ALFI today unveiled three reports at its PERE conference held in Luxembourg on 20 and 21 November. The surveys all highlight the strong growth of alternative funds in Luxembourg.
- The Luxembourg Real Estate Investment Funds 2018 survey, confirms that Luxembourg remains the favoured location to establish and maintain multi-geographical and multi-sectoral regulated REIFs, which continue to appeal to institutional investors and fund managers from around the world. Read more.
- The Loan Fund Survey 2018, carried out in conjunction with KPMG, shows that Assets under management in Luxembourg-domiciled Loan Funds has reached €49billion, a 23.5% increase over the past year, reflecting the increasing momentum of non-bank financing across Europe and beyond and demonstrating the appeal of Luxembourg as a domicile for alternative investment funds. Read more
- The 2018 Luxembourg Private Equity and Venture Capital Investment Fund Survey, conducted by Deloitte on behalf of ALFI, shows that assets under management in Luxembourg Private Equity Funds increased by 20% in 2018. Read more
Denise Voss, Chair of ALFI, explained: “These reports highlight a significant growth in the number of alternative funds in Luxembourg, demonstrating how attractive Luxembourg is for this type of fund. They also all show the appeal of the Reserved Alternative Investment Funds structure, which was introduced by Luxembourg in 2016, with the aim of reducing time-to-market. Indeed the Private Equity survey showed that 4 out of 5 PE fund managers believe the RAIF, as well as the Limited Partnership structure, have been game changers for Luxembourg.”
According the Luxembourg Private Equity and Venture Capital Investment Fund Survey* conducted by Deloitte on behalf of ALFI, released today, assets under management have increased by 20% year-to-year, confirming Luxembourg’s attractiveness as a domicile for alternative investment funds.
Benjamin Collette, Partner at Deloitte Luxembourg, commented: “While Luxembourg has been active in the private equity field for more than two decades, until recently very few large investment vehicles were established in the Grand Duchy. This has been changing over the last couple of years. This survey highlights the latest trends and the main growth factors of this industry: the number of Luxembourg PE funds above €500 million is steadily increasing, the number of US originated PE funds is on the rise, and last but not least, a majority of fund managers is reinforcing or planning to reinforce their presence in Luxembourg.”
Denise Voss, Chairman of ALFI, commented: “We are seeing strong growth because no other centre offers such expertise in structuring funds that involve many jurisdictions. In addition, the introduction of the RAIF regime, and the Limited Partnership structure has boosted the appeal of Luxembourg as a domicile – indeed 4 out of 5 PE fund managers surveyed believe the RAIF and the Limited Partnership have been game changers for Luxembourg.”
According to the survey:
- The PE fund landscape is still dominated by funds of EUR 100 Mio and below, however the number of large PE funds (EUR 500 Mio and above) have increased to represent over 4% of the total.
- PE funds structured under the RAIF regime or as unregulated Limited Partnerships have increased by close to 20 points, representing 30% of all Luxembourg PE funds in 2018.
- Large PE Houses embrace Luxembourg as their fund-structuring jurisdiction with, in particular, North American PE Houses-initiated funds representing 8% of the Luxembourg PE funds population.
- Top PE houses established in Luxembourg currently run, or plan to operate within 12 months, at least one Luxembourg PE fund.
- While half of the top PE Houses present in Luxembourg currently employ mainly finance professionals, they all plan to reinforce their presence with Compliance and Risk professionals.
Arnaud Bon, Director at Deloitte Luxembourg, commented: “Luxembourg’s alternative investment fund sector is growing strongly but putting a figure on the size of Luxembourg’s private equity fund sector has proved elusive as most of the data is not publicly available. However, the survey shows growth and we know that there will be more to come. It seems that the Luxembourg PE industry is currently benefiting from a favourable alignment of planets: while all signs point to a rapid growth of the market, the pace of launch of new PE funds by managers (every few years) means that the data we are able to collect is, in fact, only the tip of the iceberg.”
He concludes: “Looking forward, in 2019 we would expect to witness a significant increase in the number of funds launched in Luxembourg with EUR 1 bn and more under management.”
* The survey covers regulated and unregulated Private Equity funds.
Assets under management in Luxembourg-domiciled Loan Funds has reached €49billion, according to a study by KPMG on behalf of ALFI, the Association of the Luxembourg fund industry.
This is a 23.5% increase over the past year, reflecting the increasing momentum of non-bank financing across Europe and beyond and demonstrating the appeal of Luxembourg as a domicile for alternative investment funds.
These Loan Funds comprise a variety of strategies, the predominant ones being Senior Loans (35%), High Yield (22%) and Direct Lending (18%).
According to KPMG’s survey, 66% of investors in these funds are institutional investors. Roughly 27% of investors are either HNWIs, private banks, family offices or sovereign wealth funds. 7% of assets are held by retail investors.
David Capocci, head of alternative investments at KPMG Luxembourg, commented: “Offering an alternative to traditional banks in the global market, in the aftermath of the Global Financial Crisis, the success of private debt houses has been bolstered by higher returns for investors and asset managers.
“Naturally, these changes are also reflected in Luxembourg’s fund market, which has mirrored the steady increase in private loan funds’ assets under management. As at mid-2018, Luxembourg loan fund AuMs had increased by a significant 23.5% on the mid-2017 figure that we reported in our first joint KPMG/ALFI loan fund survey, published last year.
“The percentage of loan funds set up as reserved alternative investment funds (RAIFs) — the newest fund structure to have been introduced in Luxembourg — remains stable compared to last year.
“We expect RAIFs to gain greater market share in the future, not just for loan funds but for the alternative fund industry in general.
“Despite the regulatory and tax changes on the horizon, the loan fund industry looks to remain a healthy and growing one within the Luxembourg financial market in the coming years.”
Camille Thommes, Director General of ALFI, said: “An alternative to the banking industry as a source of financing for the real economy, loan funds play an important role in addressing the imbalance in liquidity supply and demand, in helping businesses raise capital, and in stimulating growth.
“These are benefits that regulators and policymakers in Europe are well aware of.
“Luxembourg has long-standing experience in both loan origination and secondary market trading.
“Our survey shows that Luxembourg loan funds are more popular than ever, and we expect this to become an even more significant asset class over time.”
According to ALFI’s 2018 REIF survey, 2017 and the first two quarters of 2018 show another good period for Luxembourg-domiciled REIFs. The population of REIFs surveyed by ALFI continued to expand, this time by 45, bringing the total number of surveyed vehicles to 304, including 27 manager-regulated AIFs, 27 RAIFs dedicated to real estate and 11 SICARs.
Keith Burman, co-chair of the ALFI Real Estate Investment Funds Sub-Committee, says: “This year’s survey confirms that Luxembourg remains the favoured location to establish and maintain multi-geographical and multi-sectoral regulated REIFs, which continue to appeal to institutional investors and fund managers from around the world.”
Denise Voss, Chairman of ALFI, comments: “The increase in the number of real estate funds using the RAIF regime shows its appeal. It was introduced by Luxembourg in 2016 to reduce time to market for authorised managers and well-informed investors, while maintaining a high level of governance and oversight through the appointment of a supervised AIFM.”
The survey highlights:
- In the 2018 survey, new funds were launched overwhelmingly by initiators/AIFMs from Europe (mainly Benelux, Germany and the UK) and from the USA.
- In terms of investment strategy, the most common remains the “multi-sector” strategy, accounting for 38%. This, however, is a decrease compared with 2016 (50%) and 2017 (40%) figures.
- Among the single-sector strategies, “Retail” and “Residential” show comparable results this year with 14% and 16% respectively. “Office” investments represent the sole strategy of only 10% of the funds surveyed.
- As in last year’s survey, the legal forms of the SCS/SCSp are the most common amongst the funds surveyed with 32%, either in the form of a SICAV combined with the SIF regime (51 funds), or set up as manager-regulated AIFs.
- 77% of the surveyed REIFs invest in Europe, whereas 6.6% invest globally and 7.9% in the Asia-Pacific region.
- The RAIF regime is now firmly established with 27 funds, compared to 15 last year and 1 in 2016, when RAIFs were first approved.
- Though umbrella funds remain popular due to various practical and cost considerations, the trend over the last few years has been towards simplification of structures and strategies, a trend that is again evidenced in this survey. This year 72% of REIFs have a single-compartment structure, compared with 73% reported in the 2016 survey and 76% in the 2017 survey. 61% of the funds surveyed are closed-ended.
- In line with the survey findings of previous years, smaller funds continue to make up the majority of REIFs, with 56.5% with a NAV of under EUR 100 million. Overall, 92 funds reported a target NAV of less than EUR 100 million, while 10% fall into the target NAV categories greater than EUR 800 million.
- 32% of Funds aim to keep their gearing below 20% LTV, while a further 51% aim to keep LTV levels to below 60%.
- A total of 81% of Luxembourg-domiciled funds are mainly used for small groups of institutional investors, i.e. 25 or fewer investors. In terms of location, nearly 81% of investors come from Europe. The remainder are predominantly from the Americas, and 5.2% are highly diversified, confirming the global appeal of the Luxembourg fund regimes.
Notes to editors:
The ALFI REIF survey was conducted during the third quarter of 2018 and reflects the market composition as at the end of June 2018. The survey does not include indirect real estate funds, such as real estate fund of funds, (real estate) debt funds and securitisations.
AIF Alternative Investment Fund
ALFI Association of the Luxembourg Fund Industry
AIFM Alternative Investment Fund Manager
LTV Loan-to-value ratio
NAV Net asset value
RAIF Reserved Alternative Investment Fund
REIF Real estate investment fund
SICAR société d’investissement en capital à risque, investment company in risk capital
SICAV société d’investissement en capital variable, investment company with variable capital
SIF Specialised Investment Fund
SCS société en commandite simple, limited partnership
SCSp société en commandite spéciale, special limited partnership
The Association of the Luxembourg Fund Industry (ALFI) is the representative body of the Luxembourg investment fund community. Created in 1988, the Association today represents over 1500 Luxembourg domiciled investment funds, asset management companies and a wide range of service providers such as custodian banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax experts, auditors and accountants, specialist IT providers and communication companies. The Luxembourg fund industry is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg-domiciled investment structures are distributed on a global basis in more than 70 countries with a particular focus on Europe, Asia, Latin America and the Middle East. For further information, do not hesitate to consult our website at www.alfi.lu.
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