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Luxembourg Private Equity and Alternative Investment Funds Seminar Investment Funds Seminar Carine Feipel Partner Carine Feipel, Partner Pierre Beissel, Partner Anne-Julie Bellaize, Senior Advisor New York, 5 June 2012

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Page 1: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Luxembourg Private Equity and Alternative Investment Funds SeminarInvestment Funds SeminarCarine Feipel PartnerCarine Feipel, PartnerPierre Beissel, PartnerAnne-Julie Bellaize, Senior Advisor

New York, 5 June 2012

Page 2: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

The European regulatory framework...

MiFID iI t l dAsset managers MiFID review replies flood

in – a record?

Investors alarmed over EU reform

process

Asset managers aim to navigate

funds through big rocks aheadrocks ahead

Europe prepares Th AIFMDI tillEurope prepares for governance

green paper

The AIFMD – a benefit or a

hazard?

Insurers still uneasy over Solvency II

EU urged to go UCITS IV g gahead with

tougher bank rules

European regulations on OTC derivatives spark

disquiet

paperwork will surprise

regulators

2 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach2

rules q regulators

Page 3: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

INDUSTRY FIGURESINDUSTRY FIGURES

3 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 4: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

The European Fund Industry in numbers (31 December 2011)

Non-UCITS

12/30/2011

UCITS

12/30/2011Country

12/30/2011Assets

€ millions

Germany 907,418

Country12/30/2011

Assets € millions

Luxembourg 1,760,155

Luxembourg 336,357

France 312,812

Ireland 235,227

France 1,068,141

Ireland 820,041

UK 648,406,

UK 156,704

Switzerland 61,504

Italy 53 598

Germany 226,456

Switzerland 211,037

Italy 139 697Italy 53,598

Spain 5,535

Sweden 3,392

Italy 139,697

Spain 150,877

Sweden 147,042

Others 213,702

Total: 2,286,249

Others 3,290,269

Total: 5,633,825

Source: EFAMA International Statistical Release 2011:Q4

4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Source: EFAMA International Statistical Release , 2011:Q4

Page 5: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

European UCITS / Non-UCITS Total Net Assets

EUR bn 2,28928%

EUR bn 5,86872%

UCITSNon-UCITS

72%

Source: EFAMA monthly Fact Sheet March 2012

5 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Source: EFAMA monthly Fact Sheet March 2012

Page 6: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Net assets of Luxembourg domiciled UCIs

Luxembourg fund industry Net assets of Luxembourg domiciled UCIs

2 500 00

April 20122 225,600April 20122 225,600

2 000,00

2 500,00

1 500,00

on

1 000,00

€bill

io

500,00

0,00

6Figures as at 30 April 2012 Source: CSSF

Page 7: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Market shares in cross-border fund distributionNumber of Luxembourg registrations during 2011: 96

G th L b i t ti 2010 2011 11%

FranceOther10%

Growth Luxembourg registrations 2010-2011: 11%Total worldwide registrations as at March 2012: 65,931

UK

Germany1%

France1%

10%

Ireland13%

UK2%

Luxembourg73%73%

Source: LFF - PwC Global Fund Distribution March 2012

7 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Source: LFF - PwC Global Fund Distribution, March 2012

Page 8: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Luxembourg – the European hub for alternative funds ?Private equity Real Estate Hedge funds SOPARFIq y g

Over 300 privateequity funds

Over 212 realestate investment

Over 1,700 hedgefunds and funds of

Over 30,000SOPARFIsequity funds estate investment

fundsfunds and funds ofhedge funds

SOPARFIs

Over US$ 37billion of private

Over US$ 30billion of real

Over US$ 190billion of hedgebillion of private

equity fund assetsadministered inLuxembourg

billion of realestate investmentfund assetsadministered in

billion of hedgefund assets admi-nistered in Luxem-bourgg

Luxembourgg

Growth of 850%over last 5 years

Growth of 500%over last 5 years

Stabilization(despite

Constant increasein numberover last 5 years over last 5 years (despite

the crisis) betweenDecember 2008and 2010

in number

8 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Source: LFF – October 2011

Page 9: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

AIFMD (A I F(ALTERNATIVE INVESTMENT FUND

MANAGERS DIRECTIVE)Directive 2011/61/EU of 8 June 2011

9 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 10: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

What does the AIFMD regulate?

Direct regulation of AIFM

Indirect regulation of AIF Indirect regulation of AIF

Creation of a European market for alternative investments viapassport for management and marketing activities

10 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 11: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Definition of AIF

any collective investment undertaking (including investmentcompartments thereof)

which raises capital

from a number of investors

with a view to investing it in accordance with a defined investmentpolicy for the benefit of those investors

that is not subject to the UCITS Directive 2009/65/EC

11 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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AIFMD ScopeAIFMD - Scope

In scopeOut of scope

H ldi i / j i t tp

All EU AIFM, whichmanage one or more AIF

Holding companies / joint ventures EU pension funds Supranational institutions

All non-EU AIFM, which National central banks Social security / pension systems Employee participation/saving

manage one or more EU AIF

Employee participation/savingschemes

Securitisation special purposeentities

All non-EU AIFM, whichmarket one or more AIF

entities AIFM managing only group

investmentsSi l i t i t tmarket one or more AIF

in the European Union Single investor investment

vehicles

12

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AIFMD ExemptionsAIFMD - Exemptions

EUR 100 million EUR 500 million

Open and closed-endedAIFs

Closed-ended AIFswithout redemptions for a

i d f5 AIF may be leveraged AUM do not exceed 100

period of5 years AIF must be unleveraged

million AUM do not exceed 500 million

13

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Will unregulated entities (SOPARFIs) qualify as AIFs?

Yes, if they meet the conditions set out in the definition of AIF

A SOPARFI qualifying as an AIF will not be subject to specific product regulationproduct regulation

Opt-In: Product regulation for unregulated AIFs?

14 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 15: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

What rules does the AIFMD aim at introducing?Registration of all AIFMs nless o t of scope/e emption Registration of all AIFMs unless out of scope/exemption

Harmonized conditions for autorization Conflict of interest rulesConflict of interest rules Risk management rules Liquidity management rules Rules for the valuation of assets Rules of delegation Custodian/depositary requirement Custodian/depositary requirement Transparency requirements Rules in relation to leverageg Rules applicable to the acquisition of control by AIFs Marketing and third country rules

15 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 16: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Marketing : New passport and private placement regimes

EU AIFM / EU AIF Distribute under EU Passport (from 2013)

EU AIFM / Non-EU AIF Distribute under National Private Placement

Regimes (until at least 2018) Distribute under EU Passport (from 2015)

Non-EU AIFM / EU AIF

Distribute under EU Passport (from 2015)

Distribute under EU Passport (from 2015) Distribute under National Private PlacementDistribute under National Private Placement Regimes (until at least 2018)

Distribute under National Private Placement Non-EU AIFM / Non-EU

AIF

Distribute under National Private Placement Regimes (until at least 2018)

Distribute under EU Passport (from 2015)

16 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach16

Page 17: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Consequences for U.S. based PE manager

US PE manager has no European investors for the non-EU AIF it

manages: NO IMPACT

US PE manager has European investors in the AIF it manages:

IMPACT

US PE manager wishes to use an EU AIF vehicle/regime without g g

EU investors: IMPACT

US PE manager wishes to use an EU AIF vehicle/regime with EU US PE manager wishes to use an EU AIF vehicle/regime with EU

investors: IMPACT

17 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 18: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

AIFMD: Timeline

8 June 16 November 22 JulyJuly21 July 2015 2018Nov

2011 2011y

2013y

2012

ESMATranspo-sition intoIssue of

y2011 2015 2018

Expected

Nov2010

Vote f Directive

2011/61/UE

ESMA advice to European

Commission

sition into national law/passport for EU AIFM/EU

AIF

Issue of Level 2

measures by EC expected

Entry into

force

Passport for third country AIFM + AIF

end of private

placement regimes

of the Direc-tive

18 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 19: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

AIFMD - Level 2 measures

19 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 20: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Current status

Various provisions of the AIFMD to be detailed by implementingf th E C i imeasures of the European Commission

ESMA advice on implementing measures received onESMA advice on implementing measures received on16 November 2011

EU Commission draft regulation released in March 2012

EU Commission final regulation expected in July 2012 EU Commission final regulation expected in July 2012

20 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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Discussion points

Calculation of assets under management

Delegation

Third country cooperation agreementsThird country cooperation agreements

Calculation and use of leverage

Depositaries

Professional indemnity insurance

21 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 22: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Implementation of AIFMD in Luxembourg

22 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 23: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Methodology and content

Draft bill divided into three parts: First part: implemention of AIFMD Second part: amendment of existing product regulation

(SIF, SICAR, UCITS, etc.) Third part: creation of a Luxembourg limited partnership Third part: creation of a Luxembourg limited partnership

Main option taken - depositary: a credit institution (in accordance with Directive 2006/48/EC) an investment firm (in accordance with Directive 2004/39/EC) Option for closed ended funds: other professional specific Option for closed-ended funds: other professional – specific

depositary status created

23 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 24: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Timing

Luxembourg intends to be a first mover

Deposit of bill with Parliament prior to end of first semester 2012

Vote by Parliament anticipated prior to end of 2012

24 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 25: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

KEYNOTE ADDRESS BY

ANDREW DOUGHERTY

MANAGING DIRECTOR, HEAD OF ALTERNATIVE

AND INSTITUTIONAL SOLUTIONS

AT BNP PARIBAS

25 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 26: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

TRENDING TOPICS FOR ALTERNATIVE INVESTMENTTRENDING TOPICS FOR ALTERNATIVE INVESTMENTAND PRIVATE EQUITY FUNDS IN LUXEMBOURG

26 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 27: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

1. AMENDMENTS TO

SPECIALIZED INVESTMENT FUND LAW

27 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 28: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

SIF – basic features

Lightly regulated Multi-purpose/policy investment fund vehicle No Promoter requirement (no deep pockets) Qualified investors only Risk diversification Risk diversification Structuring options: SICAV, SICAF, FCP Custody and Central administration in Luxembourg Subject to independent audit Tax exempt except for 0.01% tax on AUM

28 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 29: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

SIF Structuring example29

SIF – Structuring example

Investors

Custodian

Portfolio/asset

SIF

CompartmentsCentral

administration

Audit

Portfolio/asset management:• Client• External manager

A B C

SOPARFIAudit

Target(30% - risk spreading)

29

Page 30: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

SIF – changes (law of 26 February 2012)

Requirement for: a risk management procedure a management of conflicts of interest a procedure allowing to check and monitor the status of

qualified investorsqualified investors deadline: 30 June 2012

The SIF may no longer start its activities before having been approved by the regulator

Delegation conditions are aligned on AIFMD (deadline: July 2013) Delegation conditions are aligned on AIFMD (deadline: July 2013) Option for one SIF compartment to invest in a separate

compartment of the same SIF

30 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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2. DEBT FUNDS AND SHADOW BANKING

31 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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Shadow Banking

Discussion at G20 summits in November 2010 and 2011

European Commission Green Paper – Shadow Banking (03/2012) European Commission Green Paper – Shadow Banking (03/2012) • What is shadow banking?• What are the risks and benefits?• What are the challenges for supervisory and regulatory authorities?• What are the challenges for supervisory and regulatory authorities?• What regulatory measures apply in the EU?

L b b ki l li t f i l i Luxembourg banking law applies to « professionals carrying on lending operations engaging in the business of granting loans to the public for their own account. »

Exclusions:• services to parent and subs of parentse ces to pa e t a d subs o pa e t• group services• SIF• Securitization Vehicles (SV)

32 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Securitization Vehicles (SV)

Page 33: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

Structuring Solutions

33 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 34: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

(1) SIF Structure

Investor(s) 3

1. Qualifying Borrowers

2. Specialized investment fund (SIF) in the form of (i) apublic limited liability company (SA) organized as anpublic limited liability company (SA) organized as aninvestment company with variable capital (SICAV), (ii) acommon fund (FCP-SIF), or (iii) Lux Special PurposeVehicle (SPV) controlled by SIF

4

SIF 2 3. Qualifying Investor(s) (corporate/funds/FO/UHNWI)

4. Investor(s) contribute capital to SIFSPV (L)

1

5. Alternative (1): SIF or SPV lends to Borrowers (viasenior or mezzanine loans, debt securities, wholly orpartly drawn-down loans, etc)

5/6/7

SPV (L)OR:

1

Borrowers

p y )

6. Alternative (2): SIF or SPV acquires fully drawn-downloans discounted or not, distressed or not

BorrowersBorrowersBorrowersBorrowers

7. Alternative (3): SIF or SPV acquires partly drawn-downloans discounted or not, distressed or not

34 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Page 35: Luxembourg Private Equity and Alternative Investment · PDF fileLuxembourg Private Equity and Alternative ... 4 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar

(2) Basic Structure

1. Borrower

Investor 32. SPV (unregulated)

3. SPV controlled by Investor

4. Investor contributes capital or lends via subordinated loan to SPV

4

SPV (L) 2subordinated loan to SPV

5. SPV (i) lends to Borrower (on-off transaction) or(ii) acquires fully drawn-down single portfolio of5

Borrower 1

loans discounted or not, distressed or not5

Borrower 1

35 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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(3) Basic Structure

1. Qualifying Borrowers

2. SPV (banking license?)

Investor(s) 3

2. SPV (banking license?)

3. One or several qualifying Investor(s) (i.e., off-shore fund, discuss if off-shore fund is regulated or not or if it d b l t d )its managed by regulated manager)

4. Investor(s) contribute(s) capital or lends via subordinated loan to SPV

4

SPV (L) 25. Alternative (1): SPV lends to Borrowers (via senior or

mezzanine loans and assimilated) - [risk]5/6/7

Borrowers 1

6. Alternative (2): SPV acquires fully drawn-down loans,discounted or not, distressed or not (severalborrowers) - [risk]

5/6/7

Borrowers 1 ) [ ]

7. Alternative (3): SPV acquires partly-drawn loans,discounted, distressed or not (several borrowers) -[risk]

36 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

[risk]

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Tax considerations on various structuring solutions

37 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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Debt fund structuring – SIF / double LuxCo structure

LuxCo 1 financed with debt instruments (e.g. CPECs) from SIF

LuxCo 2 financed with interest free loan (IFL) from LuxCo 1

Investors

LuxCo 2 acquires loan assets LuxCo 1 and LuxCo 2 enter into a tax

consolidation

LuxCo 1 and LuxCo 2 fully-taxable butYield

Debtinstruments

SIF

LuxCo 1 and LuxCo 2 fully-taxable but interest received under loan offset against yield under debt instruments

no withholding tax on payment made by LuxCo 1 under debt instruments

Tax consolidation

instruments

IFL

LuxCo 1

LuxCo 1 under debt instruments Access to double tax treaties

SIF tax exempt no withholding tax on payment made by

LuxCo 2

SIF (limited exceptions)

non-resident investors not subject to Luxembourg tax

Interest

Loan assets

38

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Debt fund structuring – Securitisation vehicle (SV)

SV can adopt the form of a fund or aInvestors

SV can adopt the form of a fund or acompany SV funds are not subject to income taxes SV companies are subject to corporate

Interest or dividend

p j ptaxes (corporate income tax andmunicipal business tax) but interest anddividends are tax deductible = smalltaxable margin

SVg

SV not subject to net worth tax no withholding tax on dividends

distributed by SVInterest on debt claims

Debtor

39

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Key considerations

Source country / beneficial ownership issues Regulatory supervision European regulators’ concerns overRegulatory supervision European regulators concerns over

shadow banking Operational flexibility VAT exemption on management fees

40 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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3. LIMITED PARTNERSHIP

41 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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Luxembourg reverse hybrid structure (as currently used)

LuxCo 1 & LuxCo 2 No substantial taxable base

Lux SCOSA GP

US Inc. LP

SCS (société en commandite simple) withLux SCOSA (société coopérative sous forme de société anonyme) as generalpartner

Yield Debtinstruments

SCS

Tax transparency: SCS not subject to corporate income tax nor municipal business tax (no commercial taint)

id t i t t bj t t

Taxconsolidation IFL

LuxCo 1LuxCo 1

non-resident investors not subject to corporate income tax

no withholding tax on distributions by SCS no double tax treaty

D btYield

LuxCo 2

yDebtinstrumentsAcquiCo

Target

42 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Target

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Luxembourg reverse hybrid structure (as currently used)

Reverse hybrid SCS = pure flow-through for Luxembourg tax

purposes

Lux SCOSA GP

US Inc. LP

SCS = corporation and LuxCo 1 = disregarded from a US tax perspective: interest paid by LuxCo 1 (deductible in Luxembourg) is not recognized on an

Yield Debtinstruments

SCS

accrual basis in the US (tax deferral)

Taxconsolidation IFL

LuxCo 1LuxCo 1

D btYield

LuxCo 2

DebtinstrumentsAcquiCo

Target

43 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

Target

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Limited partnership - main features (as proposed)

Modernization of the current Luxembourg limited partnership( iété dit i l )(société en commandite simple) More flexibility in terms of management Creation of capital accounts Creation of capital accounts Additional confidentiality

Creation of an unincorporated limited partnership

Various tax provisions ensuring complete tax neutrality: abolition Various tax provisions ensuring complete tax neutrality: abolition or limitation of commercial taint theory (Geprägetheorie)

44 2012 Luxembourg Private Equity and Alternative Investment Funds Seminar - New York - 5 June 2012© Copyright Arendt & Medernach

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Contact us

Carine Feipel Partner New York

Anne-Julie Bellaize Senior Advisor (Tax) New York

Pierre Beissel Partner Luxembourg

Tel : 212-554-3541 [email protected]

Tel : 212-554-3541 [email protected]

Tel : +352-407878792 [email protected]