US and APAC private capital choose Luxembourg for EU market access

The country is the gateway to doing business in Europe, say European private equity and venture capital experts

One of Europe’s smallest countries has become one of the biggest centres for capital inflows from the US and Asia Pacific. Luxembourg is Europe’s equivalent to the US state of Delaware – the starting line on the inside track to investment opportunities, in this case across all 27 EU nations.

The country has become the launch pad for international private equity (PE) and venture capital (VC) asset managers with European fundraising ambitions. This was the main message from the latest in our Private Funds Industry Live series: Luxembourg Funds Spotlight, for which I was a panellist.

Joining me in the 40-minute discussion were Stéphane Pesch, CEO atthe Luxembourg Private Equity & Venture Capital Association (LPEA); and Gilles Dusemon, partner in the Private Equity & Real Estate practice of Arendt & Medernach. The facilitator was James Williams, Editor-in-chief, Private Equity Wire.

Luxembourg is a gateway and one-stop-shop, panellists agreed. It answers legal, regulatory and jurisdictional questions posed by alternative investment fund managers (AIFMs) among many others.

Gilles Dusemon said: “Luxembourg is Europe’s equivalent to the state of Delaware. It is a gateway for private capital flows between the US and Europe.”

Luxembourg offers business-friendly EU access

The 27 EU member states harmonise legal, commercial and marketing regulations in Luxembourg. It is a robust, predictable and friendly place for business.

Stéphane Pesch said the country was an “international gateway” for US and Asian PE and VC managers wanting to raise funds in the EU. He said Luxembourg’s well recognised structures and procedures usually met Limited Partners’ (LPs’) needs and expectations.

It adds up, he said, to a “very efficient time to market… More and more investors from outside Europe are turning to Luxembourg”.

Regulatory expertise attracts private equity investors

Luxembourg is close to the centre of Europe, nestled between France, Germany and Belgium. This has helped its emergence as “Europe’s main investment hub,” according to alternative fund formation and regulation expert Gilles Dusemon.

Of course, Luxembourg is known for its long-term financial stability and regulatory expertise. US and Asian clients understand the importance of having a clear strategy when it comes to choosing a jurisdiction for their funds and finding the investors they want to target.

Among current trends is a significant interest in private credit opportunities, as well as interest from more conservative institutional investors in real estate.

Series of reforms cater to AIFMD for private capital

Mr Pesch said Luxembourg’s history as a centre for international funds stretches back at least as far as the 1988 introduction of Undertakings for the Collective Investment in Transferable Securities (UCITS) funds.

He said Luxembourg’s “toolbox” for funds was enlarged in the first decade of the 21st century to cater for alternative investment strategies and was further enhanced by the advent of the Alternative Investment Fund Management Directive (AIFMD) in 2013.

“We believe in the rise of private capital,” he said. “We have upgraded our business model with new tools and vehicles. The LP laws have been refurbished, new depositary capacity has been developed, and there is a thriving solutions and service sector for alternative investment fund managers.”

Apply via Luxembourg for EU-wide “marketing passport”

Mr Dusemon described three ways for international fund managers to gain access to the EU:

• By domiciling funds inside the EU
• By basing them outside the EU
• Via a mechanism known as “reverse solicitation”

All three have roles to play, he said, but the first was most widely preferred. It sees funds established in Luxembourg and granted what is colloquially known as a “marketing passport” to access the 27 EU member states.

He said it was possible for international managers to domicile their own funds in Luxembourg but to also engage with local specialists for “turnkey solutions”.

Keeping private equity limited partners a step ahead

Mr Dusemon, a lawyer by profession, outlined the comprehensive yet complex framework that makes Luxembourg the portal of choice for many of the world’s leading private equity limited partnerships.

He said fund structures come in many shapes and sizes. Variants included:

• Regional, international and global vehicles
• Feeder, umbrella and parallel mechanisms
• Professional, institutional and retail offerings

The increasing importance of environmental, social and governance (ESG) considerations and the strength of the county’s fintech sector were also draws.

Finally, Luxembourg’s status as a multicultural and multilingual centre only added to its attractions, said Dusemon, concluding that “Luxembourg is the future where Transatlantic investment opportunities are concerned”.

Click here to watch the webinar recording.

Why Intertrust Group?

• Third-party Alternative Investment Fund Manager (AIFM) solutions bring cost efficiencies and market experience.
• We are specialist partners for non-EU managers looking to launch funds for investors in Europe.
• We offer fully integrated fund services, covering AIFM, central administration and depositary services, either on an end-to-end or standalone basis.
• Our expertise spans all private capital asset classes including private equity, private debt, venture capital, real estate and infrastructure.