Luxembourg is taking business from the UK and Channel Islands as it continues to increase its footprint as an onshore fund jurisdiction in anticipation of the UK’s secession from the EU, according to a trade group.
The Luxembourg Private Equity and Venture Capital Association said that, based on a recent survey of 55 GPs in the country, the proportion of locally established vehicles rose to 59 percent in 2018 – up from 37 percent in 2016 – with the UK, the British Channel Islands and the Cayman Islands suffering as a result.
Funds registered in the UK and Channel Islands decreased from 33 percent to 24 percent over the same period, while those in the Cayman Islands fell from 12 percent to 5 percent.
The lobby group also cited respondents indicating that the UK’s impending departure from the European Union is helping drive business to the principality, with Brexit “favoring Luxembourg as a primary location for new AIFMs [Alternative Investment Fund Managers] on the continent.”
LPEA pointed to a handful of changes in the past three years that have changed the landscape in Luxembourg. Administrative burdens tied to new regulation such as base erosion and profit sharing and AIFM, for example, have led to an increase in staffing, while new transparency regulations have also improved Luxembourg’s reputation.
The survey found that the proportion of private equity firms with their own office in the principality increased to 80 percent this year from 65 percent in 2016, demonstrating the increase in “substance.”
An LPEA spokesman said that in 2016 the trade group started monitoring the most-used recruitment websites in Luxembourg, including Monster.lu, Jobs.lu, LinkedIn and e-FinancialCareers, for “private equity” related jobs and found a steep increase in listings immediately following the Brexit announcement.
This was likely due to uncertainty in the market, he said. Publicized job offers – which include duplication across different platforms or hidden jobs posted by executive search firms – increased to 778 in June 2018 from 405 in July 2016, which indicates demand for work in Luxembourg. In the past 12 months alone, there was a 12 percent increase, the spokesman said.
Luxembourg is also seeing diversification in the types of vehicles registered and the size of those vehicles. Funds with assets under management of more than €1 billion represented 41 percent of the respondents in the LPEA survey; smaller funds of up to €250 million increased their representation to 26 percent from 10 percent.
The group said this is partly explained by the success of competitive vehicles, such as the reserved alternative investment fund and the SCSp (limited partnership), which give more flexibility to small and medium-sized players. In terms of strategy, the survey found that buyout and infrastructure funds have increased their representation more than other strategies.
Joining the club
RAIFs registered in Luxembourg climbed to 334 in March, up more than fourfold from 79 in March 2017, according to LPEA, and the number of LPs in the country rose to more than 1,800 as of March – up from 1,301 in January 2017.
Membership at LPEA is also on the rise. GPs that are full members currently number 78, compared with 67 in 2016, according to the LPEA spokesman.
pfm recently reported that the growth of Luxembourg as a financial base is putting pressure on local infrastructure and driving up the cost of living.