Luxembourg’s international status as a hub for alternative investments and private equity this year was reinforced as institutional investors sought stability as global equity and bond markets were taking a beating by surging inflation and rising interest rates.
Part of Luxembourg’s international appeal is demonstrated by the popularity of Reserved Alternative Investment Funds, a vehicle known as Raif that is not subject to direct supervision. Many foreign asset managers, including Swiss, leverage Luxembourg Raifs to serve an international audience of professional investors.
This year yielded a number of telling examples of how Raifs are used. Microsoft founder Bill Gates used one to finance a new hotel in Rome; a German-owned Raif helps finance the costs of handling nuclear waste; while Swiss venture capital firm Serpentine described Luxembourg Raifs as “the gold standard.”
Overall growth in the Raif market was strong, more than 30 percent year-on-year in the first half. That growth slowed during the second half of the year, although a year-end spurt appeared to make up for a slow third quarter. Early December it became clear that the Luxembourg Raif market was back on track to set a new record.
Democratisation
This year also was a time when the discussion about democratisation of private equity won traction. No longer is this the exclusive domain of large institutions such as pension funds and insurance companies. The appetite for this asset class among family offices and high net worth individuals is becoming clear. Luxembourg also was pressed to lower its threshold for experienced investors to 100,000 euro from 125,000 euro.
Discussions hosted by the Luxembourg Family Offices Association and the Luxembourg Private Equity Association made clear that family offices recognize private markets because of their resilient performance, diversification benefits, lower exposure to market fluctuations, among others. At the same time, family offices are increasingly challenged by demands placed on them by digitalisation, increasingly stringent regulations and complex cross-border taxation requirements.
Part of that trend also is the news that Anthos Asset Management transformed itself from a single-family office to a multi-family office.
For 2023, valuations in private equity will be eagerly anticipated. The launch of the Luxembourg Valuation Professionals Associations shows that the financial community in the grand duchy is serious about ensuring and improving the quality of the valuation profession.
Other related articles on Investment Officer Luxembourg:
- IO Talks podcast: ALFI’s Lamesch on alternatives, ESG
- PWC: Alternatives add dynamism to ManCo market
- Sofia Harrschar: Investors find stability in alternatives