Luxembourg at risk of overload on PE influx

The country’s financial and social infrastructure could be pushed to its limits as fund managers pour in.

The race to domicile new funds in Luxembourg could put pressure on the country’s financial and social infrastructure, industry sources warned.

Speaking at Invest Europe’s CFOs Forum in Berlin this week, a panel of private fund operations professionals said that while the country currently offers a “huge range” of service providers, there is a risk of overcrowding.

“There’s only so many people and funds the country can accommodate,” a general counsel on the panel said. “Service providers currently line the road from the airport to the centre of town but they could easily become overwhelmed.”

The discussion followed a poll of delegates in which just under half said they are considering domiciling their next fund in the country – far more than were considering other destinations including their own countries (“other” – 26 percent) and the Netherlands (9 percent).

Most tax authorities require firms that domicile in Luxembourg to have an office and staff there to benefit from tax treaty eligibility. Whether that means hiring a new team or moving existing staff is down to the individual firm.

The latter is certainly being considered by a number of London-based firms, as a consequence of the Brexit vote, the managing director of a fund management platform said. A Luxembourg-based partner at an accountancy firm said it could become a tough sell as more and more people move to the country.

“There’s only a finite number of people that can move to Luxembourg, where will we put people? If you want to attract the top talent, encourage them to leave London, the facilities have to be top quality, not overstretched,” the partner said.

The panelists agreed, however, that Luxembourg was taking action to tackle the emerging risk. The regulator is recruiting to deal with the influx of applications for licenses, according to the accounting partner, who added the time it takes to grant a license is also falling.

There was also consensus that despite any negatives attached to domiciling in Luxembourg, the country was still head and shoulders above neighbouring jurisdictions because of its political stability, favorable tax regime and its forward-looking approach to European regulation.