OVER VIEW
LUXEMBOURG IS BATTLING HARD TO STAY AT FOREFRONT OF PRIVATE EQUITY INDUSTRY BY ROBIN PAGNAMENTA
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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
LUXEMBOURG REPORT | SEPTEMBER 2021
