Private Equity and Investment Funds in Luxembourg

The investment fund industry is currently one of the most dynamic sectors in the Luxembourg economy. Today, Luxembourg is the first European investment fund centre and the world’s leading hub for global fund distribution.

Figures released by the CSSF show that net assets under management grew by 319.6 billion euros in 2006, representing growth of nearly 21%, to reach 1.8 trillion euros at 31 December 2006. More than 80% of this growth is due to new investments by private and institutional investors. There is an increasing interest in real estate investment funds, the number of which has more than quadrupled since 2003.

Benefiting from a flexible tax and legal environment, Luxembourg has been recognised for many years as a pre-eminent jurisdiction for structuring private equity funds and private equity deals. The launch in June 2004 of the SICAR (“Société d’Investissement en Capital à Risque”) as an investment vehicle dedicated to private equity and venture capital is an additional illustration of Luxembourg’s commitment to this industry.

The industry, especially the alternative investments sector, enjoyed a boost from the adoption of the law on “Specialised Investment Funds” (SIF) on 13 February 2007. Traditionally, Luxembourg hedge funds were established as Part II funds under the fund legislation. The SIF legislation has brought considerably greater flexibility allowing for the creation of transferable security funds, money market funds, real estate funds, hedge funds and private equity funds.

The activity of this alternative industry grew in three sectors: private equity, hedge funds and real estate. Today, institutional investors represent 60% of the assets managed in this industry. In this respect, a study has analysed behaviours of institutional investors and alternative products’ managers. The results of this study show that this trend should be confirmed in 2008 since, among the institutional investors interviewed, 41% envisages to increase their investments in real estate, 40% in private equity and 33% in speculative funds.

The industry is growing as such speed that employees are finding it increasingly difficult to meet their expanding personal requirements. These professions and specialisations are in a state of constant evolution and people working in the sector need to keep themselves informed about developments in the legislative framework as well as in the regulatory and tax environment both in Luxembourg and internationally, about new financial instruments and techniques and changes in accounting rules.