Assessing the value to private equity and venture capital assets is a complicated business, because these investments in startups, growth firms, businesses being restructured, etc, are not communicated publically.
Even so, the signs of a sharp growth spurt are clear to see from anecdotal evidence, with new offices opening and boom times at service providers, and these impressions are backed up by this survey’s more scientific approach.
Brexit factor
Brexit has been a major driver for funds looking to raise funds on the European mainland. Whether it is new firms opening up or players beefing up their pre-existing Luxembourg operations, Luxembourg is leading the field attracting players seeking to guarantee long-term access to the EU internal market.
“Some of the larger players that set-up new PE vehicles and raise funds every second or third year have had to move in order to ensure continuity for investors. However, other PE houses, especially smaller ones still have time as they go to market every four to five years,” Alain Kinsch, country managing partner of EY in Luxembourg, said in a recent interview with Luxair’s in-flight magazine Flydoscope.
One of the most high profile moves has been the arrival of the major Swedish private equity group EQT Fund Management. It relocated a wide range of its operating platform functions to create a hub in the Grand Duchy in 2017. The head of this office, Peter Veldman, spoke at the 20 November 2018 Alfi PERE conference. When asked what made the country attractive he listed some of the regulatory landmarks, including the creation of the SICAR in 2004, the SIF in 2007 and the SCSp in 2013. “Then in 2014 we got a particularly private equity centric government,” he added.
Larger funds
A clear trend is the burgeoning size of funds. The survey points to an increase in the number of Luxembourg PE funds with more than €500m of assets (now 4% of the total), with the number of US-originated PE funds also on the rise. The average fund size increased from €99.9m in 2017 to €132m in 2018.
It looks like there’s more is to come. “A majority of fund managers are reinforcing or planning to reinforce their presence in Luxembourg,” said Benjamin Collette, partner at Deloitte Luxembourg. While half of the top PE houses present in Luxembourg currently employ mainly finance professionals, the survey said all plan to reinforce their presence with professionals specialised in compliance and risk.
As for the vehicle used, the reserved alternative investment fund (RAIF) regime and unregulated limited partnerships (with a regulated manager) are more numerous after a rise close to 20 percentage points in the year to June 2018. These two regimes now represent more than 30% of all Luxembourg PE funds.