Luxembourg report 2021

LUXEMBOURG REPORT

PE AND VC:

GROWTH OPPORTUNITIES IN LUXEMBOURG

TALENT:

THE NEED FOR TRAINING SOLUTIONS

REGULATIONS:

NEW REFORMS BOOST LUXEMBOURG’S APPEAL

FEATURING ALTER DOMUS, ALFI, AKD, MAPLES, CSC, RFA, GSK STOCKMANN, LPEA & OCORIAN

CONTENTS

INSIDE THIS ISSUE...

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OVERVIEW Luxembourg is battling hard to stay at forefront of private equity industry

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ALTER DOMUS Continuous growth of new private debt and real estate funds in Luxembourg

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ALFI Innovation key to success

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AKD Growth opportunities for PE and VC funds in Luxembourg

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CSC Luxembourg looks to the future offering fund managers quality supervision, convenience and expertise

06RFA

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Political stability makes Luxembourg a compelling choice

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GSK STOCKMANN

Luxembourg fund managers

and current geopolitical landscape

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LPEA Private Equity and Venture Capital talents wanted.

The need for highly professional training solutions

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OCORIAN New reforms set to boost Luxembourg’s appeal for private equity funds

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DIRECTORY

Published by: Global Fund Media, 8 St James’s Square, London SW1Y 4JU, UK ©Copyright 2021 Global Fund Media Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

Investment Warning: The information provided in this publication should not form the sole basis of any investment decision. No investment decision should be made in relation to any of the information provided other than on the advice of a professional financial advisor. Past performance is no guarantee of future results. The value and income derived from investments can go down as well as up.

LUXEMBOURG REPORT | SEPTEMBER 2021

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OVER VIEW

LUXEMBOURG IS BATTLING HARD TO STAY AT FOREFRONT OF PRIVATE EQUITY INDUSTRY

BY ROBIN PAGNAMENTA

I

t may be one of Europe’s smallest countries, but Luxembourg has never lacked for ambition.

Over the past half century, the Grand Duchy has steadily built on its strengths in private banking, investing, insurance and corporate lending to play an out-sized role in the continent’s financial sector.

These days, the Luxembourg Private Equity and Venture Capital Association (LPEA) estimates that 90 per cent of all European private equity and venture capital funds are domiciled in Luxembourg – a tribute to its reputation for political stability, niche expertise and regulatory competence, which in turn has helped transform it into one of the world’s wealthiest countries.

With more than EUR5.3 trillion in net assets under management in regulated funds, traditional Luxembourg-domiciled undertakings for collective investment have experienced robust growth during the past few years.

EMERGING OPPORTUNITIES

The nation’s government and financial authorities have been keen to spot

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emerging new opportunities as they arise to further strengthen a sector which already employs over 50,000 people.

Of course, funds domiciled in Luxembourg pay lower taxes on their funds under management than in other EU nations – an advantage which helps investors to benefit from a bigger chunk of the payouts.

But that’s not the only advantage enjoyed by the private equity funds and asset managers who have flocked to the Grand Duchy, helping to cultivate a bustling industry of administration services, legal and audit firms as well as banks and asset management firms.

Luxembourg’s debt levels stand at just 22 per cent of GDP – one of the lowest ratios in the EU and roughly one third the level of Germany, according to Eurostat figures.

stability at all levels.

“It’s not that there is no tax but the system itself is quite stable and robust, and the country itself is very stable with a triple-A rating,” he says.

“There are not a lot of countries which have had that triple-A rating for years and years and years,” Cheret says, adding that funds which domicile in Luxembourg usually do so with a time horizon of 10 years or longer.

That, he says, is simply because they are confident that the environment is unlikely to be very different over that timeframe.

He says: “If we change the system every three years, they will not like it, but they know that if they come in that system is not going to change dramatically within the next 10 years.”

STABLE ENVIRONMENT

LOOKING TO THE FUTURE

That cherished reputation for economic and regulatory stability has been another powerful factor in supporting the industry.

Yves Cheret of CSC, a fund administration specialist based in Luxembourg says there is a deep understanding of the need for

There have been other factors at play which have delivered a helping hand for Luxembourg.

Brexit has, of course, delivered a significant boost to the industry by triggering a boom in applications from London-based fund

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OVER VIEW

managers keen to establish Luxembourg funds aimed at European investors.

While that trend has slowed in recent months as financial market participants grow accustomed to the new realities of Europe post-Brexit, Luxembourg is already looking to the future.

The rise of private debt funds – fuelled in part by the new Basel Framework strictures on bank lending – as well as real estate funds and the growing popularity of funds with a focus on environmental and social governance (ESG), are all hot areas where Luxembourg is pushing hard to develop expertise and experience.

“If you look at the debt funds, they are developing quite fast because traditional lending that goes through banks is becoming more and more difficult,” says Marco Mondaini, Head of Depositary Services at Alter Domus in Luxembourg, referring to the rise of private debt funds and Luxembourg’s interest in the field.

“The cost that is linked to debt for traditional banks [is rising], mainly driven by regulation where you have to have a certain capital to lend. In a low interest rate

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environment that capital doesn’t produce any returns, so that’s why the banks are becoming more prudent.”

Luxembourg has astutely catered to the needs of the fund industry with a range of back office to front office services.

LEGAL AND REGULATORY FRAMEWORK

Its multilingual and international workforce has helped to support alternative investment fund managers (AIFMs) and other third-party service providers.

But it is Luxembourg’s willingness to continually review its legal and regulatory framework to stay at the forefront of the fund management industry that has always set it apart.

Often, it has acted far more nimbly than other jurisdictions – an accomplishment made easier by its small size – handing it an important first mover advantage in creating attractive options for investors and asset managers.

For example, the creation of innovative structures, such as the SCSp (Special Limited Partnership) introduced in 2014, and the RAIF (Reserved Alternative Investment

Fund) introduced in July 2016, have ensured Luxembourg has maintained its competitive edge.

The SCSp is a popular fund entity for alternative investments, including real estate.

It is similar in flexibility to a traditional AngloSaxon limited partnership.

The RAIF, meanwhile, qualifies as alternative investment fund (AIF) and is not itself subject to CSSF product approval, ensuring a light touch regulatory approach.

Mondaini believes this innovative approach to the legal frameworks governing the fund management industry has been highly successful.

He says: “I think regulation is a constant evolution, but it’s a healthy evolution in the sense that the regulator also understands the dynamic of being pretty close to and pretty present in the market. It understands the constraints of the requirements. So I think today there is the right balance of exchange and communication between the associations representing the business, and the regulators.”

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ALTER DOMUS

CONTINUOUS GROWTH OF NEW PRIVATE DEBT AND REAL ESTATE FUNDS IN LUXEMBOURG

BY ROBIN PAGNAMENTA

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LUXEMBOURG REPORT | SEPTEMBER 2021

ALTER DOMUS The Grand Duchy is set to capture an important chunk of the growing global market for alternative investment funds

L

uxembourg’s role as an international financial centre goes back many decades. But its future as a services hub for asset managers looks brighter than ever.

For Marco Mondaini, Head of Depositary Services at Alter Domus in Luxembourg, there are powerful new segments of growth for the industry which appear highly favourable over the next few years.

Alongside its traditional strengths as a centre for domiciling mutual investment funds, he believes some of the biggest opportunities now lie in offering services for alternative investment products and in particular the upward trajectory of debt and real estate funds.

“Luxembourg’s reputation is already very well established in the mutual fund market.

It has moved up the chain to become recognised as a centre of excellence for those funds to be distributed worldwide; Luxembourg-domiciled investment funds are distributed in more than 70 countries,” says Mondaini, a 30-year veteran of the Luxembourg fund management industry.

Before joining Alter Domus, Mondaini worked for CBP Quilvest reorganising their depositary services in Luxembourg.

Prior to that, he served as Deputy General Manager of Bank of New York Mellon in Luxembourg for nine years, responsible for asset servicing and alternative investment services, business change management and corporate trust.

“The recognition Luxembourg receives helps support the distribution and provides confidence to investors globally around the use of Luxembourg products,” Mondaini says.

But over the last 10-15 years, the alternative investment space has developed rapidly, first with hedge funds and then private equity and other specialist funds, he adds.

PRIVATE DEBT MARKET BOOMS

Today, Luxembourg is rapidly earning a reputation for something else.

“Today, the debt fund sector is developing quite fast as traditional lending that goes through banks becomes more challenging,” Mondaini says.

“The cost of traditional lending for banks

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is increasing due to capital adequacy requirements which are driven in large part by regulations like Basel III, making it more difficult for banks to generate profits from lending. That’s why the banks are becoming more prudent and thus benefitting the private debt market.”

Just five years ago in 2016, the global private debt market was valued at about USD575 billion, according to figures from Preqin.

By the end of 2020, it had already reached USD848 billion with Preqin projecting it could be worth as much as USD1.46 trillion by the end of 2025.

For Luxembourg, that represents a growth opportunity for advisers and providers of domicile, management companies, depositary and fund administration services who specialise in assisting fund managers.

Mondaini estimates that 50-60 per cent of all private debt funds will be channelled through the Grand Duchy. Luxembourg fund vehicles cater to the broadest possible spectrum of investments, from senior to mezzanine loans, whole loans and syndicated loans, distressed debt, and convertible loans. The loans can finance any asset, from real estate and infrastructure to private equity, and the operational infrastructure in Luxembourg provides a robust framework for all of them.

“I think it’s a testament to Luxembourg’s ability to service those specialised funds and be able to structure them and offer expertise,” Mondaini comments. “Its stability and innovative mindset make it a key location for financial professionals.

Luxembourg is one of only nine countries worldwide with a AAA rating. The country draws on its political, economic and regulatory stability to foster a strong culture of investor protection, which is an important element as well.”

COMPREHENSIVE SUITE OF SERVICES

With more than 3,300 employees across 36 offices in 21 countries, Alter Domus is a leading provider of integrated solutions for the alternative investment industry globally, dedicated to serving private equity, real assets including real estate and

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ALTER DOMUS

REAL ESTATE IS A BIG GROWTH AREA

Another significant growth area for Luxembourg’s financial industry is in real estate funds. The country’s international business environment has given rise to a number of structures designed to facilitate real estate acquisitions with cross-border components.

In a world of low interest rates, long-term investors such as insurers and pension funds are increasingly looking at alternative opportunities to secure higher yields.

“Real estate funds are an option that is better understood and more highly considered by those investors,” says Mondaini.

“If they must provide the returns that they need for their internal products, equity and fixed income don’t generate those returns anymore so they are diversifying their portfolio investments using alternatives.

That pushes different segments including private equity and real estate funds,” he adds.

Many of these funds spread their portfolio across housing, logistics, infrastructure and office developments.

“

There is the right balance of exchange and communication between the associations representing the business and the regulators

“

infrastructure, and debt capital markets sectors. The firm has the ambition to deliver integrated and bespoke solutions at each level of the value chain, from investors down to asset level, spanning depositary, AIFM, central administration and corporate services.

Mondaini says the group has the expertise needed to provide financial professionals with a single point of entry and assist them in defining and setting up the most appropriate structure to fully achieve their objectives.

Marco Mondaini, Head of Depositary Services, Alter Domus

“Overall, the real estate sector is showing quite a resilient position,” Mondaini says.

Luxembourg’s cluster of experts in law, accountancy and other services are poised to benefit from the growth of real estate funds as many managers look to use the country as a services and distribution hub.

“Luxembourg is home to a wide range of service providers allowing fund promoters to get the best advice for their initiatives and choose the best fit to materialise their projects,” Mondaini comments.

He continues: “When you have your fund project clear in mind, within a short

timeframe it’s easy to get into the market and get it designed and set up the right way to achieve your objectives.”

ROBUST SUPERVISION

Mondaini says that Luxembourg’s sophisticated regulatory framework and the well-established relationships between the supervisory authority and the financial sector also ensure the entire process of setting up a fund, while rigorous, is fast and straightforward.

“The regulator performs its duties of prudential supervision and supervision of the markets for the purpose of ensuring the safety and soundness of the financial sector, solely in the public interest,” he says.

“So, I think regulation is in a constant state of evolution, but it’s a healthy evolution in the sense that the regulator also understands the dynamic of changes necessary at national, European and international levels.”

He adds: “There is the right balance of exchange and communication between the associations representing the business and the regulators.”

Mondaini predicts that the regulatory framework will evolve, especially in the private debt market amid growing international scrutiny of the non-bank lending sector in particular.

“Developing alternative sources of financing to bank loans may be beneficial to the real economy but may also create new ‘shadow banking’ risks,” he says.

Either way, Mondaini feels confident that Luxembourg’s financial sector is in good health and stands to gain further from the steady growth of the alternative investment industry globally over the next few years.

MARCO MONDAINI

HEAD OF DEPOSITARY SERVICES, LUXEMBOURG.​​​​​​​​​​​​​​ With more than 30 years of international experience in the fund industry, across different countries, Marco witnessed important transformations and evolutions.

Before joining Alter Domus, Marco worked for CBP Quilvest SA reorganising their Luxembourg Depositary team. Prior to that, he serviced as Deputy General Manager of Bank of New York Mellon in Luxembourg for nine years, responsible for Asset Servicing & Alternative Investment Services, Business Change Management and Corporate Trust.

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LUXEMBOURG REPORT | SEPTEMBER 2021

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ALFI

INNOVATION KEY TO SUCCESS

L

uxembourg is widely regarded as a prime location for investment in private assets such as private equity, private debt, real estate and infrastructure.

Much of its success in this field can be attributed to innovative investment vehicles which are success stories in themselves, and a perfect match for the dynamism of private assets investment.

A real trump card in the Grand Duchy’s hand is its limited partnerships (LPs) that complement the broad range of legal solutions available for structuring alternative funds and private asset transactions.

Among them, the Société en Commandite

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Spéciale (SCSp) stands out as a multipurpose solution for private assets. When Luxembourg introduced the SCSp in 2013, in a forward-looking move at the time of transposing AIFMD into national law, it provided the investment fund industry with a modern entity type that, to this day, scores with its wider scope and greater flexibility than options available in other jurisdictions. Unlike the ‘vanilla’ société en commandite simple (SCS), an SCSp has no legal personality and can exist merely by agreement between its partners, allowing the maximum flexibility in structuring with an efficient time-to-market, making it ideal

for various set-ups. Overall, the SCSp has proved a hit among those in search of a non-regulated, transparent vehicle solution.

It is insightful to notice that over the past two years, the numbers of SCSp increased by 85 per cent, according to PwC’s analysis.

MANAGEMENT PASSPORT

Another ace up Luxembourg’s sleeve is the the Reserved Alternative Investment Fund (RAIF). As a subset of AIF, it shares the manager-regulation regime’s key features without being directly subject to product approval by the regulator CSSF. Instead, it relies on an authorised external alternative

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ALFI

investment fund manager and benefits from the management passport and the marketing of its shares, units or partnership interests to professional investors across the EU. The RAIF is now considered as one of the key pillars of the Luxembourg toolbox, offering the possibility to set up quickly an investment vehicle investing in any asset class.

This passporting concept, which contributed to making UCITS a successful global brand for retail investments, allowed AIFMD to also create a single market for alternative investment funds. While the UCITS regime has retail investors at its heart,

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individuals have limited access to the private assets universe. But that may change for more sophisticated retail investors. A review of AIFMD and MiFID is under way. Facilitating investments by these investors in private asset classes is part of the discussion.

STRONG AND STEADY

As the low-interest environment persists and certain private asset classes – private debt funds in particular – have been outperforming others with double-digit growth rates, it is no surprise that investor interest in less liquid, higher-returning assets has been strong and steady, not only from the institutional side,

but also from individuals with a long-term view of their asset allocation.

In this context, the ongoing reform of the ELTIF regime introduced in 2015 to “boost European long-term investments in the real economy” is promising and one can expect that ELTIF may become a successful third pillar alongside AIFs and UCITS to supplement the offering to European investors, increasing substantially access to a certain private asset class by retail investors.

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AKD

GROWTH OPPORTUNITIES FOR PE AND VC FUNDS IN LUXEMBOURG

BY JEVGENIY NESCH AND VIRGINIE LEROY

P

rivate equity and venture capital are amongst the key investment fund strategies showing the strongest growth in the last decades. Even if at the beginning of the Covid-19 pandemic, some PE and VC funds faced challenges such as a reduction in the activity of their portfolio companies, valuation difficulties, exchange rate volatility and liquidity, most of the fund managers were able to adapt and address those issues in an efficient, rational, cost-effective and prudent manner. In addition to the handling of the day-to-day challenges, PE and VC fund managers have also discovered new opportunities where they might help to navigate the businesses out of economic emergencies, while providing investors with attractive returns and necessary protection.

Luxembourg as the fulcrum for fund establishment, management, administration and distribution has a conducive environment in particular for PE and VC funds, offering a large range of flexible regulatory, corporate and tax structures together with the access to seasoned and experienced fund professionals. This advantageous and sustainable ecosystem in Luxembourg

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provides fertile ground for successful growth to all types of players in the PE and VC field.

EASY AND FAST MARKET ACCESS

Luxembourg’s regulatory plug and play system allows PE and VC fund managers to build on their existing knowledge, expertise and capacities by providing multiple possibilities to enter the Luxembourg funds market.

Smaller PE and VC fund managers launching a Luxembourg fund often choose to benefit from the exemption under the Directive 2011/61/EU on alternative investment fund managers (AIFMD) allowing the management body of the fund, instead of appointing a fully authorised alternative investment fund manager (Authorised AIFM), to act as socalled sub-threshold alternative investment fund manager. Since the latter must be inter alia registered with the Luxembourg Commission de Surveillance du Secteur Financier (CSSF), those managers are also referred to as Registered AIFMs. In order to benefit from this exemption, Registered AIFMs’ assets under management, including any assets acquired through use of leverage, may not exceed a threshold

of EUR100 million. Should the Registered AIFM manage only unleveraged funds that have no redemption rights exercisable during a period of five years from the initial investment in the fund, its assets under management may not exceed a threshold of EUR500 million.

EEA-based non-Luxembourg managers who do not benefit from the above mentioned AIFMD exemption or wish to opt-in under the AIFMD – e.g. to get access to the AIFMD marketing passport – must apply for authorisation as an Authorised AIFM in their home jurisdiction or in Luxembourg. An Authorised AIFM must comply with a number of legal, regulatory, substance, operational and infrastructure requirements as set forth in the respective national legislation implementing the AIFMD. In case the fund manager does not have yet the capacity for the full authorisation under AIFMD, the management body of the Luxembourg fund may delegate inter alia the portfolio and risk management function to a Luxembourg based thirdparty Authorised AIFM (Third-Party AIFMs). Subject to certain requirements, a Third-Party AIFM may further delegate portfolio management function to the

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AKD manager/initiator of the fund.

Instead of acting as delegated portfolio manager, the PE and VC fund manager may also act as investment advisor providing the Third-Party AIFM with investment advice based on its specific expertise and experience taking into account the investment strategy of the respective fund. NonEEA based PE and VC fund managers (e.g. US, UK, etc.) acting as AIFMs also have good access to the Luxembourg funds market and, depending on their marketing plans in EEA, may fall out of scope of AIFMD for the time being.

LUXEMBOURG PE AND VC FUND VEHICLES

Luxembourg limited partnership regime offers to the PE and VC fund managers, in particular since it was strengthened through addition of the special limited partnership (SCSp), the most flexible and widely used fund structure. The legal framework applicable to the Luxembourg common limited partnership (SCS) and SCSp allows the managers, to the greatest

extent possible, to tailor the fund’s limited partnership agreement implementing their specific approach, including fund governance, operations as well as fee and distribution models. Specifically, the combination of the Luxembourg limited partnership regime used for the fund vehicle together with the role of the fund manager as Registered AIFM is often seen in the PE and VC funds sector.

Luxembourg PE and VC funds in the form of limited partnership (but also other corporate forms) can further optin to one of the well-known Luxembourg fund regimes, whether regulated and supervised by the CSSF (such as SIF or SICAR) or without being regulated and supervised (such as RAIF) and be henceforth subject to the relating fund product laws. These Luxembourg fund regimes, and in particular the SICAR together with the corresponding structure under the RAIF regime, were specifically designed and tailor-made for funds pursuing private equity and venture capital investment strategies.

DISTRIBUTION OF PE AND VC FUNDS

Luxembourg-based investment funds are successfully distributed in Europe and beyond its borders whether with the AIFMD marketing passport or through compliance with the national private placement rules

applicable in the jurisdiction of targeted investors. As from 2 August 2021, certain new rules brought by the EU cross-border distribution of funds legislation (CBDF) apply to the distribution of funds. While the practicability of the new set of rules brought by this legislation may be assessed only at a later stage, CBDF seems to bring some clarity about certain distribution aspects.

For instance, the EU-wide harmonised understanding of pre-marketing activity and the introduction of de-notification procedures should bring efficiency and hence growth opportunities for the fund managers distributing their Luxembourg PE and VC funds in accordance with the new CBDF rules.

PE AND VC FUNDS EMBRACING ESG ASPECTS

Funds pursuing PE or VC strategy worldwide increasingly implement ESG considerations. Since March 2021, fund managers must comply with EU Regulation 2019/2088 (SFDR) and inter alia ensure the provision of certain sustainability-related information to investors. In particular, PE and VC funds promoting environmental or social characteristics or having sustainable investments as their objective will benefit from respective qualifications under SFDR and the ESG related developments in the investment funds industry.

JEVGENIY NESCH

VIRGINIE LEROY

Jevgeniy Nesch is a partner in AKD Luxembourg Investment Funds practice and advises clients on Luxembourg regulatory and legal matters in diverse fund-related transactions, including fund structuring, formation, conversion, liquidation, etc. with a particular focus on alternative fund structures. With his extensive expertise and long-time experience in the investment management industry, he routinely advises in particular on aspects relating to Luxembourg unregulated fund structures such as Luxembourg AIF-partnerships, RAIFs, regulated fund structures and regulated or registered fund managers.

Virginie Leroy is a partner in AKD Luxembourg Investment Funds practice and has over 20 years’ experience in practicing business law, including 13 years within the investment fund industry. She has built up strong knowledge in alternative investment funds.

Prior to joining AKD, she worked for another top tier law firm and for a well-known third-party fund management company, both UCITS V compliant and AIFM authorised. As a result, she has developed a strong operational background and legal practice targeted to investment funds. She advises and assists domestic and international clients in investment management matters covering in particular regulatory and corporate governance aspects throughout the entire fund life cycle.

PARTNER, AKD

LUXEMBOURG REPORT | SEPTEMBER 2021

PARTNER, AKD

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CSC

LUXEMBOURG LOOKS TO THE FUTURE

OFFERING FUND MANAGERS QUALITY SUPERVISION, CONVENIENCE AND EXPERTISE

BY ROBIN PAGNAMENTA

I

f any jurisdiction can claim to be the home of the global fund industry, it is Luxembourg. The Grand Duchy is the second largest investment fund centre worldwide and the first in Europe, with an 8.8 per cent global market share in 2020 and is a prime location for alternative investment funds.

Yves Cheret, managing director of fund administration in CSC’s Luxembourg office comments: “I think that, over time, the investment fund business in Luxembourg will become known as the US is known.”

Luxembourg’s attraction for fund managers is based on its political, financial, and political stability which fosters a culture of investor protection with strong support from the Commission du Surveillance du Secteur Financier (CSSF); a culture of innovation, with Luxembourg an early mover to support trends including environmental and social governance (ESG) demand; and a ‘luxemburguish toolbox’ for asset managers including the common limited partnership (SCS) and the special limited partnership (SCSp).

The jurisdiction’s particular strength is in alternative investment says. Pierre Mifsud, managing director of depositary services: “For the last 10 years, if someone wants to launch an alternative investment fund, Luxembourg has been their first port of call. It is its own complete ecosystem – the service providers, the law firms, everything they need is here.”

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FIRST MOVER ADVANTAGE Apart from the convenience factor of Luxembourg’s geographical position for European alternative investment managers, the latest boom in popularity dates back to the 2013 AIFM Directive governing the supervision of alternative investment funds in the EU. Luxembourg was one of the first countries to implement the directive, which required funds to register with local regulators to manage or distribute their funds, giving it a clear advantage over rival centres such as Dublin and the UK. Cheret comments: “Luxembourg has always been used to handling cross-border transactions and that is exactly what we see with the AIFM. Alternative investment funds have investments and investors outside of Luxembourg, so the fund is sold and distributed cross-border.”

Luxembourg was also ideally placed to take advantage of opportunities offered

by Brexit, Cheret adds. “Major UK private equity firms needed to use Luxembourg to ensure continuity for their business models post-Brexit, creating teams for the distribution business and offering a point of contact for investors,” he says.

While they continue to work closely with the installation management teams in the UK, official communication to investors is coming from Luxembourg, he adds.

Indeed, Luxembourg’s relative stability is a major factor in its popularity with alternative investment funds, with a settled political and economic landscape, a crossborder approach through the international profile of its workers, and proper supervision of the industry.

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CSC

“

“

Luxembourg has always been used to handling cross-border transactions and that is exactly what we see with the AIFM Yves Cheret managing director of Fund administration, CSC Global Financial Markets

THE IMPORTANCE OF SUPERVISION Luxembourg places great emphasis on the proper supervision of the industry, according to Mifsud, a reputation that regulators are keen to maintain and which places certain requirements on fund managers and service providers alike.

“Know Your Customer (KYC) is crucial,” he says. “As per the law, we are obliged to perform a full KYC analysis as part of central administration to ensure that funds coming from investors are clean.”

“The Luxembourg regulator is very sensitive to this because of systemic risk. If you were injecting money from corruption, or worse, from terrorism, that would hugely impact Luxembourg’s reputation,” Mifsud adds.

A BESPOKE SERVICE MODEL CSC is a family-owned US firm headquartered in Delaware offering fund administration and depositary services to alternative investment funds in Luxembourg and across the world.

It provides global solutions for managers engaging in private equity, real estate, venture capital, private debt, funds of funds, and other alternative investment strategies.

The company offers its clients a bespoke service model and prides itself on unrivalled service quality underpinned by the stability of experienced staff, together with a strong and common corporate culture throughout the different jurisdictions. And, their proprietary, best in class technology tools are integrated directly into the business process for greater client efficiencies and flexibility.

Mifsud says: “What makes CSC unique is that we have developed technology internally

YVES CHERET

MANAGING DIRECTOR OF FUND ADMINISTRATION, CSC GLOBAL FINANCIAL MARKETS Yves Cheret is managing director of Fund Administration for CSC Global Financial Markets (GFM) in the Luxembourg office. He is responsible for building the Fund Administration business in that location as well as liaising with CSC teams across Europe and in the US and Asia-Pacific region.

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so it is part of the business, and we can continue to develop tools internally. We rely on powerful IT tools to gain efficiency and flexibility.”

Whether an asset manager is launching a new fund, considering outsourcing or contemplating an alternative to their current third-party provider, CSC aims to be a global partner with a local perspective. The team works closely with clients to provide a cohesive offering across markets, fund structures, and asset types, with services including accounting, corporate secretarial, special purpose vehicle management, regulatory compliance and investor reporting.

Mifsud concludes: “Our image is very competitive. We work for our clients at the end of the day.”

PIERRE MIFSUD

MANAGING DIRECTOR FOR DEPOSITARY SERVICES, CSC GLOBAL FINANCIAL MARKETS Pierre Mifsud is managing director for Depositary Services for CSC Global Financial Markets (GFM) in the Luxembourg office.

His responsibilities include managing the Depositary business, acting as conducting officer, and liaising with CSC teams across Europe as well as in the US and Asia-Pacific region.

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RFA

POLITICAL STABILITY

MAKES LUXEMBOURG A COMPELLING CHOICE Visitors to Luxembourg are often surprised and pleased to discover that public transport is free

BY ROBIN PAGNAMENTA

S

tep onto a tram in Luxembourg city, and there is no conductor to pay, and no machine to stamp tickets.

In a drive to tackle traffic congestion and emissions, last year the Grand Duchy introduced a new policy where no charge exists for using the trains, trams and buses that criss-cross the small country sandwiched between Germany, France and Belgium.

The policy is an attractive perk for its 602,000 residents, 175,000 cross-border workers and 1.2 million annual tourists.

It’s also emblematic of something else: Luxembourg’s runaway economic success

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and almost unrivalled political stability – which has become a magnet for its booming financial services industry – and generated a tax windfall to boot.

Over the past few decades, Luxembourg has cemented its position as one of the world’s leading international fund domiciles, usually hosting the structures that are used by private equity firms, hedge funds and asset managers based in other centres like the US or UK. It’s a policy that has been so successful, for so long, that it has fuelled a powerful economic boom that has showered benefits across the entire country – including the

nation’s cheerful commuters, says George Ralph of business IT consultancy RFA. “Luxembourg has very successfully developed its funds industry, but has managed to do this to the benefit of the whole country,” he says. “As such, it has a triple-A rating and political stability.”

He continues: “This political stability is crucial, as it mitigates the risk of subsequent legislative changes that could adversely impact fund complexes over the longer term.”

LEGENDARY REPUTATION

This reputation serves as a powerful

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RFA advantage over rival centres. Many financial firms have first-hand experience in other less predictable countries, where the tax treatment of SPV-type legal structures has suddenly changed, often with damaging results.

Ranked as the world’s richest country in terms of GDP per capita, Luxembourg seems uniquely shielded from such volatility. Its administrators and citizens alike seem aligned in their determination not to kill off the golden goose.

“Of course, there is also risk of more centralised-based changes from the OECD or EU, but Luxembourg has a very sound approach, so is less likely to be adversely impacted,” he says.

“For example, its basic corporation tax rate is already 15 per cent, which is the minimum that has been suggested by the OECD in its two-pillar plan to reform international taxation rules versus 12.5 per cent for Ireland.”

ATTRACTIVE MARKET

For technology vendors like RFA, who specialise in cloud, data and cybersecurity solutions, having a presence in Luxembourg is essential as many banks, advisory firms and other financial groups who rely on RFA to effectively service their business IT solutions.

Founded in 1989 RFA, which has over 800 clients globally divided between hedge funds and private equity, in 2018 launched a new private and public financial cloud in Luxembourg.

The move allowed RFA to offer a range of services to both its existing and new financial clients in Luxembourg, Madrid, Hamburg, Paris, and the wider region.

RFA now operates two secure, tier-one data centres in Luxembourg which meet the required standards for firms regulated by the Commission de Surveillance du Sector

Financier (CSSF) and continue to offer Best in Class Azure and AWS solutions for those wanting to leverage public cloud.

The firm offers clients managed private cloud, infrastructure-as-a-service, and secure multi-cloud services, which offer the flexibility and scalability of public cloud services, whilst benefiting from the security and direct control of the private cloud.

It also operates its own dedicated Security Operations Centre (SOC) designed to monitor suspicious activity on all of its clients’ networks 24 hours a day, 365 days per year.

Usually, this kind of service is provided by an outsourced third-party provider but RFA offers its own in-house managed detection and response service for clients.

ESG IS A GROWTH AREA

As for the future, Luxembourg is eager to position itself at the forefront of two emerging trends, says Ralph.

The growing interest globally in funds which comply with environmental and social governance (ESG) objectives, represents a big opportunity for the Grand Duchy, which is pushing hard to become a centre for ESG fund domiciles and build expertise in the field.

“Luxembourg has always been at the forefront of ESG funds,” says Ralph.

“The EU’s Sustainable Finance regime is central to this, and will continue to be so – as it develops, it will create additional distribution opportunities for managers or Article 8 and 9 funds.”

Another profitable area is in financial technology, where again Luxembourg is pulling every lever it can to cultivate a new and thriving industry.

He says: “Luxembourg has a number of centralised initiatives to support the development of fintech, which include

incubators and funding. It’s very keen to develop these areas, so this is an area of government focus.”

Ralph believes that Luxembourg is lagging slightly on another potential growth area: cryptocurrencies.

According to a recent PwC report, only 2 per cent of crypto funds are based in Luxembourg.

“We don’t see Luxembourg as a significant crypto domicile; the regulator and legislature aren’t really pushing this.”

The challenge with full-scope Alternative Investment Funds (AIFs) of more than EUR100 million is simply finding a depositary that is willing to accept strict liability for the safe keeping of crypto assets – a common challenge across EU jurisdictions.

TRADEMARK FLAIR

However, with its trademark flair for spotting a coming opportunity for its bustling financial sector, Luxembourg has also cottoned onto something else: the boom in non-bank lending activities, and the rise of private debt and real estate as emerging asset classes, says Ralph.

“The legal and regulatory landscape in Luxembourg is perfectly suited to the growth of these strategies, as it has every conceivable corporate and regulatory structure within its toolkit.”

The SCSp (Société en Commandite Spéciale), Luxembourg’s equivalent to a common law tax transparent partnership, has played a critical role in the success of this push, he adds.

While there will be a challenge from the Irish Investment Limited Partnership (ILP), it’s worth recognising how well-developed Luxembourg’s support and service infrastructure is for the SCSp.

GEORGE RALPH MANAGING DIRECTOR, RAF

George Ralph CITP has successfully founded three technology firms along with C-level advisory services include M&A to numerous firms. George is a true leader and has been managing teams internationally, and leading technology transformation projects for over 20 years. A certified GDPR, Cyber assessor, Auditor, Architect and widely experienced cybersecurity and RegTech professional, George has extensive technical experience in network and server architecture, large scale migrations utilising leading technology brands, and IaaS offerings.

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LUXEMBOURG REPORT | SEPTEMBER 2021

Covering every aspect of the Luxembourg investment management industry AKD’s Luxembourg office is comprised of more than 25 seasoned and reputed lawyers covering every aspect of the Luxembourg regulated and unregulated investment management industry.

From setting-up fund structures to fund raising and from coordination with the CSSF and investors to investment & transactions. We support the full fund life cycle.

We combine our expertise in a wide range of legal fields with knowledge and experience of your business and sector.

Our offices in the Netherlands, Belgium and Luxembourg, where we practice Dutch, Belgian and Luxembourg law, provide you with first-rate integrated, comprehensive international legal services.

More information? akd.eu or info@akd.eu

GSK STOCKMANN

LUXEMBOURG FUND MANAGERS AND CURRENT GEOPOLITICAL LANDSCAPE

BY DR MARCUS PETER & IRINA STOLIAROVA

1. SUSTAINABLE FINANCE

One of the new key trends driving growth and development in the Luxembourg fund industry is sustainable finance. Due to the Luxembourg Green Stock Exchange that doubled its green, social, suitability and ESG (environmental, social and governance) securities over the last years and the Luxembourg Finance Labelling Agency (LuxFLAG) that grew considerably over the previous years and continues to label sustainable products across several

20

jurisdictions, Luxembourg retains its status as the place of interest for various fund initiators as well as investors across the globe.

Along with those market players, the Luxembourg government plays an important role in developing a sustainable finance area. Implementation of the EU Sustainable Finance Disclosure Regulation 2019/2088 (SFDR), applicable from 10 March 2021, creates some challenges for financial market participants from a shortterm perspective. However, it will definitely create some opportunities from a longterm perspective, especially for those who are up to speed with the measures. Those fund managers potentially will benefit from the opportunities in terms of performance, growth of assets under management and reputation that sustainable finance products could bring. It is worth noting that sustainable funds represented a growing segment of investment solutions over the last years in Europe. The net assets in sustainable funds have doubled since 2018 and reflect around 11 per cent of total net assets domiciled in Europe at

“

the end of 2020. More than half of the cash flows went into the sustainable investment fund market in 2020 and that trend might only grow in the near future.

Another growing trend appears with view to the increasing set-up of nonregulated funds instead of regulated vehicles. In particular, the reserved alternative investment funds (RAIFs) which are not subject to direct supervision of the Luxembourg regulatory authority, the Commission de Surveillance du Secteur Financier (CSSF), have proven to be the preferred fund vehicle of promoters and initiators looking after alternative assets classes.

Fintech and investment into venture capital is another key trend that drives the growth of Luxembourg economy and will continue to develop over the years bringing new business opportunities to the country.

2. FUND STRUCTURING VEHICLES

Luxembourg, as a financial centre, continues to create a favourable environment allowing the development of

Creating an additional framework for sustainable finance products will help the Luxembourg fund industry to flourish on a greater scale

“

2

020 was a challenging year for the Luxembourg funds market. Despite a strong start in January and February, the Covid-19 pandemic caused a slowdown to fund set-up and net asset developments due to valuation issues and travel restrictions. However, it should be noted that the Luxembourg investment fund industry remained robust given the market regained growth starting mid2020 and continuing into the third quarter of 2021. This positive development was driven predominantly by increasing net assets and incoming new commitments to the fund vehicles. Net assets under management in Luxembourg investment funds reached EUR5.22 billion at 31 March 2021 and increased to EUR5.49 billion as of 30 June 2021. Moreover, since the Brexit referendum, Luxembourg has attracted increasing interest from UK based fund managers or other fund managers or originators having planned and implemented the centralisation of their cross-border activities via Luxembourg in the post-Brexit era. Several dozen market participants, such as M&G, have also been relocating to Luxembourg over the last three years.

In terms of the origins of Luxembourg fund initiators, it is worth noting that the first place is well occupied by the US initiators, followed by UK, Swiss and German initiators.

Dr. Marcus Peter, Partner, GSK Stockmann & Irina Stoliarova, Senior Associate, GSK Stockmann

LUXEMBOURG REPORT | SEPTEMBER 2021

GSK STOCKMANN new products and services, giving investors flexibility in terms of fund structuring.

The Luxembourg law dated 10 August 1915 on commercial companies (Corporate Law), to the extent it is applicable, and various fund product laws, such as the law dated 13 February 2007 relating to specialised investment funds (SIFs), the law dated 15 June 2004 relating to investment companies in risk capital (SICARs), the law dated 17 December 2020 relating to undertakings for collective investment (UCIs), the RAIFs and other alternative investment funds (AIFs) offer to potential investors and fund initiators, a varied choice in terms of fund structuring vehicles. The most common structures being used are as follows: (i) investment companies with variable capital (SICAVs), taking the form of a corporate vehicle or (ii) contractual form funds (FCPs). Both SICAVs and FCPs allow a number of flexibilities with regard to the structuring aspects and can take the form of SIFs, UCITS and RAIFs. SICAVs could be set up in various corporate forms, such as a public limited company (SA), a limited liability company

(SARL) and different types of partnerships, such as a partnership limited by shares (SCA), a special limited partnership (SCSp) or a simple limited partnership (SCS).

The corporate choice of a vehicle quite often depends on various factors, such as the investor’s geographical location, tax considerations and/or control over the vehicle or other aspects. One of the major advantages of a SICAV is a floating share capital, meaning that its share capital is always equal to the value of its net assets thereby dispensing with costly notarial recordings of share capital variations.

On the other hand, FCP is a contractual form vehicle without legal personality and not subject to the Corporate Law provisions which allows those entities certain flexibilities.

Both FCPs and SICAVs could fund-raise by means of equity or debt instruments and allow creation of so-called umbrella funds with multiple compartments that could have different investment strategies and invest in different asset classes. The constitutive documents can be drafted only in the English language and it is not

required to translate those into French or German.

3. KEY OBJECTIVES OVER THE COMING YEARS TO ENSURE LUXEMBOURG REMAINS A COMPETITIVE GLOBAL JURISDICTION

Up until now, Luxembourg has taken a leading position as a financial centre within the EU and has shown strong expertise and high resilience during the pandemic crisis. To continue to remain a competitive global centre, the key objectives should be to (i) offer flexible products and high-quality services at reasonable costs, (ii) maintain a high level of professionalism, and (iii) continue to serve as a global hub for crossborder activities focusing on digitalisation, sustainable finance and other sectors.

Creating an additional framework for sustainable finance products will help the Luxembourg fund industry to flourish on a greater scale. It is expected that the green finance sector will contribute to a strengthening of Luxembourg’s position as a key, global hub for impact investment and sustainable finance.

DR. MARCUS PETER

IRINA STOLIAROVA

Dr. Marcus Peter heads the Investment Funds and Private Equity practice of GSK Stockmann in Luxembourg. He has worked as a lawyer in Germany since 2004, and in Luxembourg since 2005. He obtained his LL.M. and Ph.D. degrees from the European Institute in Saarbruecken, Germany. Prior to joining GSK Stockmann in Luxembourg, Marcus Peter worked for a Luxembourg law firm from 2004 to 2016 (the latter four years as partner). Since 2016, he has been a partner at GSK Stockmann in Luxembourg. Marcus Peter is an expert in Luxembourg Investment Funds & Private Equity Law, Mergers & Acquisitions and Corporate Law. He speaks German, English, French and Russian. Marcus Peter is a member of the Luxembourg Private Equity Association (LPEA), Chinese-Luxembourgish Chamber of Commerce, DAV Luxembourg, EVER and CBBL (Cross Border Business Lawyers).

Irina Stoliarova is a Senior Associate at GSK Stockmann in Luxembourg. She has experience advising national and international clients on all legal and regulatory aspects in the fields of investment funds (UCITS, AIFs, regulated and nonregulated structures) and private equity as well as corporate and M&A matters. Irina Stoliarova is admitted to the Bar in Luxembourg and speaks Russian, English, French, German and Luxembourgish. She holds a Master’s degree in European and International Financial Law (LL.M.) from The University of Luxembourg, a Master’s degree in Business Law – Corporate Tax Management from The University of Nice Sophia Antipolis, France and is member of the Luxembourg-Russia Business Chamber and of the Association of the Luxembourg Fund Industry (ALFI).

PARTNER, GSK STOCKMANN

LUXEMBOURG REPORT | SEPTEMBER 2021

SENIOR ASSOCIATE, GSK STOCKMANN

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LPEA

PRIVATE EQUITY AND VENTURE CAPITAL TALENTS WANTED THE NEED FOR HIGHLY PROFESSIONAL TRAINING SOLUTIONS

BY STEPHANE PESCH

T

he private equity and venture capital industries have shown tremendous growth and have attracted lots of attention and new investors over the last years due to their inherent qualities (strong performance and returns, long term approach, focus on value creation, financing of the real economy and innovation).

Thriving sectors embed lots of upsides

LUXEMBOURG REPORT | SEPTEMBER 2021

and allow practitioners and future practitioners to be exposed to a high pace (certainly correlated with hard work and robust initial skills), quite agile and forwardthinking industries (e.g. at the forefront of technology and other investment trends), intellectually enriching activities and experiences, varied tasks and interactions with different actors (including investors,

shareholders, service providers, public authorities and specialised associations), which all make perfect sense and have a real purpose. In such a positive cycle, boosting your competences, enhancing your skills and knowledge is a must and will hugely increase the value of your profile and potentially open new opportunities in the future (hint: take your time to build your

23

LPEA foundation and expertise), which will facilitate a successful career in PE and VC. Interesting packages, bonuses and performance-linked fees are another nice ingredient and clearly represent an additional factor of motivation, another persuasive argument to join our entrepreneurial industries as soon as possible.

In a perfect world, the downsides of thriving sectors would not really exist or be very limited. Realistically, however, an obvious threat or obstacle our favourite industries could endure in the future is exactly the lack of available, well trained, experienced and less experienced talents ready to either take a chance or make a move towards Luxembourg and its wellequipped ecosystem that offers a proven expertise (best-in-class players including General Partners, Limited Partners, family offices, services providers and pools of experts); a tremendous toolbox facilitating the launch of flexible vehicles/structures; the flair of an internationally recognised financial hub with its praised stability; and a resilient capacity to react to external events and special situations. Constant growth therefore rhymes with continuously attracting new talents, not just once a year when the best Master programs are delivering a new batch of hungry, ambitious youngsters who are looking for a first job, but also already experienced professionals interested to evolve in another firm or segment of the market, or simply to develop new experiences. We should also not forget other existing professionals who have not yet been properly exposed to PE and VC and who, thanks to either their educational background, their existing work experiences in other fields (traditional finance, engineering, industry, technology),

could also make it once well trained and equipped for the battle.

These exact conclusions led the LPEA to focus its attention on existing PE/VC courses, specialised trainings (modules) and ad-hoc on-demand sessions. With our national PE/VC association hat, we decided to chip in and propose our own LPEA Training Academy in 2020, composed of different foundation, advanced and expert courses prepared by our local practitioners and dedicated to the next generation of experts (PE, VC, risk management, valuations, ESG, private debt, legal structuring, tax, and fund of funds). This endeavour became a successful and separate project, which will be proposed and updated on a yearly basis with hot topics and new speakers.

In parallel, the LPEA has also put in place some partnerships with external, specialised training entities and interested universities eager to propose, for example, dedicated PE certificates (SHU) and even potentially complete Master programs in the near future (tbc). This is a good step in the right direction from a local perspective and it has also encouraged us to create links with foreign universities, especially around our bi-annual job fair which was created this year for the first time. In the future, we will also try to get in touch with other worldwide Tier 1 providers (education and training) and monitor new and interesting technology platforms that could simplify even further organisation, spreading of meaningful content, knowledge and training.

One last trend worth highlighting is that our industries also continue to evolve, try to enhance their agility, efficiency (AI, machine learning, blockchain) and are intrinsically obliged to look for new profiles which are not yet central or internally required. This very

promising trend will surely open the door to new kinds of professionals, who will inject this expected added value. Luxembourg, for example, a highly recognised back office of investment funds and SPVs in the 1990s and 2000s, added next to those essential tasks a complete range of middle office services (risk management, valuations, compliance) due to an increased need for substance, the implementation of new regulations, directives and the launch of new business models (third party AIFM, nonbank depositaries).

This evolution is far from over since an increasing number of General Partners have set up their upgraded operations in Luxembourg with new team members who are either analysing, handling deals themselves or very close to the deal teams and key decision takers. Within our ranks, this ranges from historical local VCs to internationally recognised PE houses with their own Luxembourg AIFM, outsourced/ insourced models and empowered teams able to cope with most of the tasks.

Additional angles and positions should be further explored in Luxembourg and could comprise investor relations, fundraising functions, flow analytics and more deal people or investors, like the many family offices who have opted for Luxembourg over the last years.

In any case, we believe that the provision of recognised, recurring and specialised training will facilitate the further development and evolution of our PE and VC industries and increase the overall attractiveness of the ecosystem. The entire sector needs to prepare and be ready for the upcoming challenges and opportunities of the future and developing talents will clearly be one of the solutions.

STEPHANE PESCH

CEO OF LPEA, LUXEMBOURG PRIVATE EQUITY AND VENTURE CAPITAL ASSOCIATION Stephane is the only Luxembourger in the team. After his role as the Director of Strategy, he became the CEO of the LPEA in September 2020. He has 15 years of experience in the investment funds industry, great entrepreneurial spirit and a deep local network. Stephane is in charge of different LPEA Technical Committees and Clubs (Legal, Tax, Operations, VC and others), public advocacy, governance and the LPEA Academy. He loves education and not only is he a professor and mentor for many young talents in town, but also he has an irresistible desire to improve his own knowledge and skills.

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LUXEMBOURG REPORT | SEPTEMBER 2021

OCORIAN

NEW REFORMS SET TO BOOST

LUXEMBOURG’S APPEAL FOR PRIVATE EQUITY FUNDS

BY ROBIN PAGNAMENTA

O

ne of Luxembourg’s big advantages has always been its small size, which has allowed successive governments to introduce new rules with a speed and nimbleness that bigger nations would struggle to replicate.

Time and again, the Grand Duchy has used speedy and favourable regulation to bolster its financial sector.

It is a consistent, first mover-based approach which has helped to cement its place as one of Europe’s leading financial services hubs, especially for the domiciling of funds by private equity firms and asset managers.

A new draft securitisation law working its way through Luxembourg’s parliament - which will reform existing rules created in 2005 - is the latest example of this trend, according to Sandra Bur, head of capital markets Luxembourg at Ocorian, a provider of fund administration, capital markets and fiduciary services.

Although the bill has not yet entered the statute books, Bur believes it will represent a major boost to the Grand Duchy’s appeal for private equity firms eager to make use of tax efficient securitisation structures domiciled in the country.

“It will position Luxembourg, even more favourably as the location of choice for European securitisation deals,” she says.

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SECURITISATION STRUCTURE

Around the world, private equity firms are well known for their extensive use of partnerships to structure their investments, she explains.

Until now, existing laws in Luxembourg have restricted the use of these structures using the specific company type required for a partnership - the model favoured by the private equity industry.

The new bill changes that, however, by opening up new opportunities for securitisation transactions to take place through partnerships in ways that were not previously possible.

“The world of securitisation that was previously unavailable to most key structures and transactions would now very much be an option for them,” she says, describing the reformed law as “the cherry on the cake” of existing rules that have helped grab Luxembourg an 8.8 per cent slice of the global fund domicile market.

So what does this mean for private equity players? ”It enables a diverse set of investors to participate over time and across a broad selection of risk return profiles,” Bur says.

“It will also add new capital to the industry and provide liquidity to note holders in case they want to sell [their] notes, as these are freely tradable, as opposed to the burden and complex process of selling a limited

partnership interest.”

With offices in 16 jurisdictions, Ocorian’s Luxembourg office is largely focused on providing fund administration and corporate services to underlying Special Purpose Vehicles.

Currently, a securitisation vehicle domiciled in Luxembourg must either be established as a public or private limited liability company.

New legal structures offer flexibility.

But the draft bill will introduce four additional legal forms that can be used for establishing securitisation companies, offering a new degree of flexibility.

These include Special Limited Partnerships, Simple Limited Partnerships, General Corporate Partnerships and Simplified Joint Stock Companies.

“This expands Luxembourg’s product offering, and allows more flexibility and efficiency in the structuring of transactions in particular through the SNC [general corporate partnership] and the SCSp [special limited partnership] which are transparent for Luxembourg tax purposes,” Bur says.

“This would mean for the first time that a securitisation vehicle could be a tax transparent vehicle without needing to be set up as a fund. This will be welcome given the introduction of the Anti-Tax Avoidance Directive (ATAD) and its impact on Luxembourgish securitisation vehicles.

LUXEMBOURG REPORT | SEPTEMBER 2021

OCORIAN

Indeed, it will be a great relief to many to have this option to circumvent the difficulties posed by the ATAD legislation.”

She continues: “By allowing securitisation companies to take the form of tax transparent structures, we give clients the flexibility to structure a securitisation vehicle through Luxembourg in a tax transparent way.”

EUROPEAN CLOS

The new rules also have sweeping implications for the European Collateralised Loan Obligation (CLO) market, which is gaining in popularity as investors hunt for yield in an era of historically low interest rates, Bur explains.

The draft bill proposes a new article that specifically permits active management of securitisation vehicles for risks linked to bonds, loans or other debt instruments as long

as these are issued under private placement.

ACTIVE MANAGEMENT

Under Luxembourg’s existing law, active management of CLO funds has not been possible, placing the Grand Duchy at a big competitive disadvantage compared to rival jurisdictions such as Ireland, which has consequently emerged as Europe’s key hub for domiciling CLO funds.

Bur says: ”Permitting the active management of securitisation vehicles in Luxembourg would significantly strengthen the country’s securitisation proposition and likely attract CDO/CLOs back to Luxembourg as opposed to Ireland which is currently the jurisdiction of choice for CLOs, with assets in Irish-domiciled CLOs rising to EUR170 billion by April 2021.”

In practice, this will mean that if the draft law

is adopted, securitisation vehicles will no longer be confined to a ‘buy and hold’ CLO strategy.

Instead, they will finally be able to make active investing decisions on the assets within the CLO, enabling the portfolio to adapt to market developments.

Taken together, the reforms represent a powerful boost for the industry as it pushes to bolster its reputation as a leading global fund hub, Bur says.

“The changes proposed to Luxembourg’s securitisation regime by the Bill of Law have been welcomed by the Luxembourg financial services industry,” she adds.

“In my humble opinion, if these new flexibilities and frameworks are well-advertised by the key players of the market, this should place Luxembourg in an even more excellent place for securitisation transaction in Europe.”

SANDRA BUR

HEAD OF CAPITAL MARKET Equipped with two master’s degrees, Sandra Bur joined the financial services industry over 10 years ago, initially specialising in real estate assets before moving over to the capital markets and quickly developing her skills in Luxembourg securitisation to become an expert in the field. During her experience, Sandra has successfully obtained her certification incorporate law and compliance and has become a CSSF approved board member serving on the board of multiple regulated entities. She is also a member of the Lux CMA (Capital Market Association).

LUXEMBOURG REPORT | SEPTEMBER 2021

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Delaware | New York | Dublin | London | Luxembourg | The Netherlands | Hong Kong | Shanghai | Singapore

DIRECTORY

www.akd.eu

With over 475 lawyers, tax advisers, civil-law notaries and support staff in Belgium, the Netherlands and Luxembourg, AKD is a leading Benelux law firm. For our clients, we are the gateway from, to and in the Benelux. For over a century now, we have combined a full-service approach and a broad sector focus to consider any question from a range of angles and provide quality solutions - anywhere in the world. Literally. From our own offices, of course, and also through our various country teams and our extensive,worldwide Friends Network.

info@alfi.lu

The Association of the Luxembourg Fund Industry (ALFI) represents the face and voice of the Luxembourg asset management and investment fund community, championing mainstream, private assets and sustainable investing. ALFI seeks to promote Luxembourg’s fund sector internationally, and to cultivate for the benefit of its members a collaborative, dynamic and innovative ecosystem underpinned by the most robust regulatory framework. ALFI’s ambition is to empower investors to meet their life goals.

Created in 1988, the Association today represents over 1,500 Luxembourg domiciled investment funds, asset management companies and a wide range of business that serve the sector. Luxembourg is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg domiciled investment funds are distributed in more than 70 countries around the world.

www.Alter Domus.com Many leading international asset managers, lenders and asset owners choose Alter Domus as their partner for growth. Whether a stand-alone fund with limited investments, or a large multi-billion-dollar fund with complex investment streams across multiple jurisdictions, we understand your world. Our talent pool of more than 3,000 employees across more than 35 offices in 20 countries combine with cutting-edge technology to help keep you ahead of the game.

Dedicated to alternatives and serving private equity, real assets and debt capital markets sectors, we offer fund administration, corporate services, depositary services, transfer pricing, domiciliation and management company services. Our extensive experience in the debt capital markets sector allows us to provide specialist solutions such as loan administration, agency services, trade settlement and CLO manager services.

www.cscglobal.com

CSC is a leading provider of specialised administration services. We support alternative asset managers across a range of fund strategies, capital markets participants in both public and private markets, and corporations and institutions requiring fiduciary and governance support. We are the unwavering partner for 90% of the Fortune 500®️, nearly 10,000 law firms, and more than 3,000 financial institutions. CSC’s Global Financial Markets professionals are located in key financial centers across the United States, Europe, and Asia-Pacific. We are an international company capable of transacting wherever our clients are, and we accomplish that by deploying experts in every market we serve.

LUXEMBOURG REPORT | SEPTEMBER 2021

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DIRECTORY

www.gsk-lux.com

GSK Stockmann is a leading independent European corporate law firm with over 200 professionals across our offices in Germany and Luxembourg.

GSK Stockmann is the law firm of choice for Real Estate and Financial Services. In addition, we have deep-rooted expertise in key sectors including Funds, Capital Markets, Public, Mobility, Energy and Healthcare. For international transactions and projects, we work together with selected reputable law firms abroad. Our advice combines an economic focus with entrepreneurial foresight. That is what is behind our services: your perspective.

In Luxembourg, GSK Stockmann is the trusted adviser of leading financial institutions, asset managers, private equity houses, insurance companies, corporates and FinTech companies, with both a local and international reach. Our lawyers advise domestic and international clients in relation to Banking & Finance, Capital Markets, Corporate/M&A and Private Equity, Investment Funds, Real Estate, Regulatory and Insurance, as well as Tax.

www.maples.com

The Maples Group, through its leading international law firm, Maples and Calder, advises global financial, institutional, business and private clients on the laws of the British Virgin Islands, the Cayman Islands, Ireland, Jersey and Luxembourg. With offices in key jurisdictions around the world, the Maples Group has specific strengths in areas of corporate commercial, finance, investment funds, litigation and trusts. Maintaining relationships with leading legal counsel, the Group leverages this local expertise to deliver an integrated service offering for global business initiatives. For more information, please visit: maples.com/services/legal-services.

www.ocorian.com Ocorian is a global leader in fundadministration, corporate, fiduciary andcapital markets services.

gralph@rfa.com RFA is the technology partner to alternative investment firms who require end-to-end cloud, cybersecurity, infrastructure and application solutions.

RFA is a global, next-generation MSP with a distinguished 30-year pedigree Unlike other industry offerings, RFA does not put firms “in a box”; its culture of innovation and thought leadership empowers businesses to compete how they want to - securely.

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LUXEMBOURG REPORT | SEPTEMBER 2021

FEATURING ALTER DOMUS, ALFI, AKD, MAPLES, CSC, RFA, GSKM, LPEA & OCORIAN