Paul Junck (LPEA):
Luxembourg a domicile
of choice for Private Equity
An interview of Paul Junck, Managing Director of the Luxembourg Private Equity Association.
Can you describe the Private Equity landscape in luxembourg?
Nine out of ten of the world’s biggest fund managers are operating out of Luxembourg. The transaction layer has historically been the stronghold of the sector but this is changing rapidly as we attract more and more middle office and front office activities here in Luxembourg. The market size is around 200 billion euros of assets under management accross three layers: 1. the general partner, who is managing an investment fund 2. the fund that receives investments, typically from outside investors that would then deploy the funds into the portfolio. In the third layer - the transaction layer - these funds are invested via SPVs into these individual portfolio companies. More of less 60 private equity houses are present today but this is only an intermediate step in what we see is the next wave of opportunities for Private Equity in Luxembourg.
Taking the bull by the horns
Which new opportunities do you identify?
PE is a growth industry in Europe and the government has identified it as such. Luxembourg has created three new instruments to help it grow. Firstly we implemented the new European AIFMD directive last year and we were one of the first movers to do that. Secondly, we have created limited partnerships in Luxembourg, which is a tool offering tax neutrality, transparency, flexibility and tailored terms to investors. It is the defacto standard for structuring a private equity fund in the Anglo Saxon world. Thirdly, we have created a special tax regime for “carried interest” which is the performance fee that fund managers get for outstanding performance of their fund portfolio.Luxembourg introduced this specific taxation to make it attractive for certain individuals to relocate.
Why is Luxembourg a domicile of choice?
Efficiency is a key objective to strive for in any operation but particularly in private equity which is obviously by nature a cross-border business. Having one domicile of choice that combines a number of layers that are required certainly has an efficiency impact in the positive sense and as a practitioner. It makes things a lot easier whether it is in setting up your fund structures, communicating with your regulatory authorities, or whether its in dealing with specialised law firms.