Unraveling the enduring allure of Luxembourg for UK emerging managers
While well-established fund managers are continuing to grow with the launch of larger and larger funds, there has also been a steady flow of first-time, spin-off and emerging managers setting up their own firms.
This new wave of fund managers has been partly driven by investor demand for the niche, tactical, added-value investment opportunities that the larger funds may pass over or simply not be aware of. The opportunities and rewards for both approaches continue to fuel interest and demand, and there is therefore a need to make sure that emerging fund managers get it right first time.
As the global financial landscape continues to evolve, UK emerging managers are confronted with a myriad of choices when it comes to establishing new funds. Amidst this plethora of options, Luxembourg stands out as a beacon of stability and opportunity, offering a host of enduring advantages for UK-based managers and in this article, we delve into why Luxembourg remains an advantageous choice for UK emerging managers setting up new funds.
1. Regulatory Certainty in an Uncertain World
In an era of regulatory flux and uncertainty, Luxembourg shines as a bastion of stability and predictability. Regulated by the Commission de Surveillance du Secteur Financier (CSSF), Luxembourg's regulatory framework provides clarity and transparency, instilling confidence among investors and managers alike. For UK alternative managers navigating the complexities of post-Brexit regulations, Luxembourg offers a familiar and well-established regulatory environment, mitigating compliance risks and ensuring seamless market access.
2. Tax Efficiency and Fiscal Prudence
For many managers, Luxembourg's tax regime is renowned for its favorable treatment of investment funds, offering a range of tax-efficient structures that can optimize returns for investors. With competitive corporate tax rates and double taxation treaties, Luxembourg provides a conducive fiscal environment for fund managers seeking to maximize investor returns while minimizing tax liabilities. This efficiency, combined with robust legal protections and a commitment to international tax transparency standards, underscores Luxembourg's appeal as a jurisdiction of choice for many UK based fund managers.
3. Access to Global Capital Markets
Luxembourg's position as a leading global fund domicile affords UK alternative fund managers unparalleled access to a vast pool of institutional investors and capital markets worldwide. Leveraging the Undertakings for the Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers Directive (AIFMD) passports, funds domiciled in Luxembourg can be marketed and distributed to investors across Europe and beyond. This access to global capital markets enhances the visibility and attractiveness of funds managed by UK alternative managers, enabling them to scale their operations and diversify their investor base.
4. Infrastructure and Expertise
Luxembourg boasts a sophisticated ecosystem of service providers specializing in alternative investments, including custodian banks, fund administrators, legal advisors, and audit firms. This comprehensive fund infrastructure, coupled with a deep pool of talent and expertise, simplifies the setup and ongoing management of investment funds. For UK emerging managers, access to this robust ecosystem streamlines operational processes, enhances efficiency, and facilitates compliance with regulatory requirements, allowing managers to focus on generating alpha and delivering value to investors.
5. Reputation and Prestige
Luxembourg's reputation as a premier financial center with a long history of excellence in fund administration and asset management confers prestige and credibility upon funds domiciled in the jurisdiction. For UK managers seeking to enhance their brand reputation and attract institutional capital, Luxembourg offers a stamp of approval that resonates with investors globally. This reputation for quality and professionalism further underscores Luxembourg's status as a preferred destination for fund formation and domicile.
In conclusion, Luxembourg remains an attractive and advantageous jurisdiction for UK emerging managers setting up new funds, offering a potent combination of regulatory certainty, tax efficiency, access to global capital markets, infrastructure, and reputation. By capitalizing on Luxembourg's enduring strengths, UK managers can navigate market uncertainties with confidence, attract institutional capital, and position themselves for long-term success in the dynamic world of alternative investments.
The main considerations when setting up in Luxembourg
The key areas emerging fund managers need to consider when setting up their first fund are:
Fund structuring
The basis of a successful fund is an appropriate structure which requires a sophisticated understanding and analysis of the options. It is important for emerging managers to consult professional service providers at an early stage to determine what issues may impact on the structure of the fund.
Fundraising
Fundraising can be a very time-consuming process so it is important not to underestimate this alongside the effort and cost involved.
Fund administration
Having the right day-to-day administrative processes, procedures and infrastructure in place is something that many emerging fund managers do not consider as much as other aspects of launching a fund, which can be a crucial oversight. With regard to administration, having a range of related services underpinning the fund can considerably help minimise the risks and maximise success. One strategy frequently adopted by emerging fund managers is to outsource the administration to a trusted third party.
Fund financing
Emerging fund managers need to consider whether they will need to use any financial products as part of their strategy and which provider would be best placed to provide these. It is not just the financing itself that needs qualifying, but also the range of other financial considerations such as insurance and escrow banking solutions. The financial aspects of running a fund are significant and working with the right partners can help simplify this aspect and free up managers to focus on running a fund.
Fund governance
Investors are increasingly requiring independent oversight of the affairs of their funds, which has driven an increased demand for directors unaffiliated with the manager on private equity and real estate funds. The diversity of directors’ skills and experience is of utmost importance.
How Trustmoore can help
We are a trusted provider of investment fund and company structuring services worldwide. With offices located in various financial hubs and jurisdictions across the globe. Our locations include Luxembourg, the United Kingdom, Singapore, the Netherlands, and the Americas. This enables us to provide our clients with customized professional solutions in the financial sector.
In addition, our fund services team offers personalized services for private equity funds, venture capital, and other funds in all jurisdictions.
Our fund administration, investor relations, and SPV services in Luxembourg are incomparable. Specifically, we provide these services for various regulated and non-regulated fund structures. These include the specialized investment fund (SIF), the investment company in risk capital (SICAR), and the reserved alternative investment fund (RAIF).
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