On Wednesday 18 November 2015, PwC Luxembourg welcomed over 150 professionals at the 16th edition of its Private Equity Forum, where it was revealed that private equity saw a record number of nearly 2,350 funds for the last quarter.

Increasingly present in the asset allocations of investors, the private equity sector is seen as an opportunity for an attractive yield. Over the years, Luxembourg's special limited company (SCSp) has allowed the country to become one of the major actors for the sector. As flexible as the 'limited partnership', the SCSp is experiencing huge success, with over 850 vehicles created since its launch in 2013.

Luxembourg also hosted its first EuVECA2 fund, a sort of simplified European passport allowing funds to skip depositary. At the Forum, however PwC Luxembourg reported that the latent tax environment could slow this ascent.

Whilst private equity seems to have survived the storm triggered by the 2008 financial crisis, the sector is faced with strict fiscal and regulatory rules, including those initiated from BEPS and AIFM.

"Far from being a passing disturbance BEPS could impose a radical change in the way the industry works," commented Vincent Lebrun, Partner and Private Equity Leader at PwC Luxembourg. "The tremors are already being felt. All stakeholders are currently working on the structuring of funds so that they comply as much as possible with the new rules".

He continued: "Some financing structures which are commonly used to maximise returns could be set to disappear. This will certainly be the case for hybrid arrangements and the interest deductions which result from it. Authorities will also be more attentive to the transfer of profits".

The question of whether this would indicate private equity no longer offering the same returns in a post-BEPS world was on the mind of conference attendees.

"To  offer identical yields whilst complying with the rules in force, managers must provide a structural solution that aligns the source of value creation to income generated," was the assessment of Maarten Verjans, partner in Private Equity at PwC Luxembourg.

To establish itself as the referred-to destination for private equity, Luxembourg will need to provide a single legal solution for hedge funds and for structuring their investments.

"The country has all the cards in hand to establish itself as a centre of private equity expertise," added Vincent Lebrun. "Its global leadership position in the UCITS market allowed the Grand Duchy to develop a sophisticated infrastructure. We offer innovative solutions that go beyong the structuring of funds. Another undeniable asset: our regulator is favourable to the expansion of the sector."

However, certain obstacles will need to be addressed, such as the perception of the country, resources and competition.

"Managers and service providers must always rethink their models and challenge the status quo to remain competitive," concluded Vincent Lebrun. "Innovation is the key".

 


Photo by PwC Luxembourg (Vincent Lebrun)