Mike Gordon

Through various legislative acts over the past 10-15 years, the EU’s push to democratise private markets has transformed how private equity does business, with a heavy helping of technology and fund management tools allowing for what could be a massive influx of smaller-denominated investors. Market participants are feeling their way forward into the new paradigm, some being quite certain that change has now come in the impending form of the new European Long-term Investment Fund.

Fewer new reserved alternative investment funds are being registered in Luxembourg this year as investment managers are more cautious and VC fundraising has declined. Investor appetite appears reduced but has not disappeared. Dry powder is said to remain available among institutional investors in the alternatives market. 

The trade clearing industry generally likes the EU market trading rules’ proposed update, but it has much less enthusiasm about a provision based on the polity’s plan to take back control of EU trading in the post-Brexit context. Experts at an Efama event said it will increase costs, pose operational challenges and disrupt the practice of ‘block trading’, with one labelling it as an “import tax” forcing the market to “import liquidity”. 

Luxembourg topped the list for the most direct foreign investment per capita for the second year running in EY’s Luxembourg Attractiveness Survey. But the clear sense at a press conference held to release the second edition of the survey was that the country has to work hard to keep itself in this favourable position, increasing its attractiveness, defending its financial industry against EU anti-tax avoidance directives, as well as figuring out the issue of the talent gap.

Luxembourg is hoping its long, friendly relationship with China can help keep the superpower on a path towards more investment-friendliness instead of sable-rattling with the US. Levels of investment in China by Luxembourg-domiciled investment funds dipped during that country’s difficult Covid times. Some institutional investors are staying away due to darkening US-China relations. Hopes for a resurgence depend on peace.

Luxembourg’s securitisation community is up in arms over watching competitor Ireland retain its role of EU leader in financial vehicle corporations and in series, despite optimism just last year over this country’s still-shiny securitisation law updated last year. The Irish implementation included provisions giving companies tax minimisation options that they can’t yet get under Luxembourg law.

A Memorandum of Understanding on financial services agreed between the EU and the UK, published on 19 May, could elevate the tone of the discussions and lead to a more productive relationship. “It’s a very encouraging confirmation that the relations between the EU and the UK are warming up,” said Nicolas Mackel, the CEO of Luxembourg for Finance, the public-private Luxembourg agency for the development of the financial sector.

The rapid growth of ESG investment has not left private markets behind. LPs and GPs, having taken stock of where the wind is blowing, have moved towards an ‘ESG or nothing’ investment philosophy, with the majority planning to cease investing in or promoting non-ESG private markets products by the end of 2025, according to a new Luxembourg study. This development is part of a paradigm shift in the global private markets landscape.

A year of negative crypto-asset industry headlines has left interest in the asset class undiminished, according to a survey of 127 industry practitioners released on Thursday. Respondents agreed crypto assets will be important for the future of Luxembourg’s asset management industry.  Local crypto actors attribute crypto-asset failures elsewhere to poor governance and due diligence failures but, all the same, are happy to see increased regulatory activity in this area. 

When the long wait for the retail investment strategy finally ended on Wednesday at a European Commission press conference in Brussels, Commissioner Mairead McGuinness gave the financial industry three years to hit her targets for transparency, costs and retail investor participation, or an outright ban on kickbacks will be back on the table.