Luxembourg private capital growth demands your attention

The private capital landscape is expanding and evolving at an extraordinary rate. Is your service provider flexible enough to keep up?

Global private capital is in an era of exponential growth, and Luxembourg has become Europe’s domicile of choice for many of these funds. According to a recent Private Equity News article: “Luxembourg accounts for 23% of AIFs in the European Economic Area.”

Alongside this growth, we’re also seeing an emerging trend in Luxembourg to make private assets more accessible to larger groups of investors – creating a variety of challenges in terms of product design.

In this article, we’ll explore how private capital markets in Luxembourg are expanding and evolving, and why – more than ever – you need an experienced partner with a flexible support model to help you succeed.

Massive growth in Luxembourg private capital

Investment firms are drawn to Luxembourg because of the strength of its government, industry and reputation; and the country’s private capital markets are where many of them are finding the most promising growth opportunities. Luxembourg also has a mature and tested ecosystem to support private capital.

Over the past 5-7 years, Luxembourg’s private equity and private debt asset classes have proven especially robust.

• Luxembourg private equity growth: “The past few years have seen massive sums pour into private equity in Luxembourg, where the assets under management of all private equity and venture capital funds has grown by an average of around 20% annually to €285bn,” according to Private Equity News.
• Luxembourg private debt growth: According to the annual ALFI-sponsored KMPG private debt fund survey in 2022: “It’s been another year of growth for the private debt market, proving itself once again as a strong asset class. With €267.8 billion in AuM now, there was an impressive 45.4% average growth of AuM this past year.”

While this growth is certainly attractive, it also reflects a changing, more modernized approach to the types of products being offered.

The shift toward more flexible products

Private capital funds have traditionally been closed-end, long-term investments for institutional investors. But a recent shift to open up markets to other qualified investors is blurring the lines between private assets and more traditional asset classes.

“Basically, we’re seeing an increase in open-ended products where people can buy in and get out with more flexibility than they had in the past,” says Didier Delvaux, country head of Luxembourg for U.S. Bank. “And many of these funds are targeting a different type of investor – qualified high-net-worth individuals, for example – whereas before it was almost exclusively large institutional investors who were investing in closed-end funds.”

This shift creates numerous challenges for fund managers – but mainly, how to find the right product design to manage the liquidity of these funds.

“Managers are faced with trying to build liquidity, or the ability to exit a fund, into an asset class that’s traditionally very illiquid,” says Didier. “And there’s a lot of discussion around how to do that – how to find the right balance and the right structure.”

The advantages of the right partner

As managers work to build more flexible funds, it’s important they find a Luxembourg-based service provider with infrastructure and service model flexibility to match. At U.S. Bank, our operating model was designed to be adaptable and to accommodate nearly any type of fund structure or strategy.

“We’re able to service just about any private capital fund regardless of how it’s structured,” says Didier. “We don’t have functionalization or offshore servicing centers. When clients introduce new products with different features, our in-domicile service teams control the whole value chain for successful implementation.”

Unlike many other providers, we also use the same accounting system for open-end and closed-end funds.

“For clients that have closed-end funds and want to wrap those same strategies in open-end funds, we can give them a very similar reporting and client experience,” Didier says.

What should you look for in a service provider?

When you think of Luxembourg from a financial standpoint, strength and stability immediately come to mind. By pairing these qualities with those of a strong, stable service provider, you put yourself and your investors in the prime position to help secure long-term success.

A financially strong administrator provides several fundamental advantages:

• Well-developed infrastructure
• Risk mitigation
• High credit rating

Beyond this, private capital managers also want a partner who delivers the following:

• High-quality, white-glove service levels
• Flexibility around their reporting needs
• A deep understanding of their asset classes – particularly private equity, private debt and infrastructure

“We understand the needs of private capital managers – and the demands that generally come with having a large number of very sensitive investors,” says David Kubilus, U.S. Bank Global Fund Services Chief Commercial Officer. “That’s why we provide customized solutions and flexible reporting specifically tailored to your type of structure and investor base.”

While many firms outsource functions to lower-cost countries, our model at U.S. Bank is to control quality by using teams that are located in-domicile. Clients benefit from having a single point of contact located in Luxembourg, so they know exactly where to go to get the information they need.

“Many of our competitors are more focused on UCITS or other retail-type investments,” David continues. “Here at U.S. Bank, private capital is 90% of our client book in Luxembourg. It’s what we do day in and day out, so we have deep expertise working with these types of assets and a clear track record of providing exceptional quality and client service.”

If you’re looking for promising investment opportunities, Luxembourg private capital markets have a lot to offer. Find an in-domicile administrator with the deep expertise, experience and resources, and rely on their guidance to help you harness the potential of these thriving asset classes.

For more information about how we can customize our services to help achieve your business goals, please visit our website or contact us.