With investors allocating greater sums to private assets, we ask our panel of specialist fund administrators in Luxembourg about the great weight of institutional capital said to be heading their way.
Yves Cheret (Head of fund services, CSC)
Bruno Bagnouls (Head of sales and relationship management for Europe, Alter Domus)
David Kubilus (Chief commercial officer, U.S. Bank Global Fund Services – Europe)
Stéphane Pesch (CEO, LPEA – the Luxembourg Private Equity and Venture Capital Association)
Funds Europe – Flows into private markets funds are growing and numerous surveys suggest the growth in allocations will continue. What do you see as the most popular types of fund structures being employed to absorb this capital?
Bruno Bagnouls, Alter Domus – We’ve seen in Luxembourg a sharp increase in GPs [general partners] setting up Luxembourg funds. We are seeing GPs coming mostly from Europe and the UK, but we are also noticing growing interest from managers in the US and Asia, especially those targeting European investors. These GPs are setting up feeder funds or parallel funds in addition to the type of fund they usually raise.
Unregulated fund structures are capturing the attention of the vast majority of managers. The different suites, range of funds and unregulated types of vehicles in Luxembourg’s fund toolbox are extremely attractive. While the Channel Islands continue to attract managers and the UK and Ireland are emerging as fund domiciles, Luxembourg is still clearly the number-one location of domicile.
David Kubilus, U.S. Bank Global Fund Services – We see quite a bit in private debt and private equity as well as infrastructure if we want to consider that a different asset class. At the beginning, we had a great demand out of American clients. Almost all of them had a Delaware/Cayman type of structure, wanting to raise assets in Europe. They were looking to Luxembourg to do that, generally through a RAIF [Reserved Alternative Investment Fund] in some type of limited partnership structure – SCSp, SCA or whatever they’re most comfortable with.
Whether it’s a feeder, a parallel, an open-end fund or a closed-end fund, Luxembourg still remains very well positioned to gain the flows. It’s clearly the domicile of choice, at least for the time being, for those clients in those specific kinds of asset classes.
Yves Cheret, CSC – We have more interest in debt and loan funds. The type of structures, as my two colleagues said, are the SCSp and the RAIF, which are easy to set up where the timeline is short. That’s basically the type of structures we see, but it’s mainly driven by our contacts in the capital market space at CSC.
Stéphane Pesch, LPEA – This is a no-brainer. SCSps and RAIFs: those are the structures which hugely contributed to Luxembourg’s success and competitiveness.
We have also seen recently a lot of appetite for venture capital. Due to the crisis, technology has become really one of the hottest things in town to invest in. That also emerges via young VCs [venture capitalists] joining Luxembourg and structuring everything here.
There is more venture capital coming in and because they don’t have the same long history as the biggest players, they can come with the entire team, take the investment decisions and implement their vehicles in Luxembourg.
Funds Europe – In the past year there’s been a lot of attention on SPACs – Special Purchase Acquisition Companies. How would you define the SPAC and why is there quite so much attention towards it now?
Cheret – The purpose of a SPAC is to acquire a private company, so the advantage is when you buy that private company, you don’t need to go through the whole IPO [initial public offering] process.
The advantage is also the time to market and access to capital. On the other hand, that acquired company has to undergo some changes because it has to adapt to more complex accounting, financial reporting and registration requirements due to the fact that it is publicly traded.
Kubilus – Our experience in Luxembourg is a bit more limited with the SPAC, since we haven’t seen tremendous demand, at least to date. However, our team in the United States has been successfully servicing SPACs, so we’re ready when they come to Luxembourg.
Cheret – There was one example two days ago, where one of the major well-known Luxembourgish law firms published on LinkedIn that they have helped a Luxembourgish-based GP to set up a SPAC. That was a good example and good publicity for Luxembourg.
Bagnouls – We have relatively limited exposure to SPACs opportunities at Alter Domus. From what we have seen, the Dutch exchange with the Euronext Amsterdam is the leading market for SPAC listings. It’s an efficient way for a business to go public in a short period of time, taking only an estimated 18-24 months.
In Europe, there were around 50 SPACs that were incorporated last year, so the market will be watching closely to see how these businesses perform this year. Demand for SPACs in Luxembourg is still relatively low, especially when compared to the SCSp and RAIF, for which there is a big market here. SPACs still make up only a limited part of the activity here in Luxembourg.
Pesch – We have exposure thanks to our two VCs. Some of Luxembourg’s advantages for having more SPACs potentially is as usual the reliable corporate law environment, the stability and the cross-border expertise.
Funds Europe – Do you see potential for Luxembourg to become a hub for SPACs within the European Union?
Pesch – That’s a good question. It depends also on the appetite. You need to be careful and should have a precise objective, then it could be an interesting ‘exit route’ for a private company.
Cheret – It only works if you want to take a company public. If the GPs want to have some secondary deals and do some other investments and want to keep it private, the SPAC will not work because it’s an IPO by definition: it’s a public traded company. In the end, the question is: what potential do we see for huge IPOs in Europe? This is more the question, and then you need to find the right targets.
Bagnouls – Time may tell later this year based on the capacity for those already incorporated SPACs to actually make acquisitions. Luxembourg’s comprehensive fund toolbox certainly gives it the potential to become a hub for SPACs.
Funds Europe – Given how this has taken off in the US, do you see similar conditions for the growth of this type of vehicle in Luxembourg and the EU generally?
Kubilus – I haven’t lived there for a long time, so I’m relying on discussions with my colleagues, despite the accent, which never goes away. Obviously, there’s a real culture around taking things public there. It certainly exists here: maybe the scale is not quite as great. There’ll be a couple of hubs that will probably wind up being winners in this. Amsterdam seems to have done well in terms of getting a lot of listings, they also have a bit of an ecosystem.
Luxembourg certainly has all the tools to play in this space. I don’t think it’s going to be a situation where you’re going to have three or four different domiciles really competing. There’s going to have to be one or two winners in the game to service this type of vehicle, but it doesn’t seem to me that the conditions vary that greatly – it’s just a question of appetite and desire of the VCs.