Luxembourg has made strides over the last six or seven years to create a funds environment that is equally as appealing to PE/RE and VC fund managers who want less regulated fund structures, for speed to market purposes, as it is to traditional asset managers for regulated funds; be they SIFs or UCITS.
This is starting to reap benefits with the likes of Carlyle Group and Oaktree Capital Management choosing to run funds out of Luxembourg. Since 2013, more than 1,400 special limited partnerships have been established, most of which are unregulated.
With a large number of private equity groups now choosing to do their custody out of Luxembourg, it is giving service providers the chance to double down on their service offerings and enhance the client experience. One such firm that has sought to capitalise on this favourable environment is RFA, a next generation managed IT service provider for the alternative fund industry.
Last July, RFA announced the opening of a new office in Luxembourg to complement its London operation. Commenting on this, George Ralph (pictured), Managing Director of RFA in London says:
“Now that RFA has a private financial cloud and an office in Luxembourg it means that we can service our clients locally, supporting them with their Luxembourg operations alongside their London teams. One of our most popular services for Luxembourg clients is our support desk, and it is important that we have engineers locally to go on-site if they are needed.”
By expanding its European footprint, RFA intends to offer a portfolio of high quality private cloud services to both its existing and new financial services clients in Luxembourg, Madrid, Paris, and the wider region.
With the clock ticking ever closer towards the 29th March 2019 on Brexit, stable European jurisdictions like the Grand Duchy are an attractive option both to London-based PE groups and more broadly, global PE groups who require an EU hub for their fund distribution activities.
Ralph confirms that RFA is “definitely seeing a surge” in the number of firms enquiring about its European capabilities, as they prepare for the possibility of a no-deal Brexit. “It makes sense to strengthen operations in an EU member state, so that clients can continue to be served without a break in service levels, or any changes to the set of products and instruments that can be sold,” says Ralph. “We are very needs-driven and our client base in Luxembourg had reached a point where it was necessary for us to build a local operation.
“We are looking at other European cities too, but we need that critical mass of customers with the demand for services in order to make the investment. Luxembourg is seeing a huge increase in the number of investment firms opening officers there, so it made sense to invest there.”
Luxembourg is not looking to capitalise on the Brexit situation, having enjoyed a longstanding close relationship with the UK. The Grand Duchy has built a bridge with the UK that has enabled UK fund managers to benefit from its reputation as arguably the world’s leading onshore fund jurisdiction. For PE managers looking for a home for EU regulated funds, Luxembourg has long been a shining light.
As Ralph says, for clients looking at an additional EU member state presence “I would thoroughly recommend Luxembourg, as it is already set up for the financial services sector. The infrastructure is there, the skills and knowledge base are there and whilst it is an expensive option in terms of rent and space, offices are opening in alternative areas to accommodate the growing demand. It is a very stable country, both financially and politically, which makes it an attractive proposition for UK firms in the current uncertain political climate.”
In terms of RFA’s growth strategy, the plan will be to offer Luxembourg clients the same high levels of support that it offers clients globally. “We are also providing leading cloud technology and next-generation cybersecurity solutions alongside these ‘white glove’ service levels that we are known for,” explains Ralph.
“We have used the same stringent recruitment processes that we have been using for almost 30 years, and employ individuals who have worked in senior positions in the financial services sector. Our engineers, many of whom are ex-CTOs themselves, understand the specific challenges and pressures faced by hedge funds and private equity firms and ensure that service level agreements meet the needs of the clients.”
Luxembourg has a well-established fintech hub in the Gare district and has, among others, the House of Financial Technology.
When asked whether RFA will aim to tap in to this community as it further develops RFA’s technology stack, Ralph concludes:
“RFA always becomes an integral part of the alternative investment community; we have been part of the New York alternative investment sector for almost 30 years and have become very well known in London over the past four years.
“We intend to integrate into the Luxembourg financial services sector too, so will absolutely be looking to the community events and networks for visibility and ideas.”
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