DELVING INTO LUXEMBOURG’S PE MARKET

In 2020, annual fundraising in Europe fell by €13 billion compared to the year before, reaching €101 billion. This decline, however, was in line with the deterioration seen in PE fundraising at a global level and across all regions. Likewise, PE investments in European companies decreased 12% year-on-year to reach €88 billion over 8,000 companies. However, the industry rebounded during 2021, with the year seeing record highs in terms of acquisitions.

While 2021 started modestly, by the end of Q2 the number of fund launches, and the amount of capital raised had reached the average of the last five years. Despite the acquisition boom in 2021, 2022 starts the year with relatively high levels of dry powder.

Luxembourg is the natural choice for PE houses looking to establish operations in Europe. The Grand Duchy has a long-standing expertise in cross-border financial services and the necessary skill set to set up Private Equity and Venture Capital (PE & VC) funds looking to scale up their European and global operations.

PE houses set up shop in Luxembourg for a number of reasons, including the stability of the business environment, its comprehensive investment toolbox and geographic location. PE requires an active management of investments, meaning travelling, for instance, to attend board meetings or to check assets in-situ. Given Luxembourg’s strategic location in the heart of Europe, connections are easily made. The multilingual workforce is another significant draw as it allows for easy communication between project sponsors, investors, and other stakeholders in the language of their preference.

As the PE landscape has developed, a notable shift in the type of activities undertaken in Luxembourg has also occurred. As more than 60% of PE firms now hold an AIFM license, the offering includes solutions related to investment structuring, acquisitions, portfolio company management, risk management and compliance, as well as fund administration, valuation, and distribution.

As a result, the roles within the country have evolved. While previously considered primarily a centre for back-office activities, recent survey data shows that the majority of GPs base their finance-related roles such as Fund/ SPV administration and valuation in Luxembourg. A large number have also shifted core middle office activities such as risk management, compliance reporting, and due diligence to the Grand Duchy and are also looking at investor relations, fundraising and, for specific practitioners, more deal specialists.