Fund managers in the United States have been looking closer at Europe to set up fund structures to increase their AUM and diversify their global portfolios. According to a Preqin report, alternative investment fundraising focusing on Europe exceeded the pre-global financial crisis high point of €132 billion in 2016 and 2017. In 2021, record highs for exits, investment, fundraising and performance across a wide range of asset classes marked the rise of alternative assets in Europe, pushing US managers to consider expanding their portfolios there. Luxembourg, in particular, has become an increasingly appealing option for US fund managers seeking to engage in the European funds market.
With more than €5.16 trillion in AUM, Luxembourg is the largest fund centre in Europe and the second largest globally after the United States. Several factors, including its robust economy, political stability and favourable regulatory and compliance environment, contribute to its appeal as a funds hub.
Why Luxembourg fund vehicles?
Being at the forefront of fund regulations implementation in the European region, Luxembourg has been essential in creating avenues for global fund distribution and granting European institutional and retail investors entry to global investment opportunities.
In addition, the jurisdiction has been setting up a robust fund ecosystem over the past decades, which includes alternative investment funds for real estate, private debt, venture capital and private equity. This is why, in general, US fund managers often offer potential European investors the choice to commit to a Luxembourg fund vehicle over an offshore vehicle when venturing into the European investor market.
Luxembourg is also regarded as the largest fund distribution centre worldwide. Investment funds domiciled in the jurisdiction are distributed in more than 70 countries.
Additionally, Luxembourg has established itself not just as an ideal domicile for funds but also as an ideal destination for raising capital from across Europe. The jurisdiction has growing family office and private banking industries.
According to KPMG’s report on private banking, Luxembourg’s private banks’ AUM stood at EUR 599 billion by the end of 2021. This is due to the increased percentage of UHNWI clients in private banking. Furthermore, Luxembourg was among the first jurisdictions to establish multifamily office frameworks coupled with the increasing interest in alternative asset allocations.
Flexible Funds Toolbox
Luxembourg’s alternative investment fund toolbox plays a significant role in attracting US fund managers to structure investments here. These vehicles cater to the requirements of all private equity groups, regardless of their location. As a result, fund managers have a great deal of flexibility with this extensive range of fund structuring alternatives.
With a broad range of investment vehicles, Luxembourg continues to develop fund structures to meet the market’s needs. The toolbox includes:
- UCITS (Undertakings for Collective Investment in Transferable Securities) – A regulated fund available to institutional and retail investors.
- SIF (Specialised Investment Fund) – A flexible multipurpose fund vehicle.
- SICAR (Investment Company in Risk Capital) – Developed specifically for venture capital and private equity investments.
- UCI (Undertakings for Collective Investment) – A flexible and more regulated pooled vehicle.
- SCSp (Special Limited Partnership) – A popular fund entity for alternative investments such as real estate.
- RAIF (Reserved Alternative Investment Fund) – An alternative investment fund (AIF) that does not require CSSF product approval.
Learn more about structuring funds in Luxembourg by downloading our free guide through this page: https://resources.boldergroup.com/luxembourg-funds
Considering the costs of administrative and management functions
A US fund manager looking to enter the Luxembourg funds market must decide how the vehicle will be administered, the solutions they might need for the holding structures and the associated costs. Compared to the costs of insourcing the administrative functions needed for a Luxembourg holding structure, the costs of managing the fund vehicle in-house are significantly higher.
For this reason, it is more cost-effective for US fund managers to insource administrative/formation solutions at an earlier stage.
Still, when maintaining the holding companies in relation to funding, cash flows, financial statements and filings, defaulting to local corporate service providers may be the better way to go for US fund managers, rather than recruiting their own staff in Luxembourg.
Despite the benefits of insourcing the management, requirements for compliance and corporate are best addressed when outsourcing services from a qualified global service provider like Bolder Group. Our team can provide comprehensive solutions to achieve your objectives in the funds market in Luxembourg.
Entering the funds market with Bolder Group
Selecting a service provider capable of handling all the necessary tasks, such as accounting, reporting, depositary, corporate secretarial and domiciliation, is crucial when establishing funds in a new market.
Our team handles and oversees the administration of the fund structure, relieving fund managers of the paperwork, allowing them to focus on the fund’s investment strategy. If you are a fund manager from the US who is interested in participating and succeeding in Luxembourg’s funds market, contact our team today, so we can discuss your objectives and needs.