A European safe harbour for private equity
By Stephane Pesch, LPEA – As the world tumbles into a period of economic and political uncertainty, private equity relies on its long term investment strategy and eyes the calm after the storm. Meanwhile, investors and fund managers are drawn to the safe harbour of Luxembourg, one of the few they can rely on these days.
Luxembourg has built a reputation as a cross border platform mainly for its capacity to offer an advanced and complete set of legal tools that suit different investors’ needs, especially after the implementation of the AIFM directive. More recently, we observed a diversification of the reasons bringing new private equity and venture capital players to Luxembourg, among which Brexit comes out on top. The quest for an EU passport has been a strong driver for new business in Luxembourg but not exclusively so. Many managers are also attracted by the growing number of family offices present in the country and come to the Grand Duchy to find new investors for their funds. Others still, come for the specialised offer of services tailored to international PE transactions.
As it nests further into the complex world of PE, the sector’s concerns and trends are very much aligned with those of its international peers. Digitalisation is on top of the agenda as a way to reach further efficiency. This is done to better comply with legal obligations or to increase reporting standards. Standards which increasingly include aspects related to ESG commitments, a subject which brings new regulatory concerns but also attracts new types of investors and make Luxembourg move further into responsible finance. ESG standards are widespread in the Luxembourg financial centre from start-up accelerator programmes to green bonds and represent a national commitment PE has no intention of escaping from.
One of our latest focus in the LPEA, the trade association representing the Private Equity and Venture Capital sectors and which I’m proud to lead since September, is to support our members in finding the best talent. As many professionals are drawn to PE from other pockets of the financial sector, it has been made clear to us that training is a critical piece of our ecosystem. Either for newcomers, ambitious talent or professionals in reconversion, PE-dedicated training has seen a significant surge in Luxembourg. This is an area in which we have taken direct measures by creating our own Academy. This also reflects the wider diversity of professional opportunities found in the market today. It is not uncommon to have eg. Private Equity accountants or compliance managers looking for a more holistic view of our industry.
Working closely with the HR departments of our members, we are also facilitating access to our sector for young graduates or experienced professionals attracted by our growth. In line with the professional recruitment firms available on the market, we find it very useful to take this role and become one of the first points of contact for those who are new to the sector but still express their interest to have a first professional experience in the asset class.
A challenge particular to PE and VC in Luxembourg and across Europe, somewhat, is to be recognised among non-PE professionals. The Luxembourg PE-VC jurisdiction to which fund managers fly in from all over the world is still relatively unknown among policy makers. Shadowed by a EUR4.3 trillion investment funds industry in Luxembourg, PE is, and will naturally remain, the younger brother – an alternative asset class. As LPEA celebrates its 10th anniversary this year, the timing is ripe to further increase the visibility of our members and association. Policy makers and the public administration in general are fairly familiar with the banking sector and the investment funds industry but they do not yet see PE and VC as a different type of “animal”. There is still some work to be done for it to be recognised as an asset class, with real assets and a real impact on the local economy; one that owns some of the country’s biggest financial services firms as well as downtown restaurant chains.
Expertise on private equity is not lacking within the Luxembourg regulator, the CSSF. I believe the institution has been a key factor in the success of PE in Luxembourg, by showing a strong knowledge in the field and the capacity to adapt to foreign players. One of the ways it has done this is by adopting English among its practice on top of the three local official languages (Luxembourgish, French and German).
In summary, Luxembourg is making its way as a PE hub and the current global uncertainty may only confirm this path once again. From a risk perspective, investors tend to take the safest route and Luxembourg is perceived as such. It is a safe route which today offers a lot more than it did five or ten years ago when LPEA was created. It features a fast growing community of professionals which today is its strongest asset.
Stephane Pesch is CEO of LPEA, the Luxembourg Private Equity and Venture Capital Association