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Listening to investors
Workshop:Private Equity
Moderator: Laurent Schummer, Partner, Linklaters LLPPanelists: Yves Courtois, Partner, KPMG
Lars Jonsson, TritonChristoph Lanz, Vice President, Banque Privée Edmond de Rothschild
EuropeHans-Jürgen Schmitz, Managing Partner, Mangrove Capital Partners
London, 19 May 2011
A leading European regulated private equity centre
Over 300 regulated private equity structures
Over US$ 40 billion of PE/VC fund assets administered in Luxembourg
Growth of 850% over last 5 years
Leading private equity service providers present in Luxembourg
Leading global private equity houses operating in Luxembourg
Luxembourg – a leading European private equity hub
US$ 40 billion in assets Over 300 regulated funds
3iAmerican CapitalApax PartnersBain CapitalBC PartnersCarlyle GroupCinvenColler CapitalCVCFortressGoldman SachsInvestcorp
JP MorganKKRKreditanstalt für Wiederaufbau(KfW)LazardLGT Capital PartnersOaktree CapitalPAI PartnersPermiraUnicapitalTPGWarburg Pincus[….]
Global private equity houses using Luxembourg as a center of excellence
Luxembourg – a leading European private equity hub
The Luxembourg PE tool box
Standard Supervision
Light Supervision
SICAR - 247
SIF - 1196
SOPARFI> 30,000
SecuritisationUndertakings
> 500 (26 regulated)
Regulated:the PE Fund family
Unregulated:the PE Acquisition family
UCI Part II - 629
Source: CSSF 2011
Lightly regulated PE vehicles
0
50
100
150
200
250
0200400600800100012001400
Feb‐07 Dec‐07 Dec‐08 Dec‐09 Dec‐10 Jan‐11
Number of UCI Net assets of UCI in bn. €
47
115
182221 236 242 244
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 Jan‐11
SIFs SICARs
Source: CSSF 2011
The Luxembourg PE fund environment
• Fund raising / Commitments
• Capital calls• Distribution
• LightSupervision
• Custody• Centr Admin• Audit
• Selection• Monitoring• Development• Mgt + Perf. Fee
• Investments• Divestment
• Insurance Co’s• Pension Funds
Banks• Business Angels• HNWIs • Corporate investor• Fund of funds• Family offices• Sovereign wealth
funds
INVESTORS REGULATORY
Auditor
DepositaryBank
CSSF
FUND MANAGEMENT
Private Equity House(General Partner / Investment Manager)
External Advisor Investment Committee
Private Equity Fund
PORTFOLIO
DI DI DI
DI PE FundDI DI
Administrator
Luxembourg Tax Neutrality
All PE/VC strategies
No or optimally reduced WHTNo/limited taxation at fund level
Minimum tax leakage on capital gains and incomeEnd investor usually achieves same result as direct investment
EU Directives and DTT accessNo or optimally reduced WHTCertainty around tax exposure
AIF
Optional: SPV
FUN
D
STR
UC
TUR
ESP
VIN
VEST
MEN
T M
AR
KET
Investments
INVESTORS
Master/Feeder Structures
HNWI Investment Manager XYZInvestment Manager XYZInstitutional Professional
SIF/ SICAR XYZSet-up as a
FEEDER
CSSFLuxembourg
Authority
Auditor
Legal Advisor
Custodian
Central Administration
Target Investments :VC/PE, RE, HF, securities, cash …
Local Fund, the
MASTER
UK
& in
tern
atio
nal
UK
& in
tern
atio
nal
Luxe
mbo
urg
SIF Umbrella structures
UK
& in
tern
atio
nal
UK
& in
tern
atio
nal
Luxe
mbo
urg
,
s
Some TRENDS :
-Private Equity-SRI Funds-Passion Funds (art, wine, football, …)-US Life Settlement Funds-Infrastructure-Real Estate -Timberland-Pension Pooling
SIF Umbrella StructureInitiator XYZ
Sub-fund 1Long Only Strategy
(plain vanilla UCITS-like
fund)
Sub-fund 2Dedicated to
1 HNWI or its family or
to 1 Institutional
Investor
Sub-fund 3Socially
Responsible Investments: Microfinance
etc
Sub-fund 4
Pensionpooling
HNWIFamily Office,
Family,Individual
Etc.
InstitutionalBank,
Insurance Cpy,
Pension Fund,Re-ass. Cpy,
FoF
ProfessionalPrivate Banker
IFA
CSSFLuxembourg
Authority
Auditor
Legal Advisor
Custodian
Central Administration
Target InvestmentsEquities, bonds, target funds,
MFI, cash, PE, RE, others
Investment Manager 1
(ESP)
Investment Manager 1
(ESP)
Investment Manager 2
(US)
Investment Manager 2
(US)
Investment Manager 3
(UK)
Investment Manager 3
(UK) …
…
Tax Neutrality - Luxembourg DDT Network
EuropeandCentralAsia1. Albania9. Denmark17. Iceland25. Macedonia33. Romania41. Switzerland
2. Armenia10. Estonia 18. Ireland26. Malta34. Russia42. Turkey
3. Austria11. Finland19. Italy 27. Monaco35. San Marino43. Ukraine
4. Azerbaidjan 12. France20. Kazakhstan28.Moldova36. Serbia44. Un. Kingdom
5. Belgium 13. Georgia21. Kyrgiztan29. Netherlands37. Slovakia45. Uzbekistan
6. Bulgaria14. Germany 22. Latvia30. Norway38. Slovenia
7. Cyprus15. Greece23. Liechtenstein31. Poland39. Spain
8. Czech Republic 16. Hungary24. Lithuania32. Portugal40 . Sweden
46. Argentina48. Brazil50. Mexico52. Trinidad &Tobago
America47. Barbados49. Canada51. Panama53. United States
AfricaandMiddleEast54. Bahrain57. Lebanon60. Qatar63. U.A.E.
55. Israel58. Mauritius61. Syria 64. South Africa
SouthandEastAsia65.China68. Indonesia71. Mongolia74. South Korea
66. Hong-Kong69.Japan72. Pakistan75. Thailand
67. India70 Malaysia73. Singapore76. Vietnam
56. Kuwait59. Morocco62. Tunisia
Updated: July, 2010
60 DTTs in force
16 DTTs pending
AIFMD – How will Luxembourg adapt ?
Lux AIF (UCI/SIF/SICAR) Highest compatibility standard
Lux AIFM Highest compatibility and « UCITS ManCo » track record
Prudential supervision Already standard
Depositary requirement Already standard
Transparency requirements Already standard
Delegation Already standard
Passporting capabilities Luxembourg sets global standard for distribution/placement
Support services AIFMD anticipation
Luxembourg – a global PE centre
LEGAL / TAX
Stable, flexible and predictable on-shore legal and tax regime for AIF through:
Regulated AIFSpecialised Investment Fund (SIF)Risk Capital Investment Company (SICAR)Unregulated AIF
Financial holding company (SOPARFI) for Luxembourg or foreign funds
Strong investor protection
EXPERIENCE
Over 20 years experience in structuring AIF
Strong industry involvement through ALFI / LPEA, including dedicated training in all AIF assets classes
Specialisation in custodian banks and central administrators
Tailor-made AIF and SPV solutions for international managers / sponsors / initiators
MARKETPLACE
Central location, with highly qualified multi-lingual workforceGood connections to other European financial centresStable government with strong political support for the financial services industryLeading investment fund/ financial centre in Europe and #2 globallyResponsive, pragmatic and accessible regulator and tax administration
Proven PE structures
SICAR and SIF: the right products at the right time in the right place
Ability for small and mid-sized promoters to access regulated PE regimesBrand image as a European regulated on-shore fund regimeEnabler in fund raisingEurope’s most customised fund regimes for Private Equity – choice of legal formsTax neutralityExamples of specific attributes:
Exemption from consolidationLight reporting rulesNo investment restrictions within the PE/VC spherePragmatic diversification requirements for SIF
Key competitive features
Proven PE structures
SOPARFI :a worldwide recognised vehicle for PE acquisition structuring
Access to Double Taxation TreatiesLow administration costsLegal and tax structuring certainty Efficient profit repatriation modelsDevelopment of innovative hybrid instruments (e.g. PECs, CPECs)
Key competitive features
Proven PE structures
Luxembourg is the unrivaled back-office of Europe’s fund industryNumerous PE Houses have established offices with middle- and back-office operations in LuxembourgThird party service providers specialised on PE offer a large variety of services:
Fund accounting and custody servicesFund operations (investor and portfolio transactions)Cash handlingCapital call facilities / Bridge financing
Key competitive features
A large number of PE houses have their processing center for PE funds in Luxembourg
Market Challenges
• AIFMD
• D����F���� A��
• FATCA
• S������� II
• B���� III
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REGULATIONS
MARKET
STRUCTURING
PE FIRMS
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