Luxembourg is finally on the map!
Nick Tabone, Deloitte Luxembourg’s Private Equity Industry Leader, on the new opportunities in private equity.
The months to come promise riches for asset management, more particularly the private equity industry and especially for Luxembourg.
Firstly, 2017 marks the scheduled review of Directive 2011/61/EU on alternative investment fund managers (AIFMD). Nearly four years after it took effect, the European Commission launched consultations to analyze the impacts of AIFMD and make possible adjustments to it. Throughout those four years, European and non-European fund managers have had to adapt to this new regulatory order. However, while AIFMD was universally disparaged on its adoption, institutional investors now tend to make it one of their selection criteria—or, at the very least, to base this in part on the robustness of the organization that AIFMD has imposed on fund managers. There is no doubt that this review won’t produce a clean slate, but rather a marginal adjustment to these obligations.
Here, we consider Annex IV—and the use made of the data collected by regulators, the costs imposed by national regulators in order to use the distribution passport in their countries, and the remuneration rules for which the transparency requirements create more costs than the information created and useable by investors. We might also want certain precisions on the obligations or liability regime of the custodian—particularly when an investment fund holds financial instruments and has appointed a non-bank custodian.
But 2017 will be marked above all in Luxembourg by the sometimes thunderous, sometimes discreet, arrival of Anglo-Saxon investment fund managers. The financial center has been courting them for years and all that was needed was an improbable alignment of the stars for Luxembourg to become a prominent feature on their maps: Brexit, BEPS, and AIFM. This winning combination offers Luxembourg a unique opportunity to assert its long-cultivated arguments: political stability, pragmatism of the financial authorities, legal toolkit, sectoral expertise, and access to a vast network of double taxation treaties.
As such, the convergence between the substance requirements imposed by BEPS and AIFMD is striking. In tomorrow’s world, substance no longer simply means “office and number of employees,” but rather signifies added value and supervision. Hence, the relocation of portfolio management or risk management functions kills two birds with one stone. Lastly, the prospect of a “hard” Brexit, reinforced by the latest discussions between the British government and the European Commission, make maintaining (or not) an equivalence between British and European regulatory regimes highly uncertain. With this in mind, establishing a Luxembourg AIFM for future European capital raising has become an inevitable solution.
The Luxembourg financial center should therefore congratulate itself for making 2017 the year that Luxembourg is finally on the map.
Editorial note: The article was originally published by Paperjam in French on 10 May 2017: “Luxembourg is finally on the map”