Raymond Frenken

Private Equity in the coming years is set to attract a wider range of investors, in particular those who are considered High Net Worth Individuals. But the expansion of what still largely is seen as a private club does not come without risk, a conference organised by the Luxembourg Private Equity Association has heard.

Luxembourg’s post-Brexit boom in financial sector relocations and foreign direct investment is over, according to an EY study on the Grand Duchy’s attractiveness that was released on Tuesday.

In an interview with Investment Officer, Nobel Economics Prize winner Daniel Kahneman, speaks about making decisions. His theory, which also holds value for the financial sector, has demonstrated that our decisions are often flawed, biassed and inaccurate. “If people made better decisions, the world would be a better place.”

Luxembourg has witnessed that European integration still has its limits, even when war rages on Europe’s doorstep.

As world markets digested the Federal Reserve’s rate hike and the ECB’s emergency meeting, finance ministers of the 19 eurozone countries met at the EU conference centre on the Kirchberg plateau in Luxembourg and passed on an opportunity to further integrate financial services. Plans to complete Banking Union, first agreed in 2013, are now sent back to the drawing board. 

Although its overall market share contracted slightly, Luxembourg last year held on to its number one spot among Europe’s top 10 investment hubs for both Ucits and Alternative Investment Funds, with a market share of 26.8 percent, compared to 27 percent that was reported for the previous year, according to the latest annual reported released by the Association for the Luxembourg Fund Industry, or Alfi. Ireland’s share of the pie increased to 18.6 percent last year from 18 percent reported for 2020. 

At Apex Group, present in Luxembourg also with management companies such as FundRock and LRI Invest, each new acquisition and partnership announcement marks a waypoint on its long-term strategic journey. That journey still has some way to go, Apex’s founder and CEO Peter Hughes said in an interview with Investment Officer. “In terms of what the potential is, half-way certainly feels about right.”

It’s not difficult to compare today’s era to the 1970s. An energy crisis, a hot war, a cold war, persistent inflation, soaring interest rates, rising house prices. Even Abba, with its flared trousers, is performing again, albeit as a hologram. For investors, a rerun of the 1970s would require a profound rethink. 

Family wealth managers are more and more challenged by demands placed on them by digitalisation, increasingly stringent regulations and complex cross-border taxation requirements. It’s an environment that encourages some wealthy families to join forces with others and enter their investments into a Multi-Family Office business, moving away from the traditional single-family office. “It’s the correct answer to the market.”

Is private equity, like Amundi’s Chief Investment Officer Vincent Mortier recently said, a Ponzi scheme? Or is there another reason to fear this asset class?

Luxembourg’s private equity business has experienced a boom in recent years as the Grand Duchy’s improved regime for alternative investments helped it benefit from strong growth in global private markets. For professional investors - family offices and pension funds alike - private markets have become an important asset class.

Pascal Blanqué, Chairman of the Amundi Institute and former Chief Investment Officer at Amundi, on Thursday said he believes that market thinking behind widening spreads among eurozone government bond yields poses a risk of becoming a self-fulfilling prophecy.