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CONTENTS
LUXEMBOURG GFM Special Report Nov 2018
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In this issue…
03 Luxembourg deepens its alternative fund
roots
By James Williams
12 Luxembourg’s innovation has created perfect
marriage of opportunity
Interview with Sean Murray, SANNE
15 RAIF: a creative vehicle for investing in
tomorrow’s world
Interview with Timothe Fuchs & Enrico Mela, Fuchs Asset
Management
17 Parallel structures – the Luxembourg
solution
By Anne-Gaëlle Delabye & Tara Kapur, Ogier
19 Luxembourg has the toolbox for global
distribution
Interview with Joelle Hauser & Kristof Meynaerts, Clifford Chance
22 Connecting the dots
Interview with Aleksander Jakima, Circle Partners
24 Brexit as a digital catalyst
By Kavitha Ramachandran, Maitland
27 Apex primed to support UK fund managers
post-Brexit
Interview with James Burke & Sonja Maria Hilkhuijsen, Apex Fund
Services
29 Private equity exits critical in current
environment
Interview with Robert Kimmels, PraxisIFM
31 Added substance supports third party
AIFM model
Interview with Daniela Klasen-Martin, Crestbridge
33 Disclosure requirements for sustainable
investments
By Arne Bolch, GSK Luxembourg SA
35 Luxembourg will provide RFA with a
springboard for European growth expansion
Interview with George Ralph, RFA
LUXEMBOURG GFM Special Report Nov 2018 www.globalfundmedia.com | 3
and the impact that a rising rate regime in
the US could have on global equity markets.
These are all known unknowns at this
stage. One cannot speculate as to how
the cards may fall. But at this point in time,
Luxembourg stands in a strong position,
where recent product and regulatory updates
have helped to make it even more attractive
to global fund sponsors wishing to do
business under the AIFM Directive, and
garner new European institutional capital.
Arne Bolch is Partner at GSK Stockmann’s
Luxembourg office. In his view, Brexit is
unlikely to make a lot of UK fund managers
relocate to Luxembourg: “However, I have
a feeling there will be more substance,
with more middle- and back-office functions
moving to Luxembourg but you will not
necessarily see the fund or portfolio
management function moving here.
“I would expect that there will be some
Luxembourg’s funds industry enjoyed a good
period of growth last year, a period during
which assets under management grew, on
average by 15 per cent, asset flows grew
by 5 per cent, profits grew by 10 per cent,
while margins were broadly maintained
somewhere close to 37 per cent.
As of August 2018, total fund AUM in
Luxembourg stood at EUR4.27 trillion, up
7.15 per cent year-on-year. Interestingly,
US fund sponsors account for the largest
market share, equivalent to 20 per cent of
total AUM, followed by Great Britain (17.6
per cent), Germany (14. 4 per cent) and
Switzerland (13.7 per cent).
On the back of this upward trajectory, the
next 12 months will be interesting as the EU
prepares for life without the UK. Then there
are global macro pressures to consider,
specifically what impact the US/China trade
war could have on global economic markets,
Luxembourg deepens its
alternative fund roots
By James Williams
OVERVIEW
LUXEMBOURG GFM Special Report Nov 2018 www.globalfundmedia.com | 4
OVERVIEW
formal arrangement that will not lead to the
UK becoming a third country without taking
into account the significance of London for
the EU and vice versa, and that something
along the lines of the current set-up will
remain; maybe an EEA-like arrangement,
but it’s hard to know for sure where the
discussions are heading. I am hopeful there
will be some form of rapprochement.”
Luxembourg – A nexus for global
distribution
When structuring a large private equity fund,
it is likely going to contain international
investors (the US, Europe, Asia) and is,
in effect, a commercial deal between all
interested parties to draw down the money.
Different investors have different
preferences. Whereas sovereign wealth
funds will want the most efficient funds
possible and are prepared to have no
tax leakage, European insurance groups
who are subject to Solvency II will want
to invest in EU regulated fund structures.
This is because investor regulation in the
EU embeds financial advantage in investing
through European fund structures so
European investors are steered to allocate to
European funds.
These international nuances can work to
Luxembourg’s advantage by virtue of it being
the hub of the European funds industry and
a nexus for global funds distribution.
Rather than solely structuring an offshore
vehicle, PE/RE fund management groups
are instructing lawyers to establish multiple
parallel vehicles across multiple jurisdictions.
“For us as a group, we consider
Luxembourg to be one of our key hubs,”
states Sean Murray, Managing Director,
Alternative Assets (EMEA) at SANNE – a
leading provider of alternative asset and
corporate administration services with more
than EUR235 billion in AuA.
“We see massive opportunities in PE/
RE in Luxembourg given the large amounts
of dry powder. We see everything from mid-
market PE fund managers all the way up
to multi-billion dollar PE managers using
Luxembourg to launch fund products.
Luxembourg will, I think, remain the
jurisdiction of choice for international fund
managers who are looking to deploy capital
into Europe and beyond. It’s a tried and
tested jurisdiction. It has a strong regulatory
environment. It has a stable and favourable
economic environment, and I think managers
and investors alike are looking for that
stability. All the key legal and advisory firms
are located here and that acts as an enabler
for Luxembourg to remain at the forefront.”
Crestbridge, has a long history of
dealing with real estate and private equity
funds, having worked with them from its
Jersey office since 1998 and Luxembourg
since 2010.
“What we’ve been able to offer our
clients is an ability to combine expertise in
understanding the asset class, we are able
to ask the right questions, with our expertise
in understanding Luxembourg’s regulatory
market,” says Daniela Klasen-Martin,
Managing Director and Country Head,
Crestbridge Luxembourg.
“We see a lot of global managers
coming to Luxembourg for distribution. We
see opportunities by combining different
jurisdictions, whilst some still want to stay
outside of the EU if they do not need to
access EU investors. Luxembourg is for sure
very strong for those managers seeking
global distribution for their funds.”
Product flexibility
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.
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OVERVIEW
There never used to be proper regulation
for alternative funds. It was more for retail-
orientated UCITS fund products, which
have existed since 1988. For those who
were investing in offshore PE/RE funds,
there was nothing similar until a few years
ago when the special limited partnership
(SCSp or société en commandite spéciale),
a vehicle without legal personality modelled
on the English law limited partnership, was
introduced, following the AIFMD.
These are flexible vehicles free from
corporate law overrides, of maintaining
limited liability for investors and of generally
avoiding any tax leakage at the fund level.
“Replicating an Anglo-Saxon concept in
a civil law jurisdiction might seem a little
odd at first, but where the SCSp can be
advantageous is that managers can benefit
from Luxembourg’s fund management
and administration infrastructure. Service
providers here are very familiar with
managing or administering SCA and SCS
structures, and many would already have
been supporting Cayman or Delaware
LPs, for example,” commented Pierre de
Backer, Principal in the Investment Funds
and Corporate practices at Deynecourt,
a Luxembourg law firm, in last year’s
Luxembourg Fund Services report.
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.
The Luxembourg limited partnership has
a number of advantages over the English
limited partnership. Although the SCSp does
not have its own legal personality or capacity,
all contributions, acquisitions and dispositions
of assets are made in the name of the SCSp
and not the in the general partner’s name nor
any of the limited partners.
That is quite practical as it means one
does not have to disclose the identity of
investors in order to register an asset.
“Suddenly, regulation has allowed things
like the SCSp and the Reserved AIF to be
created. In the past, we had products where
the regulator had to give its approval before
they could be marketed to investors (the SIF,
SICAR). That meant having to respond to a
lot of questions from the regulator and it took
longer to get the product to market.
“Time really is of the essence because
you want to get your product to market as
early as possible. The RAIF is a product
where an entity such as Fuchs Asset
Management, which is a Luxembourg-
registered AIFM, can provide the requisite
oversight to the RAIF. We as the AIFM are
regulated, not the product,” explains Timothe
Fuchs, CEO of Fuchs Asset Management.
LUXEMBOURG GFM Special Report Nov 2018 www.globalfundmedia.com | 6
OVERVIEW
equipped. Our role is to provide a structure
that fits most of the strategies for most of the
investors and I think that’s what is driving
Luxembourg’s legislative actions.”
Substance builds among AIFM
community
According to PwC’s latest ManCo report,
“Observatory for Management Companies
2018 Barometer”, Luxembourg is now home
to 228 licensed AIFMs overseeing EUR94
billion in AUM. The number of Super
ManCos, which act as the investment
manager to both UCITS funds and AIFs,
stands at 124, overseeing EUR2.6 trillion
in AUM. Lux-domiciled AIFMs employ 760
professionals and this is likely to continue
to grow over the coming 12 months as UK
managers get their Brexit plans firmed up.
“With respect to our AIFM services, we
see a lot of mid-market managers choosing
to use the delegated model,” comments
Murray. “For non-EU managers wanting to
come to Europe, if they come to someone
like us who has all of the services in place
under AIFMD, they see it as an easier step
to take. They know they can use a third
party AIFM and it allows them to open up
their distribution strategy to Europe. It’s less
restrictive in that sense and they only have
to deal with one counterparty who takes
care of everything for them.
“However, there is a strict level of
segregation in place between the fund
administrator, the depositary and the AIFM.
It’s easier than dealing with three different
counterparties in my view.”
James Burke is Head of Apex Europe,
At GSK, Bolch confirms that many of the
new fund requests the firm currently receives
are for the RAIF. “Real estate funds and
private debt funds seem to be very much
in demand right now, not to mention private
equity,” he says.
The RAIF in his view is good solution
for experienced fund sponsors, wanting to
continue the perks of the SIF. Experienced
fund managers know what they are looking
for, whereas a first-time fund manager may
see more value in relying on the added value
of CSSF supervision.
“Sometimes it may be better for first-
time fund managers to stick to SIFs, which
as regulated funds require a disciplined
approach to filing with the regulator,”
suggests Bolch. “The RAIF is a good
option for more experienced and larger
fund providers who have experience in
the market.
“You can more easily attract continental
European investors now with an unregulated
SCS or SCSp or a RAIF, as opposed to an
English LP structure, at least for now, given
that no one knows where the UK is going as
of 29th March 2019.”
Francois Pfister is a partner in the funds
group at Ogier (Luxembourg). He says that
90 per cent of the work Ogier does is for
special limited partnerships, whether they
are RAIFs or other fund structures, and
helping clients outside of Europe to set up
parallel fund structures in Europe alongside
their offshore funds, based on their existing
documentation.
“If a US manager has a Cayman or
Delaware fund and now wants to attract
EU investors, we would take the Cayman
partnership as a template and set up an
SCSp under Luxembourg law, which would
to all intents and purposes look just like a
Cayman fund,” says Pfister.
“I would estimate that half of the funds
we’ve set up over the last 12 months as
RAIFs have been private debt funds, and
mostly with US fund managers. We are also
working presently on real estate funds, and a
couple of substantial private equity funds.
“The strategy is important for the manager
but when it comes to structuring the vehicle,
Luxembourg has a very complete toolkit.
You can always improve your arsenal, of
course, but today I think we are very well
“Luxembourg has a very
complete toolkit. You can
always improve your arsenal,
of course, but today I think
we are very well equipped.
Our role is to provide a
structure that fits most of
the strategies for most of
the investors.”
Francois Pfister, Ogier
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OVERVIEW
Apex Fund Services (Ireland). He notes that
UK fund managers have had to ramp up their
contingency planning in response to Brexit
and as a result the volume of applications
that the CSSF has received has significantly
increased over the last few months “as
firms seek to finalise their Brexit plans and
put them into action – both managers who
have decided to totally Brexit-proof their
businesses by setting up EU hubs as well
as those entering into discussions with third
party ManCos in earnest”.
He is of the opinion that Luxembourg will
continue to grow as the jurisdiction of choice
for third party ManCos in Europe.
“Those who establish their own AIFM tend
to retain the risk management and portfolio
management functions in-house, but we
would help with all the transfer agency and
fund accounting services, AML services on
investors, as well as give them a depositary
solution. The central administrative function
and other non-core requirements such as
tax and regulatory reporting services are
increasingly outsourced by managers who
set up their own AIFMs,” comments Burke.
There will need to be a cooperation
agreement between the UK and the EU in
order for the portfolio management function
to be delegated back to the UK manager
in a post-Brexit environment because UK
fund managers will, in six months time, be
classified as third country managers.
The delegation model is already in use
now. An EU AIFM can delegate the portfolio
management function back to non-EU fund
managers, such as those in the US and Asia
Pacific and it appears to be working well
enough.
“We envisage that a similar arrangement
should be possible for UK managers wishing
to use an EU-based AIFM,” continues
Burke. “Brexit is placing more focus on that
delegation model but that is the proposition
and from an Apex perspective it means we
can offer clients that one-stop-shop solution
at the local Luxembourg level, across the
value chain.”
Sonja Maria Hilkhuijsen, Global Head of
Compliance and Data Protection at Apex
Fund Services, confirms that a number of
UK managers are opting to have their own
substance and relocating to Luxembourg.
“They aren’t waiting for the Brexit
outcome. Particularly UK AIFMs, they are
anticipating and scenario planning to ensure
they are able to meet EU regulations and
secure their distribution channels in EU.
Waiting for the final Brexit outcome would
put their entire marketing strategy at risk.”
“These larger managers are recruiting
local professionals in Luxembourg in order
to demonstrate local governance and
substance to the CSSF, particularly in light
of the latest CSSF Circular 18/698 which is
fundamental for regulatory approval,” says
Hilkhuijsen.
The rules under AIFMD say that if you
invest more than 85 per cent of an EU
feeder fund into a non-EU offshore fund you
will lose the passport rights. As such, fund
sponsors must set up a parallel onshore
fund that runs alongside the offshore fund,
if they wish to avail of the funds passport.
Some people in the marketplace still aren’t
aware of this.
“The very largest PE/RE fund managers
will likely have both offshore funds as well
as European funds. I think the perception
is starting to change in terms of managers
thinking about Luxembourg to establish
funds as opposed to just thinking about
offshore jurisdictions such as the Cayman
Islands,” opines Joelle Hauser, Partner,
Clifford Chance (Luxembourg) and head of
its Investment Funds Division.
Hilkhuijsen points out that one of the
attractions to UK managers appointing third
party AIFMs in Luxembourg is that there
are no linguistic concerns, as one might
encounter when choosing Frankfurt, for
example, or Paris. “Luxembourg is very
multi-cultural, English is spoken among
professionals throughout its funds industry,
and it is well connected, making it easy to
travel to a number of different European
cities. It is Europe’s financial hub,” she says.
One point to stress for those managers
who are thinking of setting up their own
AIFM is that there is much closer scrutiny by
the CSSF in terms of substance. This should
be viewed as a positive, according to Fuchs,
and should not be feared.
“The Luxembourg Government, the CSSF
and professional associations have always
been proactive to develop new regulation.
In other jurisdictions, when regulation is
introduced it generates fear but Luxembourg
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OVERVIEW
massive impetus to maximise the impact
of public funds to attract more private
investments. In particular, the extended and
reinforced European Fund for Strategic
Investments (EFSI 2.0), in force since 31
December 2017, proposes a 40 per cent
climate-smart investment target.
The Action Plan aims to further connect
finance with the specific needs of the
European and global economy for the benefit
of the planet and has three objectives:
• Reorient capital flows towards sustainable
investments to achieve sustainable and
inclusive growth;
• Manage financial risks stemming from
climate change, natural disasters,
environmental degradation and social
issues; and
• Foster transparency and a long-term
outlook for financial and economic activity.
Part of this strategy will be to ensure that
asset managers, institutional investors,
insurance distributors and investment
advisors include economic, social and
governance (ESG) factors in their investment
decisions and advisory processes. Asset
managers and institutional investors
who claim to pursue sustainability
objectives would have to disclose
how their investments are aligned with
those objectives.
This means greater transparency towards
end-investors, ensuring comparability
between products.
“In order to close the funding gap under
the Paris Agreement, there has to be private
is different. Regulation should not be feared
if you establish the right sort of partnership,”
says Fuchs.
Luxembourg will continue to develop as
an attractive place to do business. However,
it has become more complicated today
than it used to be in the past. The 18/698
Circular has replaced Circular 12/546, which
imposes a certain level of organisation on a
management company.
This is likely to make the third party AIFM
an even more attractive option, moving
forward. There will always be people with
new ideas who will need such a solution
because for them it will be too difficult to
establish a dedicated, regulated management
company of their own.
“The trend of having ManCos operated by a
handful of people will probably disappear. They
will need to be a lot more organised under
Circular 18/698. It is an opportunity for us as a
large and well organised AIFM to tailor make
solutions for our clients,” adds Fuchs.
ESG disclosures on horizon
The signature of the Paris Agreement on 12
December 2015 and the adoption of the UN
2030 Agenda for Sustainable Development
on 25 September 2015 marked a shift in
global attitudes towards climate change and
environmental degradation.
The European Commission recently wrote
the fact that over 170 countries have now
ratified the Paris Agreement sends a powerful
signal: the necessity of transitioning to a
low-carbon, resource-efficient and circular
economic system can no longer be ignored.
To achieve the targets agreed in Paris,
including a 40 per cent cut in greenhouse
gas emissions, around EUR180 billion of
additional investments a year are needed.
The financial sector has a key role to play in
reaching those goals, as large amounts of
private capital could be mobilised towards
sustainable investments says the European
Commission. Capital markets, in particular, can
help to reorient investments towards those
sectors and activities that can contribute to
the sustainability of the global economy.
The Action Plan on Financing Sustainable
Growth launched by the European
Commission on 8th March 2018 laid out a
roadmap to deliver on this commitment.
The EU is also already providing a
LUXEMBOURG GFM Special Report Nov 2018 www.globalfundmedia.com | 9
OVERVIEW
making process, but what does that actually
require from the manager or in respect of the
given fund? If it’s a real estate investment,
what will the sustainability risk provided be?
What will be the impact on the respective
remuneration policy of the given AIFM?
“Transparency is good and disclosure
requirements are fine, but they will need to
make sense for investors and initiators alike,”
remarks Bolch.
Fintech developments
Luxembourg’s connectivity to the rest of the
world is fantastic. The reason Skype, and
many others, are located there is because
access to other jurisdictions is unrivalled. All
the big technology companies are setting up
in the Grand Duchy; Paypal, Amazon, etc.
Moreover, Luxembourg is investing heavily
in infrastructure around IT, security, data lakes
and so on. Indeed, in terms of Tier 4 category
data centres, there are more in Luxembourg
than anywhere else in the world.
While the US has Silicon Valley and
London has the less glamorous sounding
Silicon Roundabout, there are signs that the
Grand Duchy is developing a Fintech hub of
its own.
Martin Guérin, founder and owner of
Nyuko, last year took over the role of CEO of
Luxembourg City Incubator. Along with the
Luxembourg City Incubator and Luxembourg
House of Financial Technology (LHoFT),
Nyuko has moved into the 4,200 square
meter building Le Dôme in the Gare district
of Luxembourg.
Although still early days, this
announcement could be a sign that the Gare
district will become Luxembourg’s de facto
Fintech hub.
“Luxembourg has created various
incubation schemes including the House
of Financial Technology and the House of
Entrepreneurship. People receive proper
mentorship from tech specialists, fund
management companies and so on, and this
helps them to scale up in a cost-effective
way. Overall, I would say Luxembourg
provides a hugely conducive environment for
technology start-ups,” says Robert Kimmels,
Managing Director, Praxis Luxembourg SA.
This is important as there is always a
risk, to any established funds jurisdiction, of
becoming complacent.
money invested in ESG projects. Going
forward, asset managers will, in addition
to pure financial criteria, also look at ESG
criteria and provide disclosure reporting to
investors and distributors.
“These are still draft regulations but they
should be ready by Q3 2019. Looking at long-
term sustainable investments is one of the
new trends we have to watch,” says Hauser.
It is possible that fund sponsors will
start to take a more proactive stance in
terms of sustainable investing, and share
information on ESG policies as pertain to
their investment strategies with investors,
even before they ask for them. It will add
more work from a reporting perspective, but
asset managers increasingly understand the
importance of ESG investing.
“This push (for ESG disclosures) is not
only coming from institutions but also from
family offices; it is a clear and recent trend.
More investors have been asking for ESG
disclosures in various forms,” adds Kristof
Meynaerts, Counsel, Clifford Chance.
Bolch is part of a working group with
Invest Europe, the European Private Equity
and Venture Capital trade association and
participated in drafting a paper on ESG
disclosure for the European Commission.
In essence, he thinks it is a good idea
to have ESG factored in to the reporting
equation but says it is not yet clear how
these disclosures will be applied.
“Any fund will, amongst others, at least
need to integrate sustainability risks into
the respective funds’ investment decision-
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OVERVIEW
There is also Lux Innovation contributing to
the economic development of Luxembourg
by fostering innovation, fuelling international
growth and attracting foreign direct
investments.
“These initiatives provide the right
environment for the creation of a next
generation talent hub, which should attract
programmers and other technologists, and
this will allow Luxembourg’s companies to
transpose the latest technologies through
their business lines. We are looking to
benefit from this to improve our data
compliance and reporting capabilities,”
she says.
In conclusion, Aleksander Jakima,
Conducting Officer at Circle Partners
says: “We are committed to investing in
best-in-class technologies to improve our
automation capabilities. By doing so we can
focus more on the relationship side of the
business.” n
These initiatives taken by the Luxembourg
government to allow its fintech industry to
grow appear to have been successful. To
some, like Ogier’s Pfister, this is refreshing to
say the least.
“You see more start-ups using new
technologies including DLT and consolidating
their positions, and all sorts of reporting
and compliance solutions and tools being
developed.
“This is helping Luxembourg’s financial
industry to defend its position. It was
absolutely indispensible for us to move in
that direction because not doing so would
place us in a difficult position in the future.
Smaller fintech companies are helping
larger, established financial institutions
operating here. Blockchain technology will
be used in custody and transfer agency
work and this will indirectly benefit asset
managers as a result. There are now
more fintech entrepreneurs operating here
and that is quite a comforting thought,”
comments Pfister.
The question will be whether these
smaller fintech players will need to comply
with heavy regulations.
The CSSF needs to be careful in that
respect. It will need to strike a balance that
helps the fintech sector to grow without
over-regulating it. “Some will be needed,
obviously, but too much regulation could
kill the sector. These entrepreneurs need
to concentrate on their core businesses,
not worry too much about complying with
onerous regulations.
“I do think the CSSF is open to this. We
at Ogier have been working on a few ICO
projects and the CSSF has an open attitude
along the lines of, ‘Okay, come to us with
the proposed project and we will see what
is possible’. A wait and see attitude by the
regulator is welcome, rather than trying to
regulate against the market in advance,”
adds Pfister.
At Apex Group, Hilkhuijsen further
explains that the government has come
up with a scheme to bring Luxembourg’s
employees up to speed with blockchain
technology. The Luxembourg Digital Skills
Bridge programme supports the development
of qualified employees in order to further
reinforce innovation and competitiveness
in a world of digitisation and automation.
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www.globalfundmedia.com | 12LUXEMBOURG GFM Special Report Nov 2018
Luxembourg’s innovation
has created perfect
marriage of opportunity
Interview with Sean Murray
In a recent article with Private Equity Wire
seven months ago, Sean Murray, Managing
Director, Alternative Assets (EMEA) at
SANNE – a leading provider of alternative
asset and corporate administration services
with more than EUR235 billion in AuA –
discussed a definitive trend among PERE
fund managers to outsource their internal
accounting and reporting processes.
This trend shows no sign of abating as
global PE/RE groups look towards Europe,
and specifically Luxembourg, to develop
global distribution hubs.
Brexit is another unavoidable catalyst.
Brexit has contributed to some of the
growth we are seeing in Luxembourg as
fund managers are looking for stability and
certainty around their fund structures. This
allows fund managers to market a fund that
they know will have the same rights once
the negotiations over Brexit are finished,
whatever the outcome.
As fund managers get more comfortable
outsourcing tasks to third party specialist
fund administrators, we see a shift in mind-
set as they come to understand the myriad
benefits to using third party management
companies, not to mention an independent
depositary.
Under AIFMD, these are key service
provider relationships and for groups like
SANNE, this is playing into their hands.
“The outsourcing trend we saw earlier
in the year has continued and ramped
up. We see a massive amount of inflows
coming in to Luxembourg, as I’m sure other
service providers are seeing. The number
of clients and the number of new deals
is phenomenal. I don’t think we’ve seen a
stronger inflow of business since before the
2008 global financial crisis,” states Murray.
SANNE services its global clients
across asset classes on all fronts, from
the depositary to the AIFM, administration
services, providing corporate services to
underlying structures across the board, and
offers a full end-to-end AIFMD solution.
Most fund managers have become
accustomed over the past few years to
having a depositary. “It is there to provide
oversight of the structure and be able
to provide an extra layer of comfort to
investors,” explains Murray. “Investors are
looking for transparency and to ensure
that there is someone sanity checking the
fund structure. The depositary provides the
compliance check, alongside the AIFM.
“Outsourcing has become an easier
discussion to have with PE/RE fund
managers than perhaps it was two or three
years ago.”
The concept of having a responsible
party in place has always existed in
Luxembourg, given that for the last three
decades its service provider network has
honed its expertise in facilitating UCITS
funds, including custodians who have long
taken care of fund assets. Murray says
that even prior to AIFMD being introduced,
Luxembourg’s custodians were evolving to
provide a depositary bank function.
“With AIFMD, it has opened up the door
to other parties, in addition to the custodial
banks, to provide that supervisory role. It
has formalised some of those oversight
functions, and has established a tried and
tested framework.
“Some managers are new to the EU and
we need to explain the concept and role
of the depositary, but they understand they
need one if they want to market their fund(s)
into Europe,” says Murray.
Sean Murray, Managing
Director, Alternative Assets
(EMEA) at SANNE
SANNE
www.globalfundmedia.com | 13LUXEMBOURG GFM Special Report Nov 2018
with multiple counterparties, they only need
to negotiate with one counterparty. We can
quickly turnaround legal agreements and get
the fund ready for launch,” explains Murray.
In his view, completing the acquisition of
Luxembourg Investment Solution SA (“LIS”)
in February this year, was the missing piece
of its service offering. LIS is a leading third
party Alternative Investment Fund Manager
(AIFM) with approximately EUR8.3 billion in
AuA. The acquisition allows SANNE to act as
the ManCo to both UCITS funds and AIFs.
“Whilst we were enjoying success with
our administration and depositary business,
we were missing the AIFM leg. Since then,
we have seen a lot more interest from fund
managers who would like us to provide ‘all
in’ services,” says Murray.
“That said, we are still being approached
for those services on an individual level. We
provide AIFM services to clients who do not
use us as their administrator, and equally
we provide administration and depositary
services to clients who are using a separate
third party AIFM.
“Having that flexibility allows us to take
advantage of opportunities in the market.
Especially where managers are coming in
and setting up their own AIFM businesses.”
SANNE is able to support those managers
in the short term as they look to build up their
substance and hire staff. This is something
it is already currently doing for a number of
clients. Murray believes that the more fund
managers move in to Luxembourg, the more
it will help to further enhance the profile and
attractiveness of the jurisdiction and increase
Luxembourg’s expertise.
“As a group, we welcome seeing new
fund managers coming to Luxembourg to
create their own substance and add to the
industry. It’s all about continuing to build up
the industry here. If that means some of our
largest fund manager clients set up their
own AIFMs, we’re happy with that.
“Equally, we continue to see an increase in
fund managers coming to Luxembourg from
outside the EU who are happy to use a third
party AIFM because they don’t want to create
their own presence in Europe. Luxembourg
is, and I think will remain, the jurisdiction of
choice for international fund managers who
are looking to deploy capital into Europe and
beyond,” concludes Murray. n
Murray views Luxembourg’s continued
innovation over the years as one that has
created the conditions for its funds industry
to flourish. Introducing the special limited
partnership (SCSp) and the Reserved
Alternative Investment Fund (RAIF) has
helped to attract global PE/RE groups, given
the amount of capital in the private markets
that is floating around. These fund managers
want products that are easy to take to
market and easy to set up, within a highly
regulated and supervised jurisdiction.
“The speed to market is really helping
Luxembourg and is why we are seeing such
a strong inflow of business. With products
like the SCSp and the RAIF, there is still the
same level of supervisory oversight on the
business, but it is the AIFM who is subjected
to this oversight not the fund.
“If you identify an investment opportunity
and want to respond quickly because
investors are lined up, you don’t want to be
waiting six months to set up an investment
vehicle,” he says.
In many respects, it has led to a perfect
marriage: the flexibility of investment vehicles
and the transparency of reporting provided
by Luxembourg service providers.
This has not gone unnoticed at SANNE. It
has sought to capitalise on the attractiveness
of Luxembourg, and its ability to offer an
end-to-end solution under AIFMD, with
Murray confirming that it now has a large
number of RAIFs, in particular, on the books.
“We see a couple of new RAIFs or
SCSps being launched weekly. When the
fund sponsor sets up a RAIF, we can act as
the AIFM, and we have the administration
business and the depositary business to
support the product at the same time.
“That again helps with speed to market
because fund managers don’t have to deal
SANNE
www.globalfundmedia.com | 15LUXEMBOURG GFM Special Report Nov 2018
RAIF: a creative vehicle for
investing in tomorrow’s world
Interview with Timothe Fuchs & Enrico Mela
Fuchs Asset Management SA (‘Fuchs AM’)
is the Management Company (‘ManCo’)
within the family-owned Fuchs Group
located in three jurisdictions: Luxembourg,
Belgium and Switzerland. As an authorised
AIFM, it provides the services and the
knowledge (governance, risk management
& compliance, portfolio management and
distribution) for asset managers, private
banks, family offices and entrepreneurs
wishing to launch AIFMD & UCITS compliant
vehicles as easily as possible.
Over the last four years, Fuchs AM has
been expanding its AIFM capabilities to
support investment managers, including
private equity managers, who have deep
investment expertise but aren’t necessarily
equipped to run their own regulated
management company business.
With the Reserved Alternative Investment
Fund (‘RAIF’) also proving a huge hit with
Private Equity (‘PE’) managers, these are
propitious times for the Fuchs Group.
“We offer all the processes and
procedures as a regulated AIFM,” comments
CEO, Timothe Fuchs. “The managers can
come to us with their investment idea, and
if it is viable and makes sense, they can
launch a RAIF quickly and easily. Whereas
you need to have investor capital in place
on day one for regulated products, this is
not the case with a RAIF – a manager can
launch it first and then do all the necessary
marketing.”
What gets Fuchs and the team especially
excited is that the RAIF allows for creativity.
The RAIFs on its platform are highly diverse,
but the common thread is that each PE
manager client is investing in areas that
will have a tangible, positive impact on the
planet. Such is the ease of bringing a RAIF
to market, with Fuchs acting as the AIFM,
that it is encouraging more PE managers
and innovators to develop unique strategies.
“Companies are using the RAIF product
as a way to encourage investors to invest
in the real economy. It is helping investors
make a difference. In the past, these private
market investments would have been harder
to access; the RAIF is changing that,”
says Enrico Mela, Managing Director at
Fuchs AM.
The notion of partnership is very important
when selecting a third party AIFM. As Fuchs
notes: “What gets me passionate is that, as
an AIFM, we have a fantastic opportunity
to support people who have good ideas
and are looking to do things that have an
added value for the economy and for future
generations. It’s amazing to look at the
different investments our clients are involved
with. With our third party ManCo concept,
we can support PE companies in their
investment goals.”
“That’s what gets me up in the morning,
thinking about how we can partner with
clients to complete their vision,” continues
Fuchs. “Within our group we provide also
family office services and we are developing
together with our client’s ideas how to invest
differently. That’s not to say that traditional
financial markets are not still interesting,
on the contrary, but we need to think about
investing in the real economy for future
generations.”
In his view, the experience or structure
of the ManCo is not necessarily the key
consideration for a PE manager wishing to
launch a RAIF.
“Rather, you need to have a common
interest in forging a genuine, long-term
partnership. The chemistry has to be right.
The rest brings added value but it all boils
down to the human relationship in my
opinion. Ultimately, does the AIFM share
your passion?” concludes Fuchs. n
Timothe Fuchs, CEO at Fuchs
Asset Management
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ogier.com
www.globalfundmedia.com | 17LUXEMBOURG GFM Special Report Nov 2018
Parallel structures –
the Luxembourg solution
By Anne-Gaëlle Delabye & Tara Kapur
Non-EU managers seeking access to
European capital are more frequently looking
to Luxembourg parallel structures due,
in part, to their flexibility and the features
that the Luxembourg limited partnerships
share with the Anglo-Saxon model. Ogier’s
Luxembourg investment funds team –
working in partnership with our teams in
the BVI, Cayman and Hong Kong – have
extensive experience of structuring parallel
funds for clients in the US and Asia.
Luxembourg limited partnerships are
increasing in popularity as a parallel
structuring option, being comprehensible
in structure and functionality for managers
(and investors) with experience in the
Anglo-Saxon market, and also providing the
necessary comfort with respect to limited
liability of investors.
An appetite for large fund raises from a
diverse pool of investors acts as stimulant
for managers/sponsors (notably US and
Chinese initiators), who are making use of
sophisticated global fund structures with
Luxembourg and other offshore vehicles
constituted as parallel funds to the main fund.
There are certain components to the
overall model that must be considered in
advance of launch.
Sponsor return: In an offshore context/
standalone structure, the sponsor usually
receives its return by way of inter alia
advisory/management fees or promote
fees to the general partner, and/or by
the establishment of carry vehicles. In a
parallel structure the flow of fees through
the structure can potentially be more
complicated.
Co-management: Although the
Luxembourg parallel will in many respects
replicate the terms of the main fund as it
will have a common investment strategy and
inter alia invest/divest in the same portfolio
of assets, each is a separate legal entity
and the Luxembourg vehicle will need to be
compliant with the requirements of applicable
EU regulatory law. Thus an EU AIFM may
work alongside a Cayman manager, and
each participant in the structure will need
to have a keen understanding of its role,
and the overall functioning of the model, so
as to ensure the confluence of the various
limbs into one smoothly operating whole and
avoid functional conflicts during the life of
the fund(s).
Costs: The establishment and ongoing
administration of separate entities in multiple
jurisdictions can add to the cost burden on
the structure. Although less of a concern
for sizeable funds, for smaller funds the
sustainability of the structure should be
carefully reviewed. The regulatory impact
in the context of investment decisions/
substance requirements in relation to the
Luxembourg parallel must be understood by
the non-EU main fund.
Notwithstanding the complexities inherent
to a fund structure with parallel funds, there
are inescapable benefits, such as:
• The variety of options it makes available
to a far greater pool of investors (and
capital) – investors have the ability to
participate through the fund that is best
suited to their particular risk, regulatory,
jurisdictional and tax appetites;
• The AIFMD impact may be restricted
to the Luxembourg parallel without any
regulatory scope creep with respect to the
non-EU main fund;
• A larger investment pool means funds
can be managed more efficiently, and
can eliminate some of the time otherwise
taken to make a target acquisition –
managers can respond with greater agility
to market dynamics in order to, ultimately,
meet their investment objectives. n
Anne-Gaëlle Delabye, partner
in Ogier’s Luxembourg
Investment Funds team
Tara Kapur, associate
in Ogier’s Luxembourg
Investment Funds team
OGIER
www.globalfundmedia.com | 19LUXEMBOURG GFM Special Report Nov 2018
Luxembourg has the
toolbox for global
distribution
Interview with Joelle Hauser & Kristof Meynaerts
Joelle Hauser, partner at
Clifford Chance (Luxembourg)
Kristof Meynaerts, counsel at
Clifford Chance
Luxembourg continues to see net inflows
of capital and is now the world’s second
largest fund centre with, as of August 2018,
EUR4.3 trillion worth of net assets under
management, and this only in regulated
funds, according to the Association of the
Luxembourg Fund Industry (ALFI).
Luxembourg was the first EU jurisdiction to
introduce the AIFM Directive, drafting a law
and filing it with the Luxembourg parliament
on August 24th, 2012 well ahead of the July
2013 deadline. Since then, the Grand Duchy
has increasingly embraced moving away from
traditional retail cross-border fund distribution
under UCITS to become a real centre of
alternative investment funds.
“This has put Luxembourg firmly on the
map alongside non-EU financial centres
such as the Cayman Islands and Delaware,”
comments Joelle Hauser, Partner, Clifford
Chance (Luxembourg) and head of its
Investment Funds Division. “We see promoters
coming from Asia Pacific and the US for
institutional distribution in Europe under
the AIFMD as it has become too difficult to
accomplish this with their non-EU funds.
“They are looking for a European hub
and I would say Luxembourg is one of the
obvious alternatives. We have a good track
record with real estate funds, which we have
built over the last 15 years.”
Luxembourg is currently home to 3,949
regulated funds, but thanks to changes to its
limited partnership regime and the introduction
of the RAIF (reserved alternative investment
fund), taking into account the marketing
restrictions on non-EU managers of non-EU
funds under the AIFMD, the Grand Duchy
is going from strength to strength as an
alternative funds centre, especially for private
equity, real estate and private debt funds.
“Another reason for continued growth is
Brexit, as we see many of our UK clients
running partnership structures considering an
alternative option to the UK and there again,
Luxembourg is the obvious choice. Global
fund sponsors are picking Luxembourg for
their alternative fund products,” explains
Kristof Meynaerts, Counsel, Clifford Chance.
In 2013, Luxembourg lawmakers took the
opportunity to revamp the company law,
allowing for partnership structures to be
established in a similar fashion to Anglo
Saxon partnerships. The revised regime
facilitates both partnerships with legal
personality (SCS or société en commandite
simple) and without legal personality (SCSp
or société en commandite spéciale), which
has helped put the Luxembourg limited
partnership as an alternative on the map, as
referenced by Meynaerts.
Moreover, both the SCS and SCSp can
be used for regulated and unregulated
partnerships.
“This modernisation of our limited
partnership law has been a real catalyst of
growth, giving sponsors the choice of setting
up limited partnerships under various forms
as open-end or closed-end funds.
“We have been able to leverage our
knowhow from the UCITS distribution network
and the technical feature of these funds
and transpose it to alternative funds. I think
we have learned a lot and moved on as a
jurisdiction; we still excel at supporting UCITS
funds, but alternative funds are becoming
increasingly important,” says Hauser.
At the end of September 2017, 32 per cent
of all new investments into European funds
that year were invested into Luxembourg-
domiciled funds. To underscore the global
appeal of the jurisdiction, these funds are
CLIFFORD CHANCE
www.globalfundmedia.com | 20LUXEMBOURG GFM Special Report Nov 2018
an extensive toolbox, you can get the right
cultural fit with the client for each product. I
think this is one of the main advantages of
Luxembourg,” says Hauser.
She believes that the perception is starting
to change among global fund managers
thinking about Luxembourg to establish
funds as opposed to say the Cayman
Islands, partly because investors are getting
familiar with it.
“I see more Asian and US investors
investing into Luxembourg funds compared
to a few years ago. Global players want
to invest in pooled vehicles alongside
institutional investors from countries other
than their own. In that respect, European
institutional investors have been investing
in Luxembourg-domiciled funds for a long
time and have become very comfortable
with the jurisdiction, amongst other reasons
because they know that Luxembourg has a
professional and competent regulator.”
Meynaerts confirms that in Asia,
specifically Hong Kong and Singapore,
Clifford Chance does a lot of work with
fund sponsors based there, “who have local
investors for their products but wish to attract
other international investors. Luxembourg
does not only work well for European fund
sponsors but also for Asian fund sponsors.”
“It is very easy to do business and raise
capital out of Luxembourg. You can sell a
Luxembourgish fund to everyone and that
is not necessarily the case for those who
structure funds out of other jurisdictions.”
The RAIF can be set up in any corporate
or unit trust form making it a very good
solution for those who require an umbrella
fund with compartments.
“In Luxembourg, all potential options
are available to find the right solution for
investors and managers,” says Hauser.
“Our corporate and fund structures are not
directly linked to asset classes, which allows
us to start thinking about the product within
the right legal and corporate framework
rather than thinking about the assets and
building the product around it.”
“As a jurisdiction, you have to cater to
the needs of different players in a matrix-like
way which works for the type of investment,
the tax requirements, as well as the
appropriate governance structure,” concludes
Meynaerts. n
held by investors in more than 70 countries;
a ringing endorsement of its cross-border
capabilities. Luxembourg’s global reach is
unequalled and augurs further alternative
fund growth.
“Luxembourg is home to a large number
of people who are acquainted with regulatory
implications related to UCITS funds, in
respect to NAV calculations, liquidity rules,
etc, and when it comes to launching
alternative funds in an AIFMD context, that
historical experience yields benefits. Whether
it concerns fund distribution or regulatory
compliance, Luxembourg is well positioned
to take on alternative funds.
“The revision of the limited partnership
law and the introduction of the RAIF, enables
structuring an alternative fund without too
much regulatory imposition, while still offering
a lot of investor protection under the AIFMD
regime. The significant decrease of the time
required to market and structure, together with
the many service providers that have acquired
expert knowledge, explains how and why
Luxembourg is becoming a good choice as a
fund jurisdiction,” states Meynaerts.
The best fund on earth has little value if
one is not able to distribute it to anybody.
Fund managers, therefore, should carefully
consider the domicile of their next global
fund product.
“Quite often we come to the conclusion
that Luxembourg is the right place, not only
for distribution but also for structuring the
new vehicle, as we have a well-equipped
toolbox for structuring funds in a variety of
regulated or unregulated regimes. With such
CLIFFORD CHANCE
CIRCLE8015 advertentie Singapore - 210x297.indd 1 18-10-18 12:28
www.globalfundmedia.com | 22LUXEMBOURG GFM Special Report Nov 2018
Connecting
the dots
Interview with Aleksander Jakima
Luxembourg’s Reserved AIF (RAIF) has
completely changed the Grand Duchy’s
alternatives marketplace, from a fund
structuring perspective. Over the last three
decades it has become the de facto onshore
jurisdiction for UCITS funds, but this has
started to change in the last few years.
According to EFAMA, total AUM in AIFs
grew by 15.1 per cent year-on-year to reach
EUR673 billion at the end of 2017, while
UCITS’ assets increased by 11.9 per cent
over the same period.
As PwC points out in its 2018 Barometer
Report, assets held by both AIF and UCITS
funds in Luxembourg reached EUR4.1 trillion
in December 2017; this has since risen to
EUR4.27 trillion through August 2018.
One of the factors behind the growth in
AIFs, and specifically RAIFs, is the ease
with which they can be launched and the
avoidance of dual regulation, as is the case
when launching a SIF, for example.
“UCITS remain popular but we have seen
a complete shift in people using RAIFs
instead of SIFs and SICARs, which were the
typical vehicles used by private equity and
hedge fund managers,” confirms Aleksander
Jakima, Conducting Officer at Circle Partners,
an independent fund administrator with a
strong presence in Luxembourg.
“Now they are using the AIFM’s license
to proceed straight to the set-up phase with
a RAIF,” continues Jakima. “One is able to
launch a RAIF within three to six months so
it is far more: efficient and convenient than
other vehicles.”
Both EU and non-EU fund managers are
now tending to immediately opt for the RAIF,
with Jakima making reference to one client
who recently opted for a SICAR but came
up against so many problems that they
cancelled it. “Although the RAIF is a little
more expensive due to costs associated
with appointing the external AIFM, it is
more straightforward,” he says, in terms of
marketing and time to market.
Such is the popularity of the RAIF that it
has led to increased management company
activity in Luxembourg, as people recognise
the potential to act as the appointed AIFM to
RAIFs in a sub-fund arrangement. Currently,
there are some 228 licensed AIFMs in
Luxembourg according to PwC, controlling
EUR94 billion in AUM.
This is working in Circle Partners’ favour,
notes Jakima: “We are working with most
of Luxembourg’s independent service
providers, as well as banks, and we are
doing business with a large number of
parties: AIFMs, auditors, banks, law firms.
We continue to connect the dots and offer
clients a compelling solution. The network
has expanded tremendously and at the
same time Circle continues to grow and hire
new staff in Luxembourg.
“We have a wide network of AIFMs
in Luxembourg, we know most of them.
For those we don’t know we will do due
diligence checks in advance, so that were a
client to choose that AIFM we would already
have done our background work and we
can step right into work together. The more
AIFMs we work with, the easier the process
of bringing RAIFs to market.”
Jakima confirms that Circle has seen a lot
of private debt and trade finance strategies,
in particular, choosing to avail of the RAIF, as
well as algorithmic trading strategies.
“Our solution allows us to work with
different service providers such that we
can partner with investment managers
looking for a more boutique approach.
With us, all clients are treated equally,”
concludes Jakima. n
Aleksander Jakima, Conducting
Officer at Circle Partners
CIRCLE PARTNERS
www.globalfundmedia.com | 24LUXEMBOURG GFM Special Report Nov 2018
Brexit as a digital catalyst
By Kavitha Ramachandran
Kavitha Ramachandran,
Senior Manager Business
Development & Client
Management, Maitland
structuring tools for it to emerge as a leading
provider of services to special purpose
vehicles, general partners and carry vehicles.
This has seen a steady influx of funds,
asset managers, insurance companies and
banks as firms finalise their post-Brexit
plans. The regulator has raised the ante for
substance requirements and all of this is
slowly creating a shift in the ecosystem with
a focus on asset management. Historically,
asset management has tended to remain
outside the jurisdiction. However, this trend
is changing with Brexit. A recent article in
the Financial Times quoted that around 5,000
people now work in the financial industry in
Luxembourg, a figure that has grown by 10%
over the last year. Moreover, this has only
scratched the surface with more than half of
the large UK-based asset managers yet to
finalise their plans. The pace of change is
likely set to continue.
Alternative asset growth will outpace
traditional
Parallel to Brexit, growth projections show
that there will be a far greater increase
in alternative assets versus traditional
assets due to the shift in investing patterns
and type of investors. The private equity,
real estate and debt classes are set to
increase substantially, driven by demand
from institutional investors, high net worth
individuals, pension schemes and insurance
companies.
Enhancing the client experience has never
been more important as a key differentiator
than just product innovation. As millennials
begin to dominate the investor pool and
seek technologically savvy solutions –
combined with pressures on fees and costs
and the need to penetrate new markets
with the constant race for alpha – there
is a call for managers to create value.
With client-centricity being the key driver
for the change, the asset management
industry is progressing down the intelligent
automation journey.
Brexit is a major political disruptor
and, despite the uncertainties, it brings
tremendous opportunities. London is a key
financial centre and it is no surprise that
while we wait for the final negotiations to
fall in place, financial industry players have
started taking action to create a presence
on the Continent to stay competitive and
continue to attract capital. As a result, the
asset management industry is seeing a
shift from the UK to the Continent which
is creating opportunities for countries in
the EU27.
Simultaneously, digitalisation is gaining
pace due to changing investor profiles
and demands, cost pressures and
growth, notably in the alternative asset
classes. Brexit is likely to be a catalyst for
accelerating the pace of digitalisation in the
asset management industry with a focus on
alternative asset classes and a country like
Luxembourg is ideally placed to re-engineer
its ecosystem to lead the intelligent
digital journey.
Indeed, the financial industry in
Luxembourg has long since embarked on its
digital journey. As one of the largest finance
centres in the world, Fintech has been a
priority for the government and Luxembourg
has been an early adopter.
Furthermore, as the leading European
centre for investment funds with EUR4
trillion plus in assets under management,
Luxembourg has created a niche for itself
by introducing a proactive legislative and
regulatory toolbox for fund structures. It has
built up a strong infrastructure and network
of service providers covering the spectrum
from legal to audit firms and administrators
to depositaries. Luxembourg established
itself early on as a leading fund domicile
for traditional assets and has over the
years grown in stature as a key domicile for
alternatives initially focusing on private equity
and real estate with debt and infrastructure
following suit. The illiquid asset classes
have leveraged off Luxembourg’s excellent
MAITLAND
www.globalfundmedia.com | 25LUXEMBOURG GFM Special Report Nov 2018
MAITLAND
the value chain continues. Fund managers
will be seeking strategic partnerships with
service providers and Fintech firms in their
digitalisation journey. Digitalisation is set
to transform the service providers to value
providers and firms will need to cope to
stay ahead.
Luxembourg is re-engineering its
ecosystem
Luxembourg and its financial industry
are no newcomers to challenges and the
jurisdiction has reinvented itself many times
not only to stay ahead of changes but also
to be proactive and emerge as a leader.
The current trend to digitalisation calls
for transformation in the way the current
ecosystem is re-engineered and will make
demands on talent. Luxembourg has a rich
talent pool and has the luxury of being able
to draw from its neighbours. This talent pool
will not only need to beef up on portfolio
management skills but also combine this
with a digital skill set.
The Luxembourg University and its
partners in industry have created the
ideal platform for identifying and nurturing
talent and collaborations. The recent issue
of the Harvard Business Review ran an
interesting article on “The Business Case
for Curiosity”: This is very apt for a country
like Luxembourg which is now on the cusp
of another transformation which is likely to
last the next decade or so. In upskilling the
current workforce and changing processes,
companies need to hire for curiosity,
encourage inquisitiveness and create a
platform for life-long learning. Working
with millennials, generation Z and future
generations will provide interesting human
resources challenges as the country_ adapts.
Much of the impetus for change can
be dated back to Brexit. That a political
disruptor would help set the pace for digital
transformation in Luxembourg would have
been unthinkable a little over two years ago
but much has changed. As firms face up
to the challenge and work progresses in
building the digital highway, the road ahead
will have its fair share of challenges. As the
fireworks lit up the skies and Luxembourg
celebrated its National Day, little did it
realise the catalytic effect the Brexit vote
would have. n
Automation has become a must and
digitalisation a necessity. Traditional asset
managers are ahead in this journey with
Robotic Process Automation (RPA) and
progressing towards Artificial Intelligence
(AI). In contrast, the change in the alternative
asset space has to date been slow or
nonexistent. Private equity, real estate and
debt are still in their nascent stages when
it comes to automation. This is largely the
result of the complexities inherent in the
asset classes, fewer integrated systems
and manual processes. But alternative fund
managers are now finding themselves at the
same fork and will need to digitalise if they
want to avoid atrophy.
Moreover, the hedge fund industry which
has historically tended to be less prominent
in Luxembourg – but is nevertheless a key
player with liquid alternatives and similar
strategies – has narrowed the gap between
traditional and hedge funds. Hedge fund
managers have followed in the footsteps of
traditional managers keeping up with the
digitalisation story. Now, with more private
equity managers investing in hedge funds
and securitisation vehicles, the digitalisation
gap is likely set to narrow. Combined with the
demands brought in by Brexit and organic
growth, the pace of change is going to be
more accelerated than ever before as these
fund managers will look to differentiate and
create value. Being conscious of disruption
and using this as a stepping stone to
success has become a necessity for growth.
This will call for more of these firms to go
down the intelligent automation journey and
will trigger changes to current processes.
Portfolio and risk management are set
to undergo major changes with big data
analytics supporting investment identification
and management of risk, and changing the
way operational due diligence is conducted.
Changes to risk and compliance processes
and real time reporting will transform middle
office functions and the way the alternative
asset management industry has been
functioning.
Blockchain is transforming the transfer
agency industry and is predicted to change
property management and operations in
the real estate world. Systems integration
and automation of the NAV process and
reporting will be a necessity as the move up
APEX GROUP HIGHLIGHTS | 2018
STAFF
JURISDICTIONS
TOTAL AUA
ASSET CLASSES
SERVICE CAPABILITIES
FUNDS CLIENTS
LANGUAGES
LARGEST FUND
ADMINISTRATOR
GLOBALLY
$560BN
AVERAGING
PRIVATE EQUITY
REAL ESTATE
HEDGE FUNDS
HYBRID FUNDS
MANAGED ACCOUNTS
FAMILY OFFICE
FUND OF FUND
FUND ADMINISTRATION
MIDDLE OFFICE
BANKING & DEPOSITARY
CORPORATE SERVICES
MAJOR
INDUSTRY
AWARDS
PER YEAR
2026
15 YEARS IN BUSINESS
GLOBAL LOCATIONS
40+
2,000+ 4,500 1,500
OPEN-
ENDED
FUNDS
$159BN
$308BN
$93BN
CLOSED-
ENDED
FUNDS
CUSTODY &
DEPOSITARY
AUA
www.globalfundmedia.com | 27LUXEMBOURG GFM Special Report Nov 2018
Apex primed to support UK
fund managers post-Brexit
Interview with James Burke & Sonja Maria Hilkhuijsen
Since Brexit has become a reality, UK
managers have been putting in place
contingency to protect their businesses,
creating opportunities for other European
financial centres including Luxembourg.
Once the UK leaves the EU next year neither
the UCITS or AIFMD regimes will apply and
UK entities will no longer be able to manage
and market their funds in the EU.
The risk to losing access to the single
market is unacceptable to the UK fund
manager community and in that regard
Luxembourg is a really viable alternative,
according to James Burke, Head of Apex
Europe, Apex Fund Services (Ireland).
“The reputation and the business friendly
environment are the two main reasons
for choosing an onshore jurisdiction like
Luxembourg,” says Burke. “UK managers
have two main options. The first is to
establish a presence in an EU country,
the second is to engage with a third party
management company. Establishing your
own presence is obviously the safest course
of action as it gives you guaranteed access
to the single market and also has the added
benefit of no leakage of fees to third parties
in the management structure.”
Managers need to be aware there is
increased regulatory scrutiny on firms to
demonstrate sufficient substance to carry
out the duties and obligations of an AIFM;
including governance, risk management, and
other internal compliance controls. Establishing
a newly regulated management entity in an EU
hub also has capital implications.
For smaller managers and non-EU
managers who do not wish to have an EU
presence, the third party AIFM model is
appealing.
“There are clear advantages to using
Lux-domiciled third party AIFMs: speed to
market, no regulatory approval process.
The manager simply focuses on their core
competency of managing the portfolio
without having to worry about the cost
implications of setting up their own
management company,” comments Burke.
The Apex Group now has a substantial
presence and breadth of offering in
Luxembourg. Following the close of its
recent acquisitions, most notably in this
instance Warburg Invest Luxembourg SA and
MM Warburg & Co Luxembourg SA and LRI
Group, the combined Group will have over
450 staff in Luxembourg alone and the ability
to service the full value chain of a fund.
Luxembourg service providers who can
offer third party AIFM services, back-office
administration, custody and depositary
services, will be well placed to attract UK
managers with the offer of a one-stop-shop
solution.
“We have the infrastructure a client can
leverage and which is adaptable, while still
giving security and control of their fund
management activities (including GDPR). We
have the technology to receive consolidated
reports from the different service providers.
Clients want reports, controls and infrastructure
and Apex has a lot to offer in that respect,”
says Sonja Maria Hilkhuijsen, Global Head of
Compliance and Data Protection.
She further adds that whereas some
Luxembourgish management companies
might cover the cross-border activities for
managers in Luxembourg, Ireland and the
UK, Apex is unique as “we have a larger
footprint – we have worldwide centres of
excellence which allows us to adapt to the
distribution models of the clients”.
“With the LRI acquisition, the management
company will leverage the full infrastructure
of Apex. Post-Brexit, it should offer some
interesting opportunities for us,” concludes
Hilkhuijsen. n
James Burke, Head of Apex
Europe, Apex Fund Services
Sonja Maria Hilkhuijsen,
Global Head of Compliance and
Data Protection, Apex Fund
Services
APEX FUND SERVICES
Expertise in action.
Globally.
PraxisIFM Luxembourg is part of the PraxisIFM Group, a
global, independent, financial services company listed
on The International Stock Exchange.
We offer a wide range of fund services to Luxembourg
and global funds that are highly client-centric with a
particular focus on Private Equity, Real Estate and Debt.
To find out how you can benefit from our expertise contact:
Robert Kimmels
E: robert.kimmels@praxisifm.lu
Luxembourg: +352 27 47 91 praxisifm.com
Leading independent fund administrators
www.globalfundmedia.com | 29LUXEMBOURG GFM Special Report Nov 2018
Private equity exits critical
in current environment
Interview with Robert Kimmels
In the current climate, where sourcing
and originating the right deals is key, PE
managers need a strong partner to handle
all of the non-investment, operational aspects
of their fund while they concentrate on
generating value in each of the portfolio’s
underlying investee companies.
“Our role has become more important
than ever before,” says Kimmels.
“Praxis’s value-add is the speed and
the quality of the financial reporting we
produce and general deal support for our
fund manager clients. Both acquisitions
and exits usually have a critical timeframe.
Every element of a deal’s lifecycle requires
coordination between board, GPs, LPs and
/or fund managers who have to be certain
they have the right documentation and
reporting when and where they need it. The
speed to react to clients in this environment
is vital and something we focus our
efforts on.”
Smaller and mid-sized PE managers
are looking to create operational and
cost-efficiency in the fund structures to
benefit their end investors. “In the rapidly
evolving regulatory and legal environment
for PE investments, these managers often
find it simpler and more effective to have
an administrator to help them comply,”
says Kimmels.
This requires finding a fund administrator
with the right cultural fit who they know can
support them every step of the way.
“We understand the difficulties of deal
execution and value creation; decisions have
to be made fast. As a company we retained
our staff ownership model so quick decision-
making is definitely a competitive advantage
that Praxis provides to our clients,”
concludes Kimmels. n
*https://www.barrons.com/articles/
record-sums-of-moneyflood-into-private-
capital-1539198543
Private equity is sitting astride a mountain
of dry powder, which currently stands at
USD1.14 trillion according to Preqin*. Fund
raising has never been easier but with so
much money floating around, valuations are
being driven upwards.
This is placing enormous importance
on private equity managers planning for
exits. How can they be sure that the target
company will continue to grow and generate
an attractive earnings multiple at exit when
the valuation is already high at entry?
“The multiples being asked for right now
are exorbitant; it used to be common to
pay 10 or 11X EBITDA but in some sectors
this has risen to levels well above that. It
places a lot of emphasis on value creation.
PE managers are hiring professionals from
a wide range of backgrounds to go in, fix
up the operations of their target companies,
increase operational efficiency, and thereafter
plan for the exit. The exit phase has
never been so important as it is right now,
and it’s just going to continue to evolve,”
explains Robert Kimmels, Managing Director,
PraxisIFM Luxembourg SA.
PraxisIFM is an independent group of
companies providing a range of financial
services including fund formation, transfer
agent and administration services. The
Group is listed on The International Stock
Exchange and is majority-owned by senior
management.
“Our role as a fund administrator is to aid
fund managers by allowing them to focus
on the value creation while we manage the
fund’s administrative operations as they work
towards an optimal exit. The key aspects
to this are the quality of our work, the
efficiency and speed with which we deliver
requested documents/reports, in terms of
the fund’s operations, and keeping the fund
in compliance with all of the regulatory
requirements,” continues Kimmels.
Robert Kimmels, Managing
Director, PraxisIFM
Luxembourg SA
PRAXISIFM
Praxis Luxembourg SA is
supervised by the Commission
de Surveillance du Secteur
Financier.
Our experienced team delivers across
borders and disciplines.
Our Luxembourg office works with corporates and the investment
funds community to deliver a range of tailored services. Experienced
in the Luxembourg marketplace and its fund management and
professional services industries, our professional teams are
well-placed to provide governance and substance solutions to
a wide-range of fund structures and strategies.
Our specialist management company solutions offer a
comprehensive ManCo service that also includes independent
risk management and oversight support.
The Crestbridge Limited affiliation is regulated by the Jersey Financial Services Commission. Crestbridge S.A. and Crestbridge Management
Company S.A. are regulated by the CSSF. Crestbridge Cayman Limited is regulated by the Cayman Islands Monetary Authority. Crestbridge
Bahrain B.S.C (c) is regulated by the Central Bank of Bahrain. Kingfisher Property Partnerships Limited is authorised and regulated by the
Financial Conduct Authority. Kingfisher Property Trustees Limited is authorised and regulated by the Financial Conduct Authority.
For further information, please contact
Daniela Klasén-Martin
Managing Director, Country Head
Luxembourg
daniela.klasen-martin@crestbridge.com
+352 26 215 420
crestbridge.com
Ludivine Nicolai
Director, Risk Management
Luxembourg
ludivine.nicolai@crestbridge.com
+352 26 215 426
The EU hub for
international finance
AAA rating
Competitive
recognised solutions
for investment structures
Seamless expertise
1942_CB_Lux Advert_v3_AW.indd 1 16/10/2018 11:44
www.globalfundmedia.com | 31LUXEMBOURG GFM Special Report Nov 2018
Added substance supports
third party AIFM model
Interview with Daniela Klasen-Martin
On 23rd August 2018, Luxembourg’s
regulator, the CSSF, published a Circular
18/698 which set out to codify the
organisation, substance and authorisation
of Luxembourg investment fund managers.
Amongst others the Circular replaces
Circular 12/546, which detailed the CSSF’s
expectations for UCITS managers and also
served as the benchmark for AIFMs under
the AIFM Directive.
This approach to further clarify and
summarise what is expected of a
Luxembourg management company is helpful
according to Daniela Klasen-Martin, Managing
Director and Country Head, Crestbridge
Luxembourg, a leading independent
administration, management and corporate
governance solutions business.
“The Circular is a summary of practices
that management companies were already
doing in Luxembourg but which had not
been formally set in writing; for example, the
number of mandates that directors can have,
which the CSSF has limited to 20 mandates.
“However, the regulator has clarified that if
a client has multiple fund structures, a director
can combine all of them into a single mandate.
There is also an indication in terms of the
number of hours a director can spend working
for an AIFM, which is 1,920 professional hours
per year,” explains Klasen-Martin.
The Circular also stipulates what is
expected of Senior Management (also
known as Conducting Persons) with respect
to their AIFM responsibilities. There is a
EUR1.5 billion AUM threshold. Klasen-Martin
says that if the management company
has less than EUR1.5 billion it will require
two Senior Managers, but the CSSF may
accept that one can be located outside of
Luxembourg and work there on a part-time
basis, provided there is sufficient substance
in Luxembourg to support the Senior
Manager in their role.
“If you are more than EUR1.5 billion in
AUM, you will need at least two dedicated
Senior Managers working full-time in
Luxembourg,” says Klasen-Martin. She adds:
“We have 30 people here in Luxembourg
and approximately 17 of those are working
for our management company so we have
a lot of substance. We don’t anticipate
any immediate change to the way we are
operating under the new Circular. Some
of our staff have directorship mandates,
including myself, but none of us are
exceeding the limit set out by the CSSF.
I think where you might see issues, with
regards to substance, is with smaller AIFMs.”
Independent risk management is one
of the core operations that Crestbridge
provides as a third party AIFM to investment
funds. It has a dedicated team of seven
risk managers, as well as a dedicated team
providing the oversight and governance
function. “We also have valuation officers,
who oversee the valuation function of some
of the funds on our platform; although some
funds use an independent valuation agent.
“What we really focus on is risk
management, control and oversight; these
are key aspects to an AIFM,” emphasises
Klasen-Martin.
With the new substance requirements
detailed in the Circular, the upshot is that
it will take time and significant human
resources for fund managers to set up their
own Luxembourg AIFM.
As Klasen-Martin is keen to stress:
“It’s complicated to set up operations in
Luxembourg. You have to compete for
resources. We have all the licenses, we have
the staff and this means fund managers
can focus on what they do best relying on
us to perform the regulatory functions and
provide the substance. Currently, we act
as the external AIFM to approximately 50
investment funds.” n
Daniela Klasen-Martin,
Managing Director and
Country Head, Crestbridge
Luxembourg
CRESTBRIDGE
International business
is full of pitfalls.
Better to touch down
with experienced legal
support.
BERLIN FRANKFURT/M. HAMBURG HEIDELBERG MUNICH LUXEMBOURG
LUXEMBOURG
GSK Luxembourg SA
44, Ave John F. Kennedy
L-1855 Luxembourg
Tel +352 2718 0200
luxembourg@gsk-lux.com
GSK Stockmann – Your gateway to Europe.
>
Corporate / M&A / Private Equity
>
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>
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Regulatory
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>
Tax
www.gsk-lux.com
GSK. THE DIFFERENCE.
GSK_AZ_Luxemburg_210x297_3mm_4c_dawi_SC_Paper.indd 1 28.09.17 16:41
www.globalfundmedia.com | 33LUXEMBOURG GFM Special Report Nov 2018
GSK LUXEMBOURG
Disclosure requirements
for sustainable investments
By Arne Bolch
Arne Bolch, Partner at
GSK Luxembourg SA
would, amongst others
2
, be required to
disclose to investors at a pre-contractual
stage information concerning:
(a) the procedure and conditions applied for
integrating sustainability risks within the
investment decision-making process of the
relevant fund; as well as
(b) the extent to which sustainability risks are
expected to have a relevant impact on the
returns of the fund; and
(c) Information of how the remuneration
policies applicable to the relevant fund
or manager are consistent with the
integration of sustainability risks and are in
line, where relevant, with the sustainable
investment target of the fund in question.
These disclosures shall then be achieved
by establishing written policies on the
integration of sustainability risks into the
investment decision-making process as
well as the attribution of a sustainability
profile for every financial product or fund
to be published on a website referring to
that fund. Further, all the information of the
websites must be kept up-to-date, and where
any changes occur, the explanation of the
change is also required. Lastly, the relevant
information concerning the offered financial
products must be provided in the periodical
reports, i.e. the relevant funds’ annual and
semi-annual report, to the extent applicable.
While of course the regulation pursue
a laudable cause that certainly any asset
management firm or fund will be supportive
of, the regulation endeavours to link relatively
general and as of yet (within the regulation)
largely undefined sustainability considerations
with very concrete investment returns and
the remuneration of asset management
professionals. It is therefore advisable for
any asset management firm to monitor the
development of the regulation to ensure that
the sustainability considerations are going to
be implemented in workable form. n
The 2016 Paris agreement on climate
change as well as the United Nations 2030
Agenda for Sustainable Development and
its Sustainable Development Goals may until
recently not have been high on the agenda
of asset management professionals. This
may be about to change.
In the spirit of the agreement and the UN
agenda, measures taken at European level
have identified (or rather stated) a need for
Europe’s financial system to (i) contribute to
sustainable and inclusive [economic] growth
as well as to (ii) strengthen financial stability
by incorporating environmental, social and
governance (“ESG”) factors into investment-
decision making.
This is now going to have a very
concrete impact on the asset management
industry: The proposal of a new regulation
published on 24th May 2018 by the European
Commission (the “EC”) concerning disclosure
requirements relating to sustainable
investments and sustainability risks.
1
This proposed regulation shall be, amongst
others, applicable to any fund regime existing
within the EU, i.e. AIFMs and their AIFs,
UCITS and their management companies as
well as EuVECAs and EuSEFs. In addition
to existing fund disclosure requirements,
such as the UCITS prospectus, the article
23 disclosures for AIF as well as KIIDs and
PRIIPs, the regulation establishes another
disclosure regime aiming to reinforce investor
protection by tackling a perceived lack of
transparency on the side of financial market
participants, i.e. funds and their managers,
to disclose how sustainability factors are
incorporated into their respective investment
decision process and ultimately endeavours
to reduce investors’ costs related to the
evaluation of the sustainability risks.
Under the disclosure regime, qualifying
financial market participants, such as the
aforementioned funds and their managers,
1. Proposal for a regulation of
the European Parliament and
of the Council of 24 May 2018
on disclosures relating to
sustainable investments
and sustainability risks and
amending Directive (EU)
2016/2341.
2. Please note that there are
more detailed disclosure
requirements envisaged, which
are beyond the scope of this
article, such as regarding
funds pursuing sustainable
investments and/or aiming at
following an index or carbon
emission reduction. Also,
website disclosures are required
by the regulation and marketing
communications shall not
defeat the purpose of the
sustainability disclosures.
CLOUD SERVICES
IT SERVICE MANAGEMENT
MANAGED CYBER SECURITY AND COMPLIANCE
DEVELOPMENT SERVICES
Whether you’re launching or expanding—locally or
globally—RFA is your trusted technology partner.
Cloud-Forward.
Business-Aligned.
Service-Driven.
www.rfa.com
London | Luxembourg | Boston | Connecticut | New York City
www.globalfundmedia.com | 35LUXEMBOURG GFM Special Report Nov 2018
Luxembourg will provide
RFA with a springboard
for European growth
expansion
Interview with George Ralph
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, 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
George Ralph, Managing
Director of RFA in London
RFA
www.globalfundmedia.com | 36LUXEMBOURG GFM Special Report Nov 2018
RFA
“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.” n
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.
