Private Equity NOVEMBER 2021
PE exit count by region
500
400
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0 2010 2011
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CONVERSATION
Hind El Gaidi: what it’s like working at a PE firm – DOSSIER
Renaud Oury on the changing face of Luxembourg PE funds – ON THE RADAR
Investor inflows and deal activity
www.maisonmoderne.com Phone: (+352) 20 70 70 E-mail: publishing@maisonmoderne.com Postal address: PO Box 728, L-2017 Luxembourg Offices: 10, avenue de la Liberté, Luxembourg-Gare founder and chairman
Mike Koedinger
Why a spotlight on PE
ceo
Geraldine Knudson administrative and financial director
Etienne Velasti
Editorial Phone: (+352) 20 70 70-150 E-mail: news@delano.lu publishing director
Mike Koedinger editorial development director
Nathalie Reuter editor-in-chief, delano magazine
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Brand Studio Phone: (+352) 20 70 70-300 director brand studio
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Sophie Melai (coordination), Stéphane Cognioul, Juliette Noblot illustration
Salomé Jottreau
Private equity often gets a bad rap. Tales abound of financial engineering, debt loading and asset stripping, which don’t necessarily help companies in the real economy and are of debatable value to society. However, PE has a long track record, particularly in Europe, of helping mid-sized businesses--squeezed between being too big for bank credit and too small for public markets--expand and evolve. Often, the original management remains in place. Or PE lubricates the generational transition in a family business. Or brings in fresh blood that revitalises a firm. Earlier this year, Invest Europe, a lobby group, said that 10.2m European employees worked in private equity-backed companies in 2019, and those firms had created more than 250,000 new jobs that year. Many of those jobs are in second- or third-tier cities, which are much less invisible on global capital markets, but the companies certainly count in those communities. That said, PE rightly deserves scrutiny by politicians, regulators, investors, NGOs and the media. They are responsible for investing not-insignificant amounts of savings, often with a lighter regulatory touch than retail funds face, and the decisions taken by PE outfits can have an outsized impact on the companies in their sights and communities where those firms are located. Anecdotally, the general public does not always have a clear picture about what PE firms are and how they work. This modest supplement points a spotlight on the sector and the people working to build the segment in Luxembourg, to illuminate the challenges they are encountering and some of the opportunities ahead, and to provide a snapshot of the state of the industry.
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Senior financial journalist AARON GRUNWALD
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Editorial #AlternativeFunds
PUBPUB VENDUE VIDE LUX ART xxxx. WEEK
Private Equity November 2021
06 ON THE RADAR
Dossier
Investor inflows and deal activity
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More data please –
10 #PRIMER - CODRINA CONSTANTINESCU
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“Unregulated funds are quite a paradox situation”
ESG challenges for PE –
22
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“There’s very fierce competition for talent”
12 #PRIVATEEQUITY
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14 CONVERSATION WITH HIND EL GAIDI
24
p. 14 Head of valuation and marketing at Astorg Hind El Gaidi on striking a work-life balance
Key trends impacting the private equity industry 26 CONVERSATION WITH NASIR ZUBAIRI
“Our problem? That Europe still doesn’t accept failure” 30 SUCCESS STORIES
Four firms you should know 34 FORECAST
Photo
Romain Gamba, Illustration
Salomé Jottreau
What’s your five-year outlook for private equity?
p. 18 Evolution in how PE funds are run
NOVEMBER 2021 PRIVATE EQUITY
THE CHANGING FACE OF LUXEMBOURG PE FUNDS
Ristretto
“There are moments where you focus on family, and there are moments where you focus on work”
5
On the radar
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Investor inflows and deal activity European deal value by sector, €bn
Private equity fundraising
B2B companies have remained the most frequent target of PE deals in recent years, making up 31%-39% of overall deal value. The IT sector is on track for a banner 2021.
3000 In Europe and globally, PE funds are set to raise quite healthy and possibly record-breaking amounts of capital this year.
Source
Source
Preqin
Pitchbook
200 2,500 150 100
50 0
2010
2021
B2B
Healthcare
B2C
IT
Energy
Materials & resources
Financial services
1,500
European PE deal value by size, €bn Mid-sized deals (between €100m and €500m) have long represented the lion’s share of European PE activity: more than 43% of the total since 2017. The first half of the year saw what Pitchbook calls “frenetic activity” in the middle market, which represented 56% of total deal value. Source
2,000
1,000
Pitchbook
250 200 150
500
100 50 0
2010 More than €2bn
2021 €100m-€500m
€1bn-€2.5bn
€25m-€100m
€500m-€1bn
Under €25m
0
2012
2013
2014
2015
2016
Assets under management in global private equity funds rose from $2.6trn to $5.3trn between 2016 and 2020, according to the data firm Preqin. European PE AUM grew from $576bn to $964bn during the same period.
3 QUESTIONS TO
CLAUS MANSFELDT
Europe number of funds €1,100bn
Global aggregate capital raised Europe aggregate capital raised
*Year to date, as of 16 September 2021 €1,000bn
€900bn
€800bn
€700bn
€600bn
€500bn
€400bn
€300bn
€200bn
€100bn
2017
2018
2019
2020
2021 *
€0
When we spoke late last year, you were quite bullish on PE inflows. Is that still the case? Yes. We have seen private equity inflows continuing strongly. Do you see some sectors and strategies that are booking much higher net inflows than others? There is growth, from perhaps a lower base, in areas such as venture capital, infrastructure, private debt... and, last but not least, the big theme around ESG is certainly a big factor. I wouldn’t say the sort of pure ESG funds, or responsible investments. They’re not so big in terms of pure plays. But I think what the big effect is coming through here [is] mainstream funds shaping themselves, increasingly, to cater to that theme. That’s probably where it will ultimately have the biggest effect, as well. The ESG consciousness is [being] applied much more aggressively across the vast volume of private equity, as opposed to being a kind of a niche. So money is flowing into the niche, pure plays, but more money is [flowing] into the mainstream that has adopted a certain degree of demonstrable ESG focus. Do you anticipate a big percentage increase in net inflows into the PE sector, at the end of the year? Following several years of large inflows, it’s risky to bet on further [rises], but the way things are going--meaning economies are rebounding, stock markets are remaining strong--I think it’s a fairly good guess that inflows will actually increase also this year.
ic re
Nader Ghavami (archives)
Global number of funds
Photo
€1,200bn
Managing director of Swancap and chair of the Luxembourg Private Equity and Venture Capital Association
NOVEMBER 2021 PRIVATE EQUITY
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On the radar
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PE exit count by region France and the Benelux countries have led in the number of PE exits recorded, followed closely by the UK and Ireland. NOVEMBER 2021 PRIVATE EQUITY
Source
Pitchbook
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400
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200
100
0 2010
2011
2012
2013
2014
2015
2016
France and Benelux
UK and Ireland
Nordic region
Germany, Austria and Switzerland
Central and eastern Europe
Israel
2017
2018
2019
2020
Southern Europe
PE exit value by type, €bn
European PE buyout deals, €m
General partners are increasingly exiting companies via initial public offerings or special purpose acquisition companies.
Targeted financial sponsor buyout volumes between 2017 and 2021 year to date. While the number of transactions has held more or less steady in recent years, total deal values have risen notably this year.
Source
Pitchbook
Source
2021
Dealogic
400
80
240
300
60
180
200
40
120
100
20
60
0
0 2006
2008
Acquisition *As of 30 June 2021
2010
Buyout
2012
2014
2016
Public listing
2018
2020 *
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
2017
2018
Deal value
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
2019
Number of deals
*As of 21 September 2021
2020
2021
0
Banque de Luxembourg, société anonyme – 14, boulevard Royal – L-2449 Luxembourg – R.C.S. B5310
PUB VENDUE BANQUE DE LUXEM“You have the skills to manage BOURG and grow a successful fund. We have the skills to handle all the rest.” To find out more about our dedicated services for funds investing in Private Capital, visit banquedeluxembourg.com or call +352 499 24 4949
Ristretto #Primer
NOVEMBER 2021 PRIVATE EQUITY
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“Unregulated funds are quite a paradox situation” What types of PE fund structures are allowed in Luxembourg and which appeal to different sorts of investors? Codrina Constantinescu, council at the law firm Allen & Overy, cuts through the acronyms. What kinds of PE funds can we set up in the grand duchy? Luxembourg has a very privileged position, because we are offering a wide range of funds, going from the regulated to the unregulated. So, regulated means that the fund is supervised by the Luxembourg regulator, being the CSSF. Unregulated means that the fund is not supervised, so, it’s freely set up between the parties. In the private equity context, we are using, in terms of regulated funds, what we call SIFs (specialised investment funds), and SICARs (those are risk capital investment companies). So, this is regulated; we need CSSF approval in order to launch the fund, to admit investors and to operate it. And then we have the unregulated structures, which are generally the RAIF. So the RAIF stands for ‘reserved alternative investment funds’. It is not regulated at product level, but it is regulated at the manager level, because a manager has to be an alternative investment fund that is fully authorised. Then, you have the fully unregulated vehicles, which are generally the SCS and SCSp. Those are the special limited partnership and the common limited partnership, which are the two forms of Luxembourg limited partnerships are very similar to English or Scottish limited partnerships.... and we can set them up without CSSF approval.
and regulations in Luxembourg. And this is insured, in a way, by the regulator and the auditor, so by third parties, compared to the fund manager [alone]. This is at the investor level. There are a couple of assets, such as French real estate, that require a regulated fund in order to structure the fund in an efficient manner. What type of investors are going for totally unregulated funds? Unregulated funds, I would say, are quite a paradox situation, because they are based on Scottish and English partnerships. The Anglo-Saxon world knows them very well. Therefore, if you are targeting US investors or Asian investors, for instance, and if you offer them an unregulated partnership, they will be very happy to have it and very familiar with this. If you offered them a SIF or a SICAR, they might know it because it’s a known product... But they might say: ‘Okay, that’s fine for us as well, but can you then structure it as an SCS, or an SCSp?’ Is it fair to say that unregulated funds are becoming more popular in Luxembourg? Correct. Is that because of more investors from the US and Asia, or is it even more European demand? [It’s] Europeans. If we place ourselves in the business plan of a manager, especially for the existing ones that have a lot of experience on the market, [they want to launch] and to have investors in the fund as soon as possible. So, this already takes them to the unregulated side. If there are constraints, because of the investors or because of the investments, then they will accept to go for the regulated side.
What is it about the investors that would make them choose regulated versus unregulated structures? Regulated vehicles are indeed, from time to time, preferred by certain types of investors, such as large institutional investors. Like a pension fund? Like a pension fund, for instance, because they know that the regulator is there. The regulator authorises the fund and then supervises the fund. So the fund has to comply at all times with its own documentation, as well as with the applicable laws
Codrina Constantinescu has been admitted to the bar in Luxembourg, Paris and Bucharest
Interview AARON GRUNWALD Photo MIKE ZENARI
PUB VENDUE WE INVEST
Ristretto #PrivateEquity
MARKET SHARE I
“PE is accounting for a larger share of global M&A activity.”
PE represented 23% of global M&A activity in 2007, and 29% in the first half of 2021, according to Pete Witte, EY global private equity lead analyst. 2
MARKET SHARE II
“The Luxembourg Private Equity and Venture Capital Association estimates that 90% of all European private equity and venture capital funds are domiciled in Luxembourg.”
From the introduction to Global Fund Media’s “Luxembourg Report 2021”, which said the grand duchy’s PE success was “a tribute to its reputation for political stability, niche expertise and regulatory competence.” 3
BOOSTER
“Private equity often gets a bad press in the media, because there are always 5% of companies in any sector that misbehave, and these are always over reported! But the fact is PE, as a sector, does the job governments should, but can’t, or don’t know how to do--invests a lot in companies that most ordinary people can’t do without, saves jobs, and makes unprofitable businesses profitable again. There are countless examples of PE saving household names, and it’s so impressive what has been achieved by this industry.” Rana Hein-Hartmann of Funds Partnership on Linkedin. 4
THE REAL ECONOMY
“Private equity-backed companies in Luxembourg grew employment levels by 10.3% in 2019, compared with the 0.7% average for all companies in France and Benelux.”
From the trade association Invest Europe’s “Private Equity at Work” report, issued earlier this year. 5
POWER PLAY
“[CVC Capital] are very smart guys and they thought through these issues. But the way we look at it, it’s like herding cats.”
Joseph DaGrosa of Kapital Football Group, after Real Madrid sued CVC Capital Partners and La Liga to block CVC Capital’s planned purchase of 10% of the football league’s future TV rights. Selected by AARON GRUNWALD
EY, Maison Moderne (archives), Viewimage/Shutterstock.com
NOVEMBER 2021 PRIVATE EQUITY
1
Photos
12
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More than a fund company
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NOVEMBER 2021 PRIVATE EQUITY
Hind El Gaidi has leaned in to the PE sector
Conversation Hind El Gaidi
“There are moments where you focus on family, and there are moments where you focus on work” What’s it really like to work at a PE firm? Hind El Gaidi, head of valuation and marketing at Astorg, shares her take on the fast pace, striking a work-life balance as a working mum, the need for upskilling and what Luxembourg can learn from Singapore. Interview AARON GRUNWALD Photo ROMAIN GAMBA
How would you describe the company culture of private equity firms that you know? That’s a tough one. I know about our culture, that’s for sure. But we’re not necessarily the same as the others. Well, what’s your company like? The culture is very entrepreneurial, and fair, I would say, also, with a lot of intellectual honesty. People don’t try to make this whole political game. It’s very flat, it’s in your face, very direct. Everyone is respected for what they are and for what they bring to the table. It’s not because of a title, it’s because of your competency. And the entrepreneurial side as well. We ask our investors, so deal teams, the people who invest, to be very entrepreneurial and creative in the way they source companies, to negotiate the best deal, etc. But we ask the same from our people in the management company. We say, ‘you’ve been doing this for three years now; can you develop a cool software?’ Maybe it can be tiring for some people, but it’s perpetual improvement. So we have a process, can we make it better? And it’s actually so interesting and exciting, because for someone who doesn’t like routine, like me, there is this Pandora’s box that just keeps on opening all
the time… ‘yeah, two years [ago] we thought this is cool, but now, we should find something else.’
HIND EL GAIDI Luxembourg-based director in charge of financial information, valuation and marketing at Astorg. El Gaidi is a board member of the Luxembourg Private Equity and Venture Capital Association and leader of the Women of Luxembourg Lean In Circle. She also sits on the boards of Normec Group and IGM Resins, two Astorg portfolio companies. She previously worked with the corporate finance team at KPMG Luxembourg and was a valuation specialist in the deals practice at PwC in Amsterdam and Luxembourg. El Gaidi earned a master’s in financial management from Nyenrode Business University, an executive MBA in M&A and valuation from the University of Groningen, and a bachelor’s in business management and economics from the Université de Nice-Sophia Antipolis.
In your experience, is it easy to strike a good work-life balance, especially for women who are mothers? It’s a challenge. And I don’t believe in striking a good balance every day. It’s more that there is an overall balance. There are moments where you focus on family, and there are moments where you focus on work, and sometimes both will meet [laughs]. And then, you have to seek help or seek an understanding manager at your company. So, in general, my philosophy, whether you’re in private equity or somewhere else, is that, let’s say, this is your big moment at work, and you’re getting that promotion or you’re fundraising and this is the time of your life--that’s something you prepped at home, and your family is understanding that you’re putting in that effort and they’re all behind you. And they know that when you’re done, you’re all gonna go and indulge for two weeks somewhere and have really good family time. That’s the balance for me, really. It’s a bit wider time horizon, rather than every day will be balanced. [With that expectation,] you’re setting yourself up for failure. Because every day, things happen that you haven’t expected,
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Conversation
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that you didn’t know about. So I find it easier to manage this [way], psychologically and mentally, because otherwise, you’re just beating yourself down every day [with] ‘I didn’t do that.’
are working day and night just to go for those two weeks... and then they get there, it’s Christmas, they’re dead. They come back, it’s so rush[ed] and it’s not necessarily making them feel comfortable. And a lot of employers now are looking into their remote working policies; we set up ours already, and I’m sure others have done [too]. I mean, it’s not such a public thing, but when you speak a little bit around, you see that’s it’s top of mind for everyone.
instance, I would stand up at the office, but then I would speak for another hour to different people, and then I would come home kind of very late compared to when the kids need to see me. Whereas if I’m at home, I just close my office door, and I come down, and I’m there and they’re there. And we can spend time together. So is there a perfect balance? I don’t know. But the answer, maybe, is a combination of both. That’s where I’m heading towards. And now, we have a new baby. So whatever the routine I thought was working, I have to revisit!
So it’s not balanced every day, and maybe it’s not even every week? It’s not every week. For me, there are cycles. When you want to focus on your family, then at work, that has to be crystal clear. I’m in the extreme example where I’m on maternity leave right now. But they understand I gave my best before I went You have three kids. Do you find on maternity leave, and I’m gonna come it easy to work at home? back and I’m gonna be giving my best It’s true, if we are all at home, it’s a dis- Are there some negative things again. But now, it’s time to focus on this aster. I was lucky with lockdown, the first people should be aware of before they baby that just came into the world, and I one, because it was good weather and look for a job in private equity? want to set him up with the best condi- sunny so they were outside and I was in Going back to work-life balance, it depends tions and set myself up also with the best indoors. But otherwise, it’s really difficult. on which area you are in private equity. conditions, so when I’m back, I’m feeling But if we’re in a situation where [there] Because if you’re in the investment team, good, and my family is comfortable about is no choice, your colleagues understand. it depends on which kind of companies me coming back to work, etc., etc. So Then, you also have to explain [the situ- you’re looking at. If you are living in Luxthat’s a very important message. ation] to your kids and you also have to embourg, and your prospects are in the I think this has been boosted now with live with the fact that sometimes, they German market, probably you are not covid. Because a lot of employers, I would miss you and they don’t understand why going to be a whole lot at home. Even say, have realised that flexibility actually you’re at home, but they cannot come to nowadays, we have Zoom, so that’s opened is not that bad. It does not sag productiv- you. So that’s where you have to find a lot of doors compared to before, but ity. So they are maybe a little bit more open. th[ose] kind of smart ways of saying ‘oh you still will have to [travel] a lot. So, for There are also discussions about remote we’re all going to sit at the table, you’re me, the rule, first is focus, now it’s work working because you realise in Luxem- going to do this, I’m going to do that’, but or now it’s family, and communicate that bourg [not everyone] is Luxembourgish. it’s not as productive as when you are, very clearly in your family and at work. So [for] people who come from really far you know, just focussed. When they’re And the second one, get help, because away countries, a lot of employers are at school, that’s my best moment to work, we cannot do everything ourselves. Just get the help you need to empower yournow thinking about giving them the pos- right? sibility to go, for instance, for Christmas I found it quite nice to work from home. self and not feel that you have to be everyfor three weeks: work one week remotely Although I don’t have a big commute-- where all the time... now, I’m going to and then have the two-week holidays five kilometres, I go by bike actually--it’s the women’s perspective, because the there and then come back. Because it’s my wind down before getting home. But guilt trip is very woman-like, because a very busy season, it’s December. They I found it nice because sometimes, for society kind of sets certain standards, how you should be doing things, how we expect you to be a good mum, or how we expect you to be a good employee. So, just hang that on a coat hanger and leave it there and leave the room. You don’t need that in your life. Then the aspects that can be difficult... It’s fast paced, clearly, it’s fast paced. Even compliance, that has this image that is kind of more stable and repetitive, is actually very fast paced... So if someone wants to go into private equity, what would we tell them to do? Brace yourself.
“ Why would people like to relocate to Luxembourg, why would they refuse to relocate to Luxembourg?”
Brace yourself? Brace yourself. Now the second thing, what we say in our [job] interviews, because it’s very important to us... I don’t want you to know how this works at a high
Hind El Gaidi
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they call the busy season [for] two years. level, I need you to know it very well in In audit, [during] busy season, people, I detail and to be hands-on, and to do it yourself. Maybe we’ll decide, one day, to think, sleep in the office. And then they’re have someone else to do it. But as of like ‘why am I doing this job, I wasn’t given a choice.’ Because he or she was today, it’s done internally, and I need you to know how to do it. So don’t tell me young, salary was interesting, company ‘Yeah, I’ve done valuation’ when you’ve looked fun, they had all this fun stuff, kind of still like business school, like [only] reviewed documents. There is this conception, in recruitment interviews, happy hours on Thursdays... but at some when we speak to people from the Big point, they wake up, and they’re like Four or service providers, most of them ‘what’s next?’ We have to think about they say ‘I want to go in-house’... and what have to live with the status quo? No. What upskilling these people. So you can look at the Singapore that underlies in terms of work-life bal- we want to bring out of Luxembourg, or ance [is] less work, less deadlines, because at least that’s the talk we’re having [among example. Singapore did [this] in a very it’s not the way they lived in that Big Four, LPEA members], is to have more skilled thorough and efficient way, like everything where everything is client driven. Now talent in areas that are not usually the in Singapore, but they’re also a small you are the client. And we always like to areas that people would put in Luxem- country, right? They are extremely comshatter that image very quickly. If you bourg, like marketing, like investor rela- petitive. They’re one of the most comare coming because it’s ‘in-house’, well, tions, like valuation... to push, why would petitive Asian nations, while they’re so maybe it’s not the right decision for you. an investor or private equity company small. And one of their theories was Because we want you to be competent in not have these roles here in Luxembourg? investing in education. And when I say a certain area. If you don’t know [some- Why would they have it somewhere else? in education, I’m not speaking about thing], you say it, we train you, but you And then, you can break it down into younger children, but I’m speaking about need to do things yourself. buckets of topics and see how you can adults. If there is an area where you encourage that. But for me, that’s an want to develop, then make sure that What do you want people to know important way of gaining more credibil- you have people that you relocate, but about working in the sector? ity and remaining relevant. Otherwise, also make sure that you give a certain Let’s go maybe one or two steps back. we’re just going to be the next Jersey or budget to people--it can be a governToday, if you are in Luxembourg, private Guernsey of this world. And that’s not ment decision--[so that] everyone has a budget of this much to upskill or to equity is part of the landscape. I feel that sustainable as a position. change direction. you cannot be in Luxembourg and not know what is private equity, even for Do we have the people here? Does That’s how you can push it a little bit. young adults or even for children, because that mean convincing people to You see all the ramifications; it’s a bit of a political thing. But Luxembourg it is shaping a lot of things here in Lux- relocate? Or does that mean, I don’t embourg. Before, I mean for years, Lux- know, doubling the size of the has been very known to be so agile, busiembourg was seen as the back office of Luxembourg School of Finance? nesslike, so I’m not afraid that bureauthe world because of all those mailbox No, you’re right. That’s what I meant. cracy will hinder this process. Because companies and having kind of an easy What are those are the buckets? So, one if Luxembourg decides to go ahead with way of creating an entity here, having of the buckets is talents, obviously, because this, I’m sure that it will happen so quickly, [funds] go through Luxembourg, while that’s where you start. Why would people and this can only be beneficial. I mean, having all the activity somewhere else. like to relocate to Luxembourg, why would we’ve gone this far, and nothing can So that’s changing a lot. But we find that they refuse to relocate to Luxembourg? stop us from going even further. That’s the market and that the people still have Then, you can start speaking about infra- my belief. that mentality and that mindset. structure... you have to go to that nitty-gritty detail to get this up and moving. Really? The same goes for schooling. I’m not Yes. There’s still this back office mental- only speaking about relocating people ity that we really want to get people out to Luxembourg. I mean, probably you of. So, if you are in private equity, and need to relocate more senior people. But you have the full team here, you proba- I’m also speaking about upskilling. bly are out of it. But when you [look at Because today, a lot of [recent graduates] the Big Four], every year, they hire 300, come to Luxembourg [directly] from a 400 juniors. For the first two years, they certain university or business school. don’t see much of the industry. Although The Big Fours go into the university and maybe they are working on audits for hire them. And then, they take them for private equity, they’re looking [at the a week to Spain or Portugal, where they sector] from a very tiny window. I mean, think ‘this is so great, I love this job,’ there’s a lot of volume, let’s admit it. That’s because they haven’t worked there yet. the picture today. Does it mean that we And then comes reality; they have what
NOVEMBER 2021 PRIVATE EQUITY
ASTORG Private equity firm with roughly €13bn in assets under management. The outfit says it focusses on “healthcare, software, technology, business services and technologybased industrial companies.” It has offices in Frankfurt, London, Luxembourg, Milan, New York, and Paris, with approximately 130 employees.
Dossier
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NOVEMBER 2021 PRIVATE EQUITY
More data, please PE fund firms and service providers are in the spotlight now more than ever. That is forcing them to respond to increased regulation, evolving skills and training needs, and heightened investor appetite for ESG standards, among other trends. This special section explores the operational pressures facing PE shops and how they are responding. We begin with changes in how limited partners are investing in PE funds and what that changes about how Luxembourg PE funds are run. Words AARON GRUNWALD Illustration SALOMÉ JOTTREAU
The latest figures from Preqin, a data provider, indicate that this year PE funds have been closing with fewer limited partners, but they are placing larger investments into each fund. That is the case globally and for Luxembourg-based PE outfits, according to Renaud Oury, chief revenue and data officer at Apex Group, a fund and corporate services provider. Two factors, “that might be seen as a bit contradictory,” are behind this trend, says Oury. In terms of the “larger ticket size” observed in the market, he confirms that “we see larger LPs investing larger amounts into funds.” This is due to “the fact that the sophistication of investors has increased”, resulting in “a number of elements”. Firstly, “investors are reque-
sting more transparency from the funds. They are requesting access to real-time data reports and also to real-time ESG metrics.” With “the LPs becoming bigger, they’re starting to have an impact on the type of information that they can receive from the funds. All this normally is arranged in side letters, where effectively the investor being bigger, they can request more extensive or additional reporting, accelerated reporting timelines, or even sometimes better economic conditions, such as lower management fees, for instance, or more favourable carried interest. So really, we see the larger investors being effectively able to ‘partner’ with the GPs,” Oury observes. “We see it in Luxembourg, but a bit everywhere” too.
Retail demand “The second element that we have seen, and that, I think, is really interesting from an investor point of view, is that alternative investments, and specifically private equity, have started being extremely attractive for retail investors. Retail investors want to have access to PE investments,” he reckons. Retail demand is “definitely driven by the surge of growth--there’s a lot of growth that can be generated--in the PE environment. And during the pandemic, you may have seen that the savings of retail investors have increased, so there’s more money to invest. And so they want to be able to have access to PE funds. And I think there’s also a perhaps psychological element, meaning that during the pandemic, a lot of consumers have
started really looking at how their money was spent when they were going to buy something, and in PE you are much closer to the investment than in traditional funds.” Retail investors, of course, typically cannot place their savings directly into a PE fund, but a number of forums are opening up for them, Oury explains. “Retail investors are not able to do it because the ticket size is too large and so to be able to have access to [PE funds], we have seen a number of specific platforms and specific vehicles that have emerged to capture these demands. Some feeder funds have been created to pull subscriptions from retail investors. So, collectively, they become a feeder investor into a fund requiring larger commitments.” He cites the example of Icapital, which “is really a great platform for this purpose.” GP-LP links more focused In sort of a chicken-and-egg question, Delano wondered if LPs were simply making bigger investments and so they’re able to tack on bigger data demands, or do they need more data which require bigger placements to get. “Currently, it’s really the relationship between the GP and the LP that is evolving. Now GPs and LPs are really seeing each other more as partners. And the LPs are eager to make more investments. But for that they require more transparency, and more types of reports. So it’s really because they are bigger, effectively, they have more say in the type of information that they want to get from the fund.” Oury continues: “One of the general trends that we have really seen globally is that allocators are allocating more to the names that they know, and to the names that they trust. And so they are narrowing the number of GPs they are working with, and so they are enlarging the tickets.” This consolidation is driven by several factors: “Definitively in terms of return, in terms of, once again, the type of reporting that they can get out of [a fund], when they have built a relationship of trust with a GP, they want to be able to leverage that. I think it’s quite interesting to see that the requests for additional transparency are coming even more often when the LPs are already investors in one of the GP’s earlier vintages. So when they start having a longterm relationship with the GP, they start asking for additional information, addi-
RENAUD OURY More than 24 years’ experience in Luxembourg. Joined Apex Group in July 2019. Previously held positions with Banque Internationale à Luxembourg, SGG Group, Kneip, Six/Cetrel, Electronic Data Systems and Accenture.
QUICK GLOSSARY GP General partner: A PE firm that manages investments for a fee. LP Limited partner: An institutional investor or wealthy individual who invests in a PE fund. ESG Environmental, social and governance criteria: Used by many investors to select more responsible companies or screen out undesirable investments. SFDR Sustainable Finance Disclosure Regulation: European Commission rules that will require investment funds to provide information about the environmental impact of, and potential environmental risks faced by, the companies in which they invest.
tional transparency, and it will also incentivise them to continue to work and to continue to invest with the funds.” Tech investment These shifts are not impacting fund service providers in the same way as fund firms, Oury states. “No, we are not working with fewer firms. We have more and more clients. Last year, more than 700 new clients started working with us. This trend is continuing in 2021.” To handle these new data and reporting requirements, firms like Apex are undertaking a “massive IT investment to be able to provide this information to our clients, so that they can cascade this information to their investors.” “What we have decided, as a strategic decision, already for a number of years now, is that we are running an open IT architecture. What does it mean? It means that we are running different types of IT platforms to be able to service our clients. Without being too technical, we
are using Efront, but we are also using Investfront. And for the real estate funds, we are using Yardi. So it means that we have the different platforms that allow us to integrate real-time with the platforms of our clients. Being able to have this technology that can directly flow from Apex, or from any service provider, to the data platforms of our clients is something that is very important. This is one of the reasons why we are effectively running different systems in parallel, so that we can effectively adapt our systems and connect our systems to the end systems of our clients.” More transparency to come Looking ahead, “I definitely think on the transparency side and on the requirement of additional reports and more real time data, on ESG reports, it will increase, it will really increase. I think that we are just at the beginning of the ESG focus from investors. It’s something that is really important. We see more and more requests coming from investors and also coming from the regulator. So definitely, yes, this transparency will increase in terms of concentration of LPs.” While Oury could not provide a specific growth forecast, he is convinced that heightened data demands “will continue to increase”. Fuelling this further flow of figures is increased investor interest in ESG criteria, and to a much less extent the EU’s new SFDR regulations. “This is really requested by the end client. So it’s not driven by SFDR but [that is still] one of the elements that is important here.” It’s becoming a basic data point to evaluate the carbon footprint of underlying investments. “We see really the end investor wants to know where they are investing, wants to make sure that they even make an impact. So we see an emerging trend in terms of impact investments. And what is interesting with impact investment is that a few years ago, investors that were investing in an impact investment had to choose either to make an impact or to get a return. Today they can have both. They can know that they will make an impact, they will effectively help change something, they will be able to invest in line with what they believe is good, and they will have a return that might even be higher than the return of a non-ESG fund.”
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The changing face of Luxembourg PE funds
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Dossier The changing face of PE funds
ESG challenges for PE PE investors are keen to apply environmental, social and governance criteria to their investments. But fund managers face certain problems in implementing these standards, including data deficits and still-to-be-finalised EU regulatory requirements. Words STEPHEN EVANS
Implementing the EU Sustainable Financial Disclosure Regulation has been a particular challenge for private equity funds. Moreover, this is just the start, with the details of the green investing taxonomy emerging and two more taxonomies in the pipeline. It would be a stretch to say that UCITS managers have had it easy adapting to SFDR. Yet, when assessing the green credentials of a listed equity or bond, asset managers have numerous data providers and benchmarks to lean on to support their green classification decisions.
production assets, private equity are among gests this should point quite strongly to the readiest bidders,” noted a recent arti- the shape of the final text to be implecle in the Financial Times. US and Asian mented next year. Short-term, this gives investors are less enthusiastic for green managers some difficult choices when it investing than their European counter- comes to what extent they need to start parts, noted Bain, with respectively 45% aligning portfolios with this draft or wait and 55% of assets being directed to pro- for the final text. Then to come are taxjects with green intentions. “Yet, in the onomies on social criteria and managing long run, it is definitely a competitive the transition to net-zero emissions. advantage for Europe to be the front runner on ESG since sustainability concerns Embedding ESG are rising globally,” said Riccardo Zorzetto, Yet there is an alignment of interests in the private equity sector. Managers are head of private equity at IQ-EQ. While this message is of some comfort, keen to become ESG compliant, with there are still many new concepts to under- businesses willing to do what is needed Case-by-case assessment stand and integrate into processes. For to tap into funding. This effort is considIn private markets, each decision has to example, the whole industry is currently erable, though. “ESG needs to be intebe taken case by case, collecting data for digesting a draft green taxonomy pub- grated across the value chain: from due each of their holdings. This is a highly lished by the European Commission in diligence to ownership of the asset to manual process. Not only does it involve July. Although just a draft, history sug- exit,” stated Zorzetto. substantial back and forth with the comHe also believes everyone needs to be panies themselves, auditors, and analysts, realistic about green investing. “When you embed ESG criteria in your investbut automation is often lacking as back ment strategy, you probably need to be offices lean on Excel. Nevertheless, it is a challenge most ready to be more patient in terms of how ECOVADIS SCORES European alternative asset managers fast you will return the capital to invesEuropean LPs had higher ESG ratings appear to be embracing. According to a tors,” Zorzetto said. (out of 100) than those in recent Société Générale Securities SerNorth America, 2017-1H2020. vices survey, 71% of the managers of priSource EcoVadis/Bain & Co. vate market funds asked had an ESG component to two-thirds of their fund range. A study by the analysts Bain noted that no less than 80% of the allocation European LPs of assets by the top PE institutional invesNorth tors in Europe featured a commitment American LPs 55 to green principles. 43
European first movers Agreement is not universal. “When oil majors are looking to sell off stranded
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Dossier The changing face of PE funds
“There’s very fierce competition for talent” Sacred Heart University Luxembourg adjunct professor Jens Hoellermann talks about how the private equity business certificate programme helps fill a gap in a growing field.
Now in its fourth edition, the private tal courses as well--but also individuals have just overtaken the UK for the first equity business certificate programme simply interested in PE from “every kind time, and this is just a development, it is a joint initiative between Sacred Heart of background you can think of”. Some will continue like that, the industry will University Luxembourg and the Luxem- years ago, Hoellermann recalls, he had grow here,” Hoellermann says. bourg Private Equity & Venture Capital a student from Vodafone who was “just Despite the exciting prospects for PE, Association, launched to address the interested in the topic. And he was so “we don’t have enough skilled people in growing need for upskilling in one of the engaged and interested, that was really Luxembourg… there’s very fierce comamazing to see.” petition for talent.” Hoellermann adds best-performing asset classes. Adjunct professor in the programme, Keeping the course updated annually that he had recently spoken to a Big Four Jens Hoellermann--who has over 12 years’ and taking a practical approach, he believes, partner and, despite intense hiring in experience each in alternative asset man- are among the keys to success. this particular case, “it’s so hard for them agement and as a lawyer in mergers and to find the skilled people. And then, when acquisitions--recalls bringing up the idea Filling the training gap you have skilled people, they are probafor a PE course at SHU for two main “For the first time ever, Luxembourg is bly very good in their particular field.” The problem is only compounded by reasons. “First, it’s a booming industry the biggest market for alternatives--we the fact that Luxembourg is competing in Luxembourg. And secondly, every better business school in the US was doing with other cities, such as London or Paris. it as well.” Sometimes graduates prefer to stay in other cities, but even within firms there Pooling in perspectives might be competition internally when a The course is offered once per year (the firm from one location tries to pinch next in autumn 2022) and lasts about a qualified candidates from a location where month, covering 14 topics, ranging from one of their other offices is based. ESG to tax structuring. And while a Luxembourg-based, interHoellermann, who also serves as mannationally-recognised certification from aging partner of Intabulis (SCSp), is one Luxembourg might be an interesting idea JENS HOELLERMANN of two main instructors. The other is for some, Hoellermann says that this SELECTED CV Gunter Fischer of the European Investwould be challenging. Even studies in 2018-present another EU member state, for example, ment Bank Group. The two of them “can Adjunct professor, private equity, challenge topics from two different permight not be recognised by Luxembourg, Sacred Heart University spectives”, with Hoellermann through which is a “difficult process. Before we 2014-present the lens of a PE house, Fischer from the have that, I think in Europe or at an interManaging partner, Intabulis investor side. national level, they should agree and har2014-2017 Additionally, around 10 guest speakmonise the standards, agree on how this Director of EQT, Luxembourg ers contribute to the course, hailing from is possible.” 2011-2013 the PE world, the Big Four and law firms. Director, directorship services, State Students of the course are mainly nonStreet Services (Luxembourg) MBA students--some who subscribe for 2007-2011 the entire certification programme, which Manager, The Carlyle Group, Luxembourg includes the PE course and supplemen-
Provided by participant
Words NATALIE A. GERHARDSTEIN
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PUB VENDUE TRAITEUR NIESSEN
Dossier The changing face of PE funds
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Key trends impacting the private equity industry PE outfits are facing a host of market and regulatory pressures that require changes to their strategies and operations. These range from the global clampdown on tax avoidance to investors’ evolving liquidity expectations. Here is a primer on four of the top challenges.
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Words STEPHEN EVANS
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More liquidity Increasingly, European investors can turn to the secondary market to manage the length of their private equity investments. Funds generally have a 10- to 15-year lifecycle, and traditionally investors found it difficult to exit even if they had identified a buyer and had approval for sale from other stakeholders. This is changing, with fund general partners increasingly willing to take the relatively straightforward steps to allow exits. Conversely, but in a similar vein, funds are seeking ways to smoothly extend their commitments to underlying investments beyond the traditional two to five years. This gives greater comfort to the companies and reduces fundraising, underwriting and administration costs.
AML level playing field According to some PE players, Luxembourg’s anti-money-laundering and counter-terrorismfinancing rules are particularly onerous and sometimes go well beyond global minimum requirements. Probably local law makers and regulators fear headlines linking the grand duchy with financial crime. Hence the hope that plans to beef up EU AML/CFT rules could level the playing field across Europe. Harmonised rules could put Luxembourg at less of a disadvantage as a jurisdiction and simplify doing business cross-border.
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Tax changes Global anti-tax avoidance rules are adding complications to how cross-border PE funds are structured. These standards have been translated into EU law via two anti-tax avoidance directives, ATAD 1 and ATAD 2, and despite PE funds not being in the business of shifting profits for tax purposes, many have been snagged. Hence increased structuring sophistication is often now required, with options to ensure that different investors with different tax profiles can be dealt with in parallel, with costs only falling on those directly affected. Separate vehicles might need to be created or feeder fund relationships established. This might increase costs and reduce certain flexibilities but would ultimately ensure investments are tax neutral as well as being transparent to the authorities.
Three taxonomies PE funds are still adapting to the needs of the sustainable finance disclosure regulation introduced in March, not least due to the long-term illiquid nature of these investments. Measuring the ESG profile of these private assets requires particular care and effort. The draft green investing taxonomy was published in July, and this is giving fund managers a steer towards the shape of the final document set for publication in November. Final rules are set to be implemented in mid-2022. This structure and standardisation are generally welcomed by the industry, giving them pointers on how to take sensitive decisions. Then the industry will have to manage the social taxonomy and a further “brown” taxonomy related to move towards net-zero carbon emissions.
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“Our problem ? That Europe still doesn’t accept failure”
Nasir Zubairi has been CEO of the Luxembourg House of Financial Technology since 2016
The Luxembourg House of Financial Technology’s Nasir Zubairi talks about American investor appetite for risk, the relocation of European unicorn companies and novel solutions to revolutionise PE. Interview ZUZA REDA-JAKIMA Photo ROMAIN GAMBA
Nasir Zubairi
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Do you observe any uptick, any trend pointing to a growing interest of private equity and venture capital funds in Luxembourg’s startups? Yes, private equity investors are looking more and more into Luxembourg because we have a robust community here, particularly in fintech and the space industry. At the same time, many private equity firms are registered here, but we don’t necessarily have the investors. Does Luxembourg stand a chance in attracting front office dealmakers? If we focus specifically on venture capital companies, Luxembourg should have the ambition to attract more of them. Many of those players have the European Investment Fund as one of their principal investors, the so-called limited partner. The EIF happens to be based here. The European Investment Fund is the largest fund of funds in the EU and one of the largest in the world. When a new fund is being created, the EIF often acts as a cornerstone investor into those funds. They drive a lot of the venture capital market in the European Union as they ultimately provide the capital that the private equity guys use to invest. Now, the EIF is an institution and therefore has strict criteria around its investments, one being that when it gives money to venture capital funds, most of it has to be invested in the EU. And London’s no longer part of the European Union. Traditionally, the VC community was in London, but now they will have to change how they invest. Luxembourg is strategically placed. We are in the EU, we all speak English, and you’re right next door to one of your major investors--the EIF. So why don’t we try to attract more of these VCs from London that might need to change their strategies and the offices or headquarters’ location to maintain their access to the EIF? Another argument favouring Luxembourg is that many family offices are based here, offering the chance to find investors. How are tech companies helping PE firms in becoming more efficient? Private equity companies suffer the same issues as other funds, and technology helps drive greater efficiency and lower costs.
Pre-seed Sometimes before a company formally launches. Investors are often the founders themselves, or their close friends and relatives.
such money. And so a product that generates a robust return only allows rich people to get richer, whereas with tokens, you could create more liquidity and open PE investments to anyone.
Technology is allowing PE companies to focus on their core business. What about the boom in technologyfocused PE investments? Should we be worried about a tech bubble? There’s a lot of capital around and very few alternatives to how to invest the Series A and B money. Hence, interest in technology Venture capital firms continue to invest, as well as investors pulled via companies is not surprising and has equity crowdfunding campaigns. been going on for years. Series C These firms are clearly more efficient. Typically private equity, hedge The average return on equity of the Eurofunds and investment banks invest pean banking sector is at less than 6%, while in this funding round. tech companies deliver way above 20%. The next step is usually an IPO The banks are inefficient, with costs killing on a stock exchange or sale to another firm. them; they are resource-intensive, therefore not scalable. Whereas in tech businesses, people are important as well, but ultimately, they have almost infinite scale. At the same time, we should remember that a lot of the value in a tech stock A number of firms here provide solu- is what you call the future value of a comtions to the private equity sector to help pany, assessed based upon what it will them with productiveness. Some focus on make in five or ten years. When you have more effective management of data to ease an environment where interest rates are decision-making. Others help with com- really low, like they are today, it means pliance. Luxembourg fintechs often ser- that a company’s future value is much vice management companies, custodians higher than if interest rates were higher. or administrators that provide services to PE, for instance, on the reporting side. Can you explain it with a theoretical example? Are there any novel solutions A company makes $100bn a year, and from Luxembourg that could people expect it to grow by 20% annurevolutionise PE? ally. To work out how much a company Some companies take a slightly different is worth, you basically divide it by the approach to blockchain tokens and look interest rate, because your alternative is at providing solutions to enable private to put the money into a bank. equity companies to tokenise their existIf the interest rate today is at 0%, the ing portfolio. $120bn in a year is worth $120bn today. A PE fund may want to release some However, if the interest rate goes, let’s of the invested capital to invest in more say, to 1%, that $120bn is only worth $110bn. firms. Traditionally, it would need to sell So, if the interest rate goes up, today’s an entire company. With blockchain value of all future cash flows decreases, tokens, they could tokenise and create and so does the value of the company. an equivalent to shares in those compa- Therefore, if interest rates go up, I’d expect nies and sell off small portions of their a lot of tech stocks to go down in price. portfolio so that they can get more capital and make more investments. It would The problem, however, is that, help them drive more effectiveness again. in Europe, we hardly have any Tokenisation could also open PE oppor- companies that would reach such tunities to smaller investors. For instance, valuations, and so investors look for if, traditionally, the minimum investment opportunities in the US. Why is that? is €100,000, not everyone can commit Are we less entrepreneurial in Europe? Seed also called the first official equity funding stage. It’s called “seed” as investors believe the company has the potential to grow into a (money) tree. Venture capital funds and angel investors enter the picture.
NOVEMBER 2021 PRIVATE EQUITY
FUNDING OPTIONS There are different stages of fundraising which require different types of backers, both in terms of the money they put in, as well as their appetite for risk.
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Conversation Nasir Zubairi
The most important factor is that entre- does it encourage a child to be better next Even if technologies are very often preneurial spirit does not exist in Europe. year? When all your mates go up, you feel only working behind the scenes, you still We still don’t accept failure, and so we stupid, alienated, resentful and embar- want to communicate the brand that is don’t accept risk. rassed. We don’t tolerate failure. responsible for the smooth functioning This leads to Europe lagging behind The same goes with starting a business. of different end-user services. As a conin innovation. In the past 50 years, Europe If your criminal record says you went sumer, you don’t buy an Intel chip, but only produced three companies worth bankrupt, you can’t start a new business you put trust into a computer powered more than $100bn. In the US, a dozen or in Luxembourg. I’m not talking about by Intel because--as the slogan goes--it so tech companies are nearing a tril- fraudsters, but hardworking people who has Intel inside. You don’t buy a Boeing lion-dollar mark. took the risk of being an entrepreneur. engine, but you trust the engines that fly There are firms that started life in the plane you’re sitting on. Europe that could become $100bn com- Yet, there are exceptions to the rule. A lot of fintech now are building more panies at some point. But when it comes For example, Sweden is one of the agile services in the payments sector for to a certain point, they go to the US to most prolific markets in terms of instance, where they act as the back end producing tech giants like Spotify, gather funding. in a B2B2C model. They sell the service With some 400 million people in Klarna and Trustly. to another business, and that business Europe, technically, we’re a bigger mar- Sweden produces a lot of unicorns. They’ve will provide the service to the end cusket, but we’re not cohesive in any way. created an environment that matters a tomer. But even if you are the in-between Some would argue it’s simply the scale big deal as it creates a culture. If you have B, you still need a brand. Say you’re a manufacturer of screws. of available capital, but I think it has more a culture of innovation and creativity, all to do with Europeans being risk averse. the dots come together. The end consumer buying furniture with From an investment perspective, ItalYou need to have an open environment these screws used to assemble a chair has ians are the biggest risk-takers in Europe, where firms and the entire ecosystem no idea who produced them, but that with the highest percentage of people embrace the new solutions and want to brand is critically important to the staff investing in the stock market. Still, the adopt them and work to adopt them. One to motivate and inspire people. A good level and knowledge in Europe about example is payments. Sweden is probably brand needs to have a set of values attached investing, for instance, via private equity, going to be the first country in Europe to to it and an identity so the staff can believe eradicate cash. Then you look at Germany, in it. It’s critical. is much lower than in the US. where 50% of transactions are still cash. What should we do about it? How do you define a fintech brand? Education is a big part of the problem. In September, you moderated You should look at a brand as you look at Look at Luxembourg; the last major edu- a panel at Amsterdam’s Money20/20 a person. People are described as thoughtcation reforms were in 1975. I find the conference that asked a provocative ful, innovative, creative, introspective, etc. whole testing of children nonsensical. question, if fintech B2B companies And that creates a certain image of a perWe have to memorise anything and regur- needed a brand. son, it creates a certain resonance of that gitate it in an exam. How does that rep- Regardless of company size and industry, person. It’s an identity for that person, licate the real world? Our kids all work a firm needs a brand because it’s so much and the brand must have a similar idenon mobile phones. If they need to look more than just a logo. A brand is the iden- tity, and it should be consistent. something up, they google it. If you fail tity of a company, and it’s important Apple is the gold standard, because it in your exams, you are held back. How externally but also internally. has created a masterful brand to the consumer, which creates a particular perception, but critically what drove a lot of Apple’s growth was the identity of the brand to its staff that became absolutely loyal to Apple. All is intermixed.
“ Luxembourg could attract more VC firms as it’s home to EIF, the cornerstone investor in many such funds”
Does a consistent brand help when you pitch to investors? Do they care about the brand they invest in? Absolutely. As the company grows from a startup to a scale-up and continues through various rounds of funding, you will see multiple iterations of the brand, the logo, the colour schemes, and eventually, the identity becomes much more pronounced. The critical element that must happen at some stage is to disassociate that brand from the founder.
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Success stories
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Four firms you should know Delano caught up with four local players to hear their perspectives for the sector. Words DELANO STAFF
American company CSC Global Financial Markets, already present in all 50 US states, also has offices “The tools available throughout Canada, in Luxembourg Asia-Pacific and Europe. are quite diversified.” Over the last few years, Yves Cheret it has begun ramping Head of fund services, up operations in Europe, CSC Capital Markets (Luxembourg) and Yves Cheret joined to help establish the company’s Luxembourg base earlier this year. It provides fund administration and depositary services. “In the past, the big structures were outside. Now we see that the funds that have a billion or more are more in Luxembourg, because the whole ecosystem is already here, and the tools available in Luxembourg are quite diversified.” He has seen in the last years “an appetite for more VC type of private equity funds because there is that whole ecosystem for VC”. He sees trends not just in classical AIFs, but also in private debt funds, infrastructure, and more. CSC Capital Markets (Luxembourg) does not have UCITS retail clients, so the structures are only alternative funds, allowing well-informed investors to invest in structures (that means HNWI, family offices, etc.). The structures they have are all close-ended, and without redemption.
YEAR OF CREATION 1899 (2021 in Luxembourg) HEADQUARTERS Delaware, US NO. OF EMPLOYEES IN LUXEMBOURG 30 (300 in Europe)
Waystone Specialising in services for the asset management industry--and serving AUM over $1trn--is Waystone. As Delano’s sister publication, Paperjam, reported in July, the firm also aims to accelerate its development, with Montagu Private Equity recently taking a stake in the firm. Global chief growth officer and holdings board member Cyril Delamare explained then that the new shareholder, which succeeded VC MML Capital Partners, would enable a 30% growth rate maintenance over the next three to five years. “With MML’s support, Waystone has been able to position itself as a global governance, compliance and third-party management company,” he said. Having already made acquisitions of companies specialised in compliance services, it also “Waystone plans on acquiring new has been able to mancos to develop and position itself as a global strengthen its presence governance, compliance and services. Europe is a key focus for Waystone, and third-party managewith ESG becoming “an ment company.” increasingly significant Cyril Delamare element within the investGlobal chief growth o�icer ment process,” according Waystone to the company.
SEGMENT FOCUS AIF (PE, real estate)
NO. OF EMPLOYEES 500
AUM $1trn
KEY INVESTORS Well-informed (no retail), HNWI, institutional, etc.
NO. OF EMPLOYEES IN LUXEMBOURG 80
GROWTH RATE Approx. 30% per year
Photos Romain Gamba/archives, Waystone
CSC Capital Markets
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Success Stories
Expon Capital
With a risk-controlled, value-oriented approach to investing, Oaktree is present in 19 cities and 14 countries and manages assets on behalf of significant institutional investors around the world. Its clients include 67 of the 100 largest US pension plans, 40 US state retirement plans and over 300 foundations and endowments worldwide. “As one of the largest fund centres in the world, Luxembourg has always been a centre of investment excellence with many asset managers and private equity firms establishing a base there. Oaktree is no exception,” says managing director, Peter Preisler, who adds that the grand duchy office has 30 employees and opened in 2006. Its first Luxembourg-domiciled fund was launched in 2009. In 2015, Oaktree set up its AIFM entity to serve as the management company to a number of the company’s Luxembourg-domiciled funds and managed accounts. Oaktree manages $156bn assets globally, which includes private equity assets to the tune of $14.5bn, as of 30 June 2021. Preisler, who also serves as head of Europe and Africa, marketing and client rela“Luxembourg has tions, is the former CEO an exceptional of Danske Bank Interreputation for the national Luxembourg. structuring of private He praises the country’s private equity savoirequity deals…” faire: “Luxembourg has Peter Preisler director, Managing director an exceptional reputation Oaktree for the structuring of private equity deals, and Oaktree is proud to structure many of its deals there.”
Founded in 2015, Expon Capital has at its core a mission to invest in and finance new technologies: “What we “We believe that we bear a responsibility to steer their do every day evolution in a direction that has purpose.” is both ethical, societally Jérôme Wittamer beneficial to the larger popCo-founder & managing partner, ulation and respectful of our Expon Capital environment.” According to its co-founder and managing partner, Jérôme Wittamer, the company is a venture capital firm, although it’s aware of private equity trends, saying that for both, “it’s a boom that started decades ago”, driven in part by the fact that returns have been “extremely good” in the post2008 financial crisis climate, as well as quantitative easing and very low interest rates. There has also been a drive towards technology, with investors “looking at younger companies, smaller companies, towards growth capital. And so, the world of venture capital and private equity, which were typically pretty separated, started to touch and overlap.” Over the past five years, Wittamer says, there has been “an explosion in a number of funds and the amounts invested by investors in venture capital in the asset class, and hence, an explosion in the number of deals in venture and an explosion in the valuations of target companies”. By investing, Wittamer adds, “we can effect change… telling companies we invest in your company, but this has strings attached [in terms of] inclusivity, diversity, [the] need to measure CO2 emissions, [etc.]”.
YEAR OF CREATION 1995
PORTFOLIO MANAGERS 44
YEAR OF CREATION 2015
CREATION OF 3,700 new full-time jobs
NO. OF EMPLOYEES WORLDWIDE 1,000+
AUM $156bn
INTERNATIONALITY 4 continents
GROWTH PORTFOLIO 58% young founders
INVESTOR BASE Pension plans, insurance companies, endowments, etc.
INVESTED IN 7 countries
NO. OF EMPLOYEES IN LUXEMBOURG 30
Provided by participant, Lynn Theisen
Oaktree
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RECOVERY AWA R DS
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Digitalisation
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Forecast
What’s your five-year outlook for private equity? Here are two perspectives on what the realm of PE could look like by November 2026 and beyond. Words NATALIE A. GERHARDSTEIN
LAURENT CAPOLAGHI Partner, private equity leader EY Luxembourg
RAJAA MEKOUAR Founder & CEO Calista Direct Investors Mekouar’s projection in just one word? “Bullish… Growth is the name of the game.” There are several reasons for her optimistic outlook. “Super specialisation also contributes to this, and broader access means access for ultra high net worth and more retail investors to the asset class.” Even if, previously, the illiquidity aspect of PE might have made it be perceived as riskier, “it now is seen as the only safe haven for parts of the portfolios.” The venture and tech investing inclusion into PE will also factor into its growth, and with venture capital producing such successful companies like Amazon, she adds, such stories “created the inspiration, and covid has just multiplied this trend… a lot of money [is] going into this space.” In fact, Mekouar believes that “all the stars are aligned for PE”. And the reasoning, she adds, is quite simple: “It has been delivering better performance than public markets with less volatility. There’s a lot of cash everywhere because of quantitative easing, driven by the central banks since the 2008 crisis, and this money has to go somewhere that delivers a return that’s acceptable for investors.”
“PE ticks a lot of boxes [for investors], because it addresses the real economy…”
Eric Devillet, LPEA
“…[private equity] now is seen as the only safe haven for parts of portfolios.”
Capolaghi has been with the private equity group at EY Luxembourg since 2004, now leading that practice. “Most of our clients are growing very fast in a significant manner in Luxembourg, which was not the case 17 years ago,” he explains. In addition to growing up the substance, the tech and talent have helped drive that. The demand for PE products, he says, could be explained mainly by three factors--the low-yield environment, pressuring investors to look beyond traditional; a shift from non-concrete to concrete investing; and also a shift in the investor profile, with the younger generation wanting to get a better sense of what they’re investing in. Capolaghi expects those three trends to continue over the next five years. “PE ticks a lot of boxes for [investors], because it addresses the real economy, the long-term investment,” he says. “PE cannot be about speculating, [it]’s about patient capital.” This could mean rethinking how the company operates or helping them expand a project geographically--creating proper value. “This retail investor population is very keen about that, and it brings a very concrete angle to them.”
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