche.”
But how can Eltifs tackle climate change?
“We are all in this together. When we invest, we want to prepare for the future--financially and for our planet,” said Jacobs. “Markets show that investors would like to put their capital to work to be part of the tremendous changes needed to fight climate change. And younger investors are even more serious about sustainability goals--as long as an investment manager is trustworthy and delivering on a sustainable strategy.”
The Eltif is the “most suitable vehicle” to accommodate these requirements, allowing investors to directly invest in companies holding infrastructure. “It is a clean-cut and transparent product investing in solar parks and wind farms producing green electricity,” said Jacobs, offering examples of how Eltifs could help reduce the use of fossil fuels.
However, the liquidity risks of investing in infrastructure assets have to be considered. “Eltif 2.0 provides for the possibility to grant redemption rights by implementing liquidity mechanisms. This is an important tool to protect retail investors in case they need their money back.”
Moreover, the Eltif’s “passport” makes pan-European distribution easier. “It is an opportunity for retail investors to finance solutions against climate change,” said Jacobs. “It is an investment in the infinite resources of the planet.”
ESG as an investment strategy
Continuing on the theme of sustainability, Douglass Welch, managing director and portfolio management conducting officer at Pemberton Asset Management Group, focused on the importance of ESG an investment strategy, the impact of regulation and fiduciary duty.
My job is to make sure we get sustainable assets into portfolios
Trust is a “critical element” to ensure that “the correct assets get into the correct portfolios,” said Welch. “My job is to make sure we get sustainable assets into portfolios. And one of the ways that we do that is by adjusting the process that we would look at a normal asset.”
“In the world of sustainable finance, I look at an asset differently--but not too differently. In the traditional, old methodology, where I’m looking to lend money to a company, I’m concerned about getting the money back and making sure the company pays me interest through the life of the loan,” said Welch.
“With sustainable criteria that I now have to look at in order to exercise my fiduciary duty to make sure my investors are happy, I have to start asking different questions, or deeper questions, and be more curious about the sustainability of my investment activities.” Welch offered several real-life examples of investment, such as an Italian cardboard recycling company or a pre-fab housing construction company in Holland, as well as the types of questions that needed to be asked.
“The question is: is this trendy? Is this a hippie thing?” asked Welch, making reference to recent events in French and German politics, where, for example, German labour unions do not want to ban the internal combustion engine. “But think of it more as a new style,” he said. “ESG will just become another type of investment strategy that we can follow.”
It can also be seen as an evolution. “We started with ethics. When the first stock market was created in 1602 in Holland, within 20 years, they had rules to prevent insider dealing,” said Welch. Things that seemed controversial in the past have become more mainstream.
“We have a 2050 target, guideline to get somewhere. But we’re not there yet,” he said. Though ESG might look “trendy and hippie” now, “it’s actually quite critical to where we’re going.”
€950bn in assets under management
Alternative investments--which includes private equity, private debt, infrastructure and real estate funds--are a significant part of Luxembourg’s financial industry. The country has around €950bn in assets under management in alternative funds, a figure that has doubled since 2007 and is sure to continue growing in the future.
The event also featured presentations on the allure of private assets and Luxembourg’s toolbox for alternative investments, getting new funds to market, making Luxembourg more successful and competitive, the changes faced by the fund industry and adapting operating models, the importance of fintech investments in Luxembourg, mega-trends in the domain such as margin pressure, emerging technologies or customer experience, and future-proofing the market attracting talent to the country.
Find the full picture report here.