Private equity will never disappear
On its way to attract private equity business to Luxembourg, the Luxembourg Private Equity & Venture Capital Association (LPEA) already has done a great deal of work. Since its launch in 2010, 83 members have joined forces in order to promote Luxembourg as a prime location for private equity. But there are still challenges ahead.
About 2,000 employees so far are working in the Luxembourg Private Equity industry. This number will increase by 20% in the next three years. Together, these experts manage 100 billion euros in assets under management (AuM) –in structuring vehicles. Hans-Jürgen Schmitz, President of the LPEA, estimates an increase in AuM by 30%, also in the next three years. These were the main figures announced at the press conference on the occasion of the LPEA’s general assembly.
However, the sector faces some challenges. Although Luxembourg has a long tradition in private equity (PE), its main role consists of structuring PE investment funds. Above all, the LPEA wants to attract the PE investment funds to the Grand Duchy. Though all ten major PE houses do have a local presence in Luxembourg, very few investment funds are set up here. It is hard to break this cycle, because “such funds are only set up every three or four years”, Schmitz says. Furthermore, PE houses prefer to stay in their domicile once they are used to its legislation and once they can sell themselves to their clients in an advantageous way. The music is playing elsewhere, in London or Ireland.
An initial step in the right direction has been the implementation of the Alternative Investment Fund Managers Directive (AIFMD) into national law. Furthermore, measures must be taken to end the reform of the “Limited Partnership regime”, as well as to push the creation of fiscal incentives for PE investment fund managers. The latter would attract PE managers too, and thus be the ideal case, because Luxembourg could promote itself as the centre of choice for the whole value chain, namely PE managers, funds and structuring.
All in all, Alain Kinsch, vice-president of the LPEA, remains positive: “Private equity is an industry that will probably never disappear”. Although the industry has been having a difficult time because of the crisis, its level of activity and performance have remained stable. He is confident that the main problem of PE houses, raising money from banks, will soon change for the better.
According to Kinsch, the green sector, where the Luxembourg PE industry is already very active, is one of the most promising sectors of the future. “Private equity is a robust model”, Kinsch says, because it is very close to the customer. Specialists work hand in hand with companies on the spot in order to develop the best solution.
Both Schmitz and Kinsch agree that behind juridical or tax efforts, the industry has to create an overall image of Luxembourg as the place to be for private equity business. In this context, the LPEA also wants to sharpen the senses of the PE houses in Luxembourg and teach them how to effectively promote their business, as well as offer training. EK