Research figures published by the Association of the Luxembourg Fund Industry (Alfi), and timed to its Private Equity and Real Estate Investment Funds Conference, have suggested that an increasing number of managers are looking to opportunities in real assets, via private equity, property and loans funds.
The figures, and the associated investment trends, are highlighted in three surveys:
- Real Estate Investment Funds (Reifs) Survey 2017 here
- Luxembourg Private Equity and Venture Capital Investment Fund Survey here
- Loan Fund Survey here
According to these, the first half of 2017 saw 43 direct funds launched into the Luxembourg Reif market, taking the total to 259 vehicles, including 10 investment companies in risk capital (Sicar).
The private equity sector meanwhile raised some $338bn over the first three quarters of 2017, up 18% on the same period last year. The sector has returned some $1.5trn to investors since 2013, the Alfi figures suggest. And considering the relatively poor performance and volatility associated with traditional asset classes in that period, it has contributed to driving more investors to enter the private equity space. That popularity comes with a challenge; it has become increasingly difficult to deploy capital efficiently.
Some 62% of private equity vehicles in Luxembourg are structured as specialised investment funds, however, interviews conducted for the survey found that private equity managers are likely to prefer unregulated Luxembourg limited partnerships or reserved alternative investment funds (Raifs) when investing in future.
Looking to the third key area of loan funds, the survey results suggest that the reduced bank lending in Europe in the wake of the financial crisis in 2008-9 is leading to increasing awareness among regulators and policymakers of non-bank intermediation and loan funds as an alternative source of financing for the real economy. Alfi’s survey, conducted by KPMG Luxembourg, expects the presence of loan funds in the jurisdiction to grow. Currently there is some €40bn of AUM in regulated loan funds as of mid-2017, up some 280% since 2015.
For those managers using Luxembourg vehicles for loan fund investments, some 78% are Sifs, while 60% of the top 10 players are or are planing to use Raifs.
The area of loan funds may become more complex as proposed OECD base erosion and profit shifting (Beps) rules come into effect, Alfi notes. However, the survey suggests managers already in Luxembourg do not intend to leave.