If the alternatives industry has a problem, it is lack of outlets for the amount of capital invested. Luxembourg’s investment fund centre is thriving as a result.
At the ALFI European Alternative Investment Funds Conference on 22 November, the opening panel discussion gave an overview of this booming sector and how professionals are coping with demand.
There is currently $536bn of global private equity investment seeking projects, said Alain Kinsch, EMEIA private equity fund leader at EY. Real estate investment funds are also flush, with a survey of the 150 largest managers reporting $125bn fresh investment having been raised in 2015/16. Although hedge funds’ disappointing returns mean they are somewhat out of favour, there is now a record $3trn assets under management globally.
Jérôme Wittamer, chairman of the Luxembourg Private Equity & Venture Capital Association, said that increasing focus was now on backing companies in their earlier growth phases, due to demand pushing up the cost of investing at later stages. With Basel III having made banks more wary of lending, the alternatives industry is stepping in to lend businesses, real estate and civil engineering projects.
“Wait and see” is the attitude adopted for Brexit. In the short term if asset valuations drop this could create the potential for good value investments. Wittamer added that the European Investment Fund (part of the EU’s EIB group) was currently the number one venture capital investor in the UK. Sources suggest that about two dozen UK-based financial sector firms have made enquiries about moving operations to Luxembourg. However, if they were to do so, the offices would probably not have more than a few dozen staff.
Recruitment challenge
Although the panel praised Luxembourg as centre for alternative fund servicing capability, they said more could be done. “We have the challenge of attracting qualified human resources,” commented Rosa Villalobos, Luxembourg managing director of Macquarie Infrastructure and Real Assets. She requested more investment in the things that make the country attractive to families and single people.
Daniele Spada, head of Lyxor Managed Account Platform, Luxembourg was also complementary, saying the local funds ecosystem was very comprehensive with a flexible regulatory environment. However, the speed of regulatory approval could be increased, with a later panellist citing 6-9 months as being the norm for some vehicles. Hence why the new RAIF structure is welcomed, as it enables asset managers to create a new fund quickly.
AIFMD II
Later, in an interview with Verena Ross, executive director of the European Securities and Markets Authority, said she understood the need for regulation to be consolidated, and unintended consequences taken into account when planning new rules. There are general industry expectations that an AIFMD II will result from a review of the directive in 2017. No sign was given when non-EU countries might receive a renewal of the alternative funds passport.
