Luxembourg Raif market is alive and kicking again

A deep dip in new registrations for reserved alternative investment funds, a popular Luxembourg private assets vehicle, in August was “an aberration to a trend”, according to Denis Harty, CEO of Luxembourg Management Company Solutions at Waystone.

Following the summer slowdown, data for September analysed by Investment Officer shows a strong reversion to the trend established for Raif registrations so far this year. With 29 new funds registered, last month was the best September for new Raifs in three years.

“I would see Raif registrations in August as an aberration to a trend,” said Harty. “The Raif is a fund promoters’ favourite, principally based on its time to market. Being regulated through the AIFM rather than direct supervision by the CSSF ensures the best of both worlds – the protections of a regulated structure and the speed of an unregulated one.”

Harty emphasised how this allowed fund managers to launch new funds more quickly. “The key really is time to market, which enables promoters develop and deploy strategies rapidly and thereby capture investor flows while similar structures in other domiciles are working their way through the regulatory approval process,” he said.

The post-summer recovery is not accidental, explained Kavitha Ramachandran, regional head of CRM - Luxembourg & northern Europe at the Apex Group. “We are seeing new fund launches post the European summer break which includes Raifs, a traditional pick when it comes to private assets. Asset classes include renewable energy, climate focused  and private equity funds. Clients are watchful of the geopolitical situations and unprecedented events that will need agile responsiveness.”

LBR data analysed

Some 29 new Raifs were registered during September, according to data published by the Luxembourg Business Registers. This was nearly twice as many as in August, with 15, the lowest number recorded since January 2019, not long after the register was established. This was also by far the lowest registration level for August in the past three years. In 2021, there were 41 registrations and in 2022 there were 27.

September of this year, however, has been the strongest September in the past three years. In September 2021, there were only 18 new Raifs, whereas in September 2022, there were 25.

Of those 29 registrations, Waystone registered by far the most, with 5 new Raifs detected 1 September 2023 and required to register by 7 September. The five funds were interlocking elements of a structure for Comvest Credit Partners, headquartered in West Palm Beach, Florida, USA.

Waystone leads market

“Waystone leads the market in its deployment of Raif structures,” said Harty. “In 2022 half of all Raifs launched were deployed by Waystone and we see no decline in interest in this exceptional element of the Luxembourg toolkit.”

The next highest Raif creation and registration levels were at two per firm for Tikehau Investment Management SAS, Lemanik Asset Management S.A., Rothschild & Co Investment Managers and MJ Hudson Management SA.

Firms within the umbrella of the Apex group, including MJ Hudson Management S.A. and Sanne LIS S.A., registered a total of three Raifs.

While the overall data gave one impression, various Raif specialists saw developments from their own perspective.

Carne: No noticeable slowdown

“Despite significant macro and geopolitical events, particularly in Q1 & Q2 of 2023, we didn’t experience a noticeable slowdown of fund managers looking to launch new product,” said Richard Marshall, managing director at Swiss-headquartered Carne Group. “We have seen an uptick during Q3 and we expect that to continue and build towards year end. Strategies that are proving popular are debt, credit, and infrastructure funds.”

“Pemberton has continued to enjoy the growth of investor appetite leading to more Raifs and compartments being launched,” said Douglass Welch, portfolio management conducting officer at Pemberton Asset Management SA. “While ESG-themed strategies are the consistent talking points across all investor enquiries and vehicle formation, we are achieving more notable fund launch success within our multi-asset strategies, particularly the NAV funds.”

Fundamentals solid

There is broad agreement that, while Raif registration levels may go up or down, the fundamentals of the Raif are as solid as ever. “The appealing characteristics of private markets for institutional investors remain as relevant as ever, with de-correlation, diversification, inflation-linked benefits and a different set of return drivers translating into a strong track record of attractive returns,” said Micaela Forelli, CEO of M&G Europe Asset Management Operations. “Institutional investors’ allocation to private assets will continue to grow and expand, supporting the consistent growth of the RAIF market,” she added.

Welch explained that Pemberton had created a fund to allow US private pension investors to access European alternative credit under the terms of the US Employment Retirement Income Security Act of 1974. “Equally significant for our strategic growth plans is the launch of our ERISA compartments, where we are now offering the only ERISA-compliant, European Alternative Credit fund available to US investors.”

Investment Officer Luxembourg monitors the new Raif registrations on a monthly basis as a general gauge for market interest. Most of these funds have yet to enter fundraising. The funds generally target professional investors only. Some funds may be used as Luxembourg vehicles for particular investment solutions, such as an umbrella fund for multi family offices operating from other European capitals, or for creative multinational ownership constructions such as the financing of Bill Gates’ new hotel in Rome.

The following new Raifs were registered in September:

Related articles on Investment Officer Luxembourg:

• Slow summer: August sees dwindling Raif registrations
• Warburg aims for €300 mln with real estate debt Raif
• New Raif registrations show moderate recovery in July