Private equity structuring trends
What’s the outlook for Private Equity?
By the end of 2020, market sources (Prequin) forecast global assets under management to more than double topping $9tn in 2025, with private equity and venture capital expanding their leading position within the alternatives amid continued low interest rates.
Meanwhile in Luxembourg, private equity is set to ride on top of this wave.
The Luxembourg Private Equity and Venture Capital Association (LPEA) estimates that 90% of the European Private Equity and Venture Capital funds are domiciled in Luxembourg with assets under management reaching €400 billion and an average size per fund of €200 million.
What are the current structuring trends?
Private Equity funds continue to make wide use of Luxembourg’s well-established corporate, tax and regulatory framework to run their holding and fund operations.
For a long time now, the world’s largest private equity firms have chosen Luxembourg to channel a big part of their non-European funds’ private equity operations via Luxembourg holding entities. As a result of recent tax and regulatory developments, more and more private equity sponsors have started to move their fund structures to Luxembourg as well, either by way of parallel structures or by choosing Luxembourg as their main fund jurisdiction. It has not gone unnoticed that Luxembourg offers structuring solutions at all levels of activity for typical private equity sponsors: from easing the onboarding of European and international investors, to accommodating third party debt raising in a lender-friendly jurisdiction down to offering various asset holding solutions.
Global market surveys (Prequin) show that geopolitical landscape, regulation and domestic politics are seen as the most negative forces in the private equity market. Luxembourg has yet once again played it clever when it comes to fast and straightforward adoption of the EU’s tax directives (such as the Anti-Tax Avoidance Directive or the Mandatory Disclosure Regime) or transparent enhancing initiatives such as the swift implementation of the Beneficial Ownership Register.
Recently, we have seen a resurgence of special purpose acquisition companies (SPACs) in the US as a “new” tool to raise funds facilitating private equity acquisitions in a continuously heated market in terms of valuations apparently untouched by the recent add of a large number of pandemic-hit businesses. Once again, Luxembourg’s lean mindset, including a business welcoming regulator, has all the ingredients it takes to offer SPAC’s sponsors a home.
What has been the impact of the pandemic ?
Despite a sudden pause during the first half of it, the pandemic has accelerated trends within private equity and the sector has shown strong resilience. This is primarily because one of the key underlying principles of private equity, and the structuring of private equity platforms, is “flexibility”. We have seen first-hand how these platforms easily accommodated changes in deal-making since the beginning of the pandemic as private equity managers focused on rescuing measures and bolt-on acquisitions for their existing portfolios or otherwise safe bets such as purchases in listed companies.
Looking forward, private equity deal activity is set to continue in a boom amid the large amount of funds awaiting deployment. This will certainly bring along further growth to Luxembourg’s private equity sector.