Luxembourg, the 2nd largest investment fund center worldwide
With over EUR 2 trillion of assets in Luxembourg-domiciled regulated funds, Luxembourg is the second largest investment fund domicile in the world after the United States of America.
Luxembourg-domiciled funds are distributed worldwide. Over 75% of authorization agreements for international distribution are granted to Luxembourg-domiciled funds.
Luxembourg offers a stable economic, legal and social environment. The country manages one of the world’s lowest debt-to-GDP ratios and has an excellent reputation as an EU on-shore financial center. Luxembourg has more than 60 double tax treaties in place. Further treaties are under negotiation.
Luxembourg provides an unrivaled financial infrastructure. Over 100 fund administrators and 70 depositary banks are present in the market with further providers entering the market. Luxembourg’s highly skilled workforce is multilingual and strengthened by personnel from UK, Ireland, Belgium, France, Germany and a dynamic expatriate community.
Luxembourg – an international hub for Private Equity structures
Over the past 20 years, Luxembourg established itself as a major hub in the Private Equity industry, both for structuring as well as financing international and pan-European private equity acquisitions. More recently, the introduction of two innovative lightly regulated fund vehicles - the SICAR and the SIF - proved to be major successes.
The key advantages of Luxembourg are summarized in the table below:
| Pro-business attitude of authorities | The financial market supervisory authority and tax administration are easily accessible to market players and adopt a pro-business attitude. |
| Flexibility, security and predictability | Luxembourg laws and regulations provide a maximum of structuring flexibility. At the same time, investor protection is one of the cornerstones of the Luxembourg financial centre. The stable political, economic and social environment provides the required predictability to Private Equity players. |
| Attractive tax regime | Luxembourg has one of the world’s most attractive and reliable tax regimes. The Grand Duchy has more than 60 double tax treaties in place and a continuous flow of new treaties. |
| Unrivaled financial infrastructure | Luxembourg can count on a real cluster of Private Equity competencies and skills. Luxembourg-based service providers such as lawyers, auditors, banks, custodians and central administrators offer a comprehensive range of customized services with teams dedicated to and specialized in Private Equity. Associations such as the Luxembourg Private Equity Association (LPEA) and the Association of the Luxembourg Fund Industry (ALFI) further enhance the positioning of this industry in the local market and abroad. |
The made-in Luxembourg Private Equity vehicles
1. The Private Equity funds
General Partners (GPs) can chose between 3 competitive vehicles for setting up their Private Equity funds in Luxembourg:
The investment company in risk capital (SICAR) (pdf, 519.5kb) is Luxembourg’s flagship fund product for Private Equity/venture capital and accommodates qualified investors: this 2004 vehicle is fully customized to the needs of Private Equity promoters by offering tax neutrality, flexibility in legal structuring, operational flexibility and cost efficiency. This lightly regulated product gives Private Equity houses access to an European Union (EU) on-shore reputable financial center. The 24 October 2008 SICAR Law brought further enhancements to the SICAR such as, in particular, the multi-compartment SICAR as well as the Limited Partnership SICAR (SCS SICAR).As of beginning 2011, the market counts over 240 SICARs.
The SICAR's reach:
The specialized investment fund (SIF) is an innovative fund that can accommodate Private Equity/venture capital, Real estate, Hedge funds as well as any quoted securities investment strategies. This 2007 lightly regulated vehicle accommodates qualified investors and is an interesting alternative to the SICAR. As of today more than 1,200 SIFs have been created.
The UCI Part II venture capital fund is Luxembourg’s traditional mutual fund vehicle for Private Equity/venture capital that can accommodate investors starting from EUR 12,500. This “retail”–oriented vehicle is subject to the standard supervision by the Luxembourg financial services sector regulator, the Commission de Surveillance du Secteur Financier (CSSF). This 1998 product has a long and proven track record.
2. The Private Equity acquisition structures
Luxembourg has been a leading platform for structuring pan-European acquisitions in Private Equity for a few decades:
The société de participation financière (SOPARFI) is Luxembourg’s most renowned vehicle mainly used by PE firms to structure PE transactions, LBO’s, MBO’s, bridge financing around the globe based on Luxembourg’s dense Double Taxation Treaty (DTT) network. The SOPARFI is rarely used as a fund vehicle.
