Luxembourg, the Private Equity challenger
By Alain Kinsch* & Axelle Ferey*, Ernst & Young, Luxembourg
Corporate International
July 2009
Luxembourg has been active in structuring and servicing private equity (PE) funds and deals for more than twenty years. Non-regulated vehicles such as SOPARFIs (Société de participation financière) have been widely used to structure tax-efficient international transactions due to their access to the large double tax treaties network concluded by Luxembourg (over 50 into force today).
Ernst & Young has a specialized PE practice in Luxembourg with over 100 professionals fully integrated to the global Ernst & Young PE network and serving both global accounts and smaller private equity players, fund administrators and custodians.
Alain Kinsch, head of private equity at Ernst & Young, said: “During the past four years, an increasing number of PE funds have been set up in Luxembourg thanks to the implementation of two new lightly regulated on shore fund vehicles that proved to be major successes: the SICAR, launched in June 2004 and the SIF, launched in February 2007. The SICAR regime has been updated in October 2008 in light of the experience gained by PE practitioners, making it even more attractive.”
Figures from the Luxembourg financial sector regulatory body – the Commission de Surveillance du Secteur Financier (CSSF) -, show that 219 SICARs (Investment Company in Risk Capital) and 858 SIFs (Specialised Investment Funds) are registered as of March 2009.
The SICARs, in particular, have been used by many of the top twenty private equity houses, as well as by small and midsized PE players to invest in VC, PE, mezzanine and other “alternative” risk capital investments such as for example opportunistic real estate, microfinance or clean technologies, a strategic trend that proved particularly popular for the last two ones over the last year. All kinds of structuring are available (Direct funds, PE funds of funds, Master Feeder structures).
Axelle Ferey, senior manager in PE at Ernst & Young, believes there are four key advantages in using SICARs and SIFs.
She said: “The four key advantages of these two complementary vehicles are, access to a regulated domicile and superior brand, tax neutrality for investors and high tax efficiency for GPs, the flexibility in structuring through various corporate forms, variable capital and compartments and operational efficiency achieved by, for example, an explicit consolidation exemption.”
She added: “Access to a regulated domicile and superior brand deserves to be especially underlined in the current context of unprecedented call for transparency and stricter regulation that resulted in the current draft EU-Directive on Alternative Investment Fund Manager of 30 April 2009, a text likely to bring significant changes to the current services offered by PE fund administrators and broaden the scope of their potential service offering.”
In addition Luxembourg has built a real PE cluster and Luxembourg-based service providers offer a comprehensive range of customized services with team specialised in private equity acquisition structuring, transaction advisory, fund administration, custody, audit, legal and tax services.
Mr Kinsch adds: “In that respect Luxembourg reached a major milestone last year in establishing itself as the third major centre for PE in Europe, alongside London and the Channel Islands: several large traditional fund administrators have begun to launch PE desks, while specialist boutiques from London, Jersey and Guernsey are showing strong signals that they are well-advanced in their plans to come to Luxembourg.”
Luxembourg’s unique location at the heart of Europe, its multilingual and international workforce, as well as the proactive involvement of the Government in promoting PE with a business-oriented approach enabled the Grand-Duchy to win international recognition as a pre-eminent jurisdiction for PE funds and deals alike.
*Authors: Alain Kinsch, partner & head of private equity at Ernst & Young, Luxembourg & Axelle Ferey senior manager private equity at Ernst & Young, Luxembourg
Posted on 18 August 2009
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