Innovation key to success
Luxembourg is widely regarded as a prime location for investment in private assets such as private equity, private debt, real estate and infrastructure. Much of its success in this field can be attributed to innovative investment vehicles which are success stories in themselves, and a perfect match for the dynamism of private assets investment.
A real trump card in the Grand Duchy’s hand is its limited partnerships (LPs) that complement the broad range of legal solutions available for structuring alternative funds and private asset transactions. Among them, the Société en Commandite Spéciale (SCSp) stands out as a multi-purpose solution for private assets. When Luxembourg introduced the SCSp in 2013, in a forward-looking move at the time of transposing AIFMD into national law, it provided the investment fund industry with a modern entity type that, to this day, scores with its wider scope and greater flexibility than options available in other jurisdictions. Unlike the ‘vanilla’ société en commandite simple (SCS), an SCSp has no legal personality and can exist merely by agreement between its partners, allowing the maximum flexibility in structuring with an efficient time-to-market, making it ideal for various set-ups. Overall, the SCSp has proved a hit among those in search of a non-regulated, transparent vehicle solution. It is insightful to notice that over the past two years, the numbers of SCSp increased by 85 per cent, according to PwC’s analysis.
Another ace up Luxembourg’s sleeve is the the Reserved Alternative Investment Fund (RAIF). As a subset of AIF, it shares the manager-regulation regime’s key features without being directly subject to product approval by the regulator CSSF. Instead, it relies on an authorised external alternative investment fund manager and benefits from the management passport and the marketing of its shares, units or partnership interests to professional investors across the EU. The RAIF is now considered as one of the key pillars of the Luxembourg toolbox, offering the possibility to set up quickly an investment vehicle investing in any asset class.
This passporting concept, which contributed to making UCITS a successful global brand for retail investments, allowed AIFMD to also create a single market for alternative investment funds. While the UCITS regime has retail investors at its heart, individuals have limited access to the private assets universe. But that may change for more sophisticated retail investors. A review of AIFMD and MiFID is under way. Facilitating investments by these investors in private asset classes is part of the discussion.
Strong and steady
As the low-interest environment persists and certain private asset classes – private debt funds in particular – have been outperforming others with double-digit growth rates, it is no surprise that investor interest in less liquid, higher-returning assets has been strong and steady, not only from the institutional side, but also from individuals with a long-term view of their asset allocation.
In this context, the ongoing reform of the ELTIF regime introduced in 2015 to “boost European long-term investments in the real economy” is promising and one can expect that ELTIF may become a successful third pillar alongside AIFs and UCITS to supplement the offering to European investors, increasing substantially access to a certain private asset class by retail investors.