“Now we have a pool of resources and talents that we didn't have in this sector before.”

Nick Tabone, Deloitte

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A New Way of Investing

Tabone and Bon see important things happening in Luxembourg. “One of the main trends that we have been seeing is the  fast emergence of semi-liquid alternative products,” Bon explains. “Tapping into a new universe of investors, high-net-worth and mass affluent individuals, with products which are not the typical closed-ended funds alternative managers have launched for the last decades.” In private equity, money is normally committed for the long term, with investors having to wait years to get it back (if at all). Semi-liquid investments use a portfolio of liquid and illiquid assets to provide alternative-type of returns without tying investors down so much. At the same time, as part of their growth and diversification strategy, large traditional managers are moving into private markets, often through acquisition of existing small to mid-sized alternative managers. “It's much quicker rather than growing a new business line/strategy organically,” Tabone explains.

Luxembourg’s Financial Ecosystem

Many of these private equity managers have established presence in Luxembourg because of its infrastructure and toolbox. “The managers are already here,” Bon says. “The ecosystem is here and the players are here.” That allows investors to quickly move into new markets and strategies without having to build something from scratch, reducing the risks emanating from new investments. As deal making has slowed down over the past few years, managers are looking at transformational changes to manage their costs. This includes using new technologies, leaner processes, and different resourcing models. “A number of them are arriving at the end of a technology maturity cycle, raising an important question: what do we do next? Do we re-invest or do we rely on external support” Bon says. And that question provides the opportunity for something new.

Keeping Luxembourg Competitive

The main challenge for Luxembourg is to remain attractive and competitive for investors. Fiscal certainty and getting the regulatory framework right is a big part of the answer. This is an area where Luxembourg has excelled, with pragmatic rules efficiently transposed into law, creating a secure basis to work from. The result is more players, more products, and the staff to support them. But there are still opportunities for growth. “It’s strange that the Luxembourg pensions are not more allocated to private equity funds,” Tabone points out. Perhaps that’s something that can change, now that private equity has a stronger position in Luxembourg. After all, the country that has developed such a favourable ecosystem for this industry could further benefit from it.