CAPITAL #10 - PRIVATE EQUITY MEANS LUXEMBOURG - THE PE JOB MARKET QUANTIFYING RISK - LPEA
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CAPITAL
#10
2H 2017
The magazine of the Luxembourg Private Equity & Venture Capital Association
PRIVATE
EQUITY
MEANS
LUXEMBOURG
THE PE
JOB MARKET
QUANTIFYING
RISK
INDEPENDENT
FUND MANAGEMENT
C O M PA N Y A N D A I F M
THE DIFFERENCE IS YOUR SUCCESS
Specialists in Private Equity,
Real Estate and Debt
3rd party AIFM & Management
Company Solutions
Risk Management
Substance / Corporate Services
Fund Distribution
Securitization Solutions
LUXEMBOURG | IRELAND
www.lis-aifm.com
CAPITAL #10 I 3
CONTENT
4. Private Equity and You
5. Editorial
7. News
11. A hands-on approach to luxury
and boutique hotels
15. Quantifying Risk for Private Equity –
Challenges and Approaches
18. Are jobs keeping up with Private Equity’s
growth?
21. Talkwalker talks the talk and walks the walk
22. Private Equity means Luxembourg
THE MAGAZINE OF THE LUXEMBOURG
PRIVATE EQUITY & VENTURE CAPITAL 27. Unlocking the value of distributed ledger
ASSOCIATION technology (blockchain) in private equity
Contributors: Thibaut Britz, Julien Frighetto, Luis
Galveias, Dušan Gladovic, Rana Hein-Hartmann, 28. Bringing Fund Financing Facilities
Dr. Jörg Henzler, Kenneth Kai Siong Iek, Paul to the table
Junck, Valeria Merkel, Gabriela Nguyen-Groza,
Nicolas Palate, Nicolas Raulot, Alexandre Rhea,
Hans-Jürgen Schmitz, Jaume Tàpies, Harald
29. AIFM and the Depositary: Double
Thul, Sébastien Wiander, Jérôme Wittamer and Oversight? Opportunity for
Farabi Zakaria.
Conception & coordination: 360Crossmedia
standardisation?
studio@360Crossmedia.com - 35 68 77
Artistic Director: 360Crossmedia/F.W. 31. Building up a reputation in South Korea
Cover photo: © DR
33. GP-for-hire
35. Market Figures
Disclaimer : To the fullest extent permissible under applicable
law, LPEA does not accept any responsibility or liability of any
kind, with respect to the accuracy or completeness of the 37. LPEA photo gallery
information and data from this documentation. The information
and data provided in this documentation are for general
information purposes. It is not investment advice nor can it take
39. Show time!
account of your own particular circumstances. If you require
any advice, you should contact a financial or other professional
adviser. No material in this documentation is an offer or
41. About LPEA
solicitation to buy or sell any professional services, financial
products or investments. 42. Events’ Calendar
4 I CAPITAL #10
LPEA
PRIVATE EQUITY
AND YOU
NATIONAL PRIVATE EQUITY CAMPAIGN
Source: Invest Europe
E
stablished in 2010 by 25 found- economic driver, we know that ordinary made anywhere in the world, although
ing members, the LPEA has citizens often fail to understand the many apply directly to Luxembourg (or
been a major player in the pro- importance of the financial sector and its greater region) and generate local
motion of Luxembourg’s private how it impacts their lives. jobs and economic growth.
equity sector ever since. This effort has Conscious of private equity’s privileged With the support of the association’s
been more visible abroad, with regular position in the real economy, the LPEA members, the LPEA will implement dif-
roadshows in several cities in Europe has decided to run a campaign with the ferent initiatives in the last quarter of
and the U.S. In 2017 the association objective of showcasing how the citizens 2017. This will include reaching out to
emphasised the promotion of the sector of Luxembourg are exposed to the pri- people in various forms and inviting
in Luxembourg by hosting the Insights vate equity sector in their everyday lives. them to explore how their lives have
conference in April, targeted at the wider On top of paying taxes and contributing already been influenced by private
financial centre community present in to the country’s public pension scheme, equity. Through the media and by open-
the country and not yet familiar with the the private equity sector backs compa- ing the doors of some of our most impor-
asset class. nies that sell food, travel bags and tant players, we expect to be able to
Now, the LPEA proposes to extend its motorbikes; funds the development of explain the basics of the trade, demon-
role as an educator to a broader com- new communication tools, industrial strate how the industry adds value to the
munity of stakeholders: Luxembourg’s equipment and energy solutions; and economy and feature the professionals
citizens. plays a key role in the funding of innova- that make our industry.
Despite a financial services industry tive businesses commonly known as
employing 45.000 people in Luxembourg start-ups. Stay tuned in to www.lpea.lu and tell your
and representing the country’s main Moreover, such investments can be friends not to miss this opportunity!
CAPITAL #10 I 5
EDITORIAL
DEAR PRIVATE
EQUITY PROFESSIONALS,
B
oth in your private life and in your professional activities, a
recommendation is often more valuable than any sort of
advertising. In this edition, we have gathered testimonials
from some of the private equity players present in
Luxembourg to tell you first-hand why they have chosen Luxembourg.
Who better to explain the advantages in operating from this country? As
Luxembourg remains popular in the industry, it’s important to understand
which features stand out and which are currently being developed.
With the sector enjoying such local rapid-growth, LPEA started
monitoring the evolution of the recruitment market in
private equity related positions a year ago. We were
expecting a dynamic market but did not anticipate
reporting a 100% growth in open job positions
within this period!
As private equity becomes a more prominent feature
of Luxembourg’s financial life, the time has come
to better explain what we do. In April
we started by presenting the asset class
to other local professionals with
“LPEA Insights”. Now we are targeting
a much broader community:
Luxembourg citizens. Read about
our education campaign on the
previous page.
We would like to take this
opportunity to thank all of our
members who have contributed
to this edition.
Enjoy your magazine!
Jérôme Wittamer, Chairman
Paul Junck, Managing Director
Luxembourg Private Equity
©360Crossmedia/LPEA
& Venture Capital Association
This moment matters This is a time to be wide awake to the challenge of change; to find opportunity in new technologies, new markets and new situations. This is a moment to connect to deep and broad capabilities. At times of transformation, Deloitte never rests in getting to the heart of what matters to make sure that these moments count. www.deloitte.lu © 2017 Deloitte Tax & Consulting
CAPITAL #10 I 7
NEWS
EQT CREATES ONE FUND HUB
47%
IN LUXEMBOURG
In 2012, EQT decided to manage
future funds onshore. Since then,
eight funds have been
successfully closed across
Share of delegates
General Partners in the UK, the polled at Invest
Netherlands and Luxembourg. predictability needed to ensure
Now EQT is taking the next step a top-quality product and service
Europe’s CFO Forum
in harmonizing and future- level. The consolidated hub for in Berlin on May 30th
proofing its fund management General Partners is managed
with the decision to create one under the EU directive for who claimed their
hub for future domiciliation of Alternative Investment Fund firm was considering
funds in Luxembourg. Managers (AIFMD) and is a
The decision to concentrate transparent and long-term domiciling its next fund
EQT’s fund management to solution, beneficial for both in Luxembourg.
Luxembourg is based on the investors and other stakeholders.
MANGROVE RAISES
ALPHA PRIVATE EQUITY $170 MILLION TO
RAISES €903 MILLION FUND START-UPS IN
FOR ITS LATEST EUROPE AND ISRAEL
LUXEMBOURG FUND
Mangrove Capital Partners (“Mangrove”), the Luxembourg-based VC
Alpha Private Equity (“Alpha”) announced the founded in 2000, announced the first close of its fifth fund at $170
final closing of its seventh mid-market pan-Euro- million. With cumulated AuM of roughly $1 billion, the firm expects
pean private equity fund, Alpha Private Equity the fund to close at $225 million-$250 million during the fall.
Fund 7 (“APEF 7”), with total commitments of
€903 million, significantly surpassing the fund’s Mangrove’s strategy will remain well focused on start-ups, investing
target cover of €800 million. The fund is a SICAR small tickets in early stage businesses in Europe but also in Israel
managed by the group’s Alpha Private Equity where the team scouted Wix back in 2008 and which is, to date, the
Funds Management Company (AIFM) in firm’s most profitable exit generating a $550 million value from an $8
Luxembourg. Investors in the fund include a million investment. Skype, exited to Ebay in 2005, was, nonetheless,
diverse group of pension funds, funds of funds, the deal that placed Mangrove in the international charter of VC firms.
financial institutions, insurance companies, family
offices, and government agencies in Europe, According to Hans Jürgen Schmitz, co-founder of Mangrove, “we will
United States, and the Middle East. continue to invest as a generalist in transformational technologies
targeting both end consumers and business customers. Next to this,
Sébastien Wiander, Risk & Compliance Officer, we also identify specific focus areas which are currently digital health
shared with LPEA that “as a pan-European fund, and cyber security”.
APEF 7 will seek investment opportunities in
Continental Europe, including Luxembourg. The The new fund is funded almost exclusively by returning investors,
choice of Luxembourg as a center of its opera- “a mix that comprises institutional investors (70%) and family offices
tions, through the AIFM, has been supported by (30%)” notes Schmitz. Mangrove is a patient VC encouraging its
the presence of very qualified local professionals portfolio companies to strive for breakout success rather than quick
and by the favorable environment for private turnaround. From the 30 active companies across their prior funds,
equity”. they expect a few more of those successes materializing in the next
couple of years.
lternatives
Shaping
the Alternative
landscape
Luxembourg’s
fund structuring
toolbox
You get it all in one place
Most of the major private equity fund managers have
Luxembourg on their radar or in their fund setup.
Why?
The country offers a unique and flexible fund structuring environment. There
are so many options you can choose from and each of them has the potential to
meet your existing and future needs.
We can help you get the one that suits you best and help you from the set-up and
structuring phase, through investment, to the exit.
Our experts have worked on some of the largest funds’structuring in
Luxembourg and they’re ready to help you deal with your challenges.
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In this document, “PwC” or “PwC Luxembourg” refers to PricewaterhouseCoopers,
Société coopérative which is a member firm of PricewaterhouseCoopers Internatio-
nal Limited, each member firm of which is a separate legal entity. PwC IL cannot be
held liable in any way for the acts or omissions of its member firms.
CAPITAL #10 I 9
NEWS
FIRST INVESTMENTS
ANNOUNCED TO
“INSIGHTS” INTO LUXEMBOURG’S
THE LUXEMBOURG RAMPING ASSET CLASS
DIGITAL TECH FUND
LPEA hosted its first “Insights” conference
The Minister of the Economy on the 26th of April in Luxembourg City.
Étienne Schneider, announced on With many events already taking place on
July 10th 2017 the first two the topic of Private Equity in Luxembourg,
investments by the public-private it was the association’s goal to focus on the
Digital Tech Fund (DTF). The testimonials of General Partners and
companies selected to each Limited Partners operating in Luxembourg.
receive €500,000 are iTravel While Luxembourg is fairly well-known for
(Cologne, Germany) and Nektria its back office and middle office
(Barcelona, Spain). Both firms operations, often linking the activity with
already have established entities in the country’s legal and tax framework,
Luxembourg and will in the coming LPEA made a point to showcase the
months increase their staff and existing front office activity and the experts
operations in the country. changing the face of the growing sector.
Expon Capital, the venture capital The response couldn’t have been better.
firm responsible for the The full room at the Philharmonie
management of the DTF fund, welcomed 330 participants, most of which
reports having received 2000 were asset managers already dealing with
applications of which 200 were or willing to expand their activities into the
profiled. A heavy task which asset class.
exceeded the managers’ Mark Florman, Chairman of LPEQ and
expectations but which now keynote speaker of the conference, opened
concludes with the first two the floor with an innovative approach to
investments. More investments are private equity by introducing the Total
nevertheless expected from the Return Rate – a new approach to measure
€20 million fund bringing together the sector’s impact on society. A set of
commitments from the Ministry of different panels followed covering different
the Economy, the SNCI, Post topics from venture capital to private debt,
Capital, Proximus, Université du emerging markets to structuring and
Luxembourg, Arendt & successful strategies. The conferenced
Medernach, BIL, Expon Capital, closed with the untold story of Luxempart
©DR
High Capital and SES. by its founder and CEO François Tesch.
LAUNCH OF THE
NEW LPEA YOUNG
PE/VC LEADERS
COMMITTEE
LPEA created a new group dedicated
to the youngest Private Equity and
Venture Capital talents in Luxembourg.
The Young PE/VC Leaders aims at
developing new initiatives in view of the
challenges perceived by the younger
generation of professionals (under 40).
Seven sub-groups were created in the
following areas: Innovation/ technology,
Best practices, Tax, Legal, Promotion,
International Relations and Venture
©DR
Capital.
Can time to market
be your competitive
advantage?
Find out how EY can guide you through the
Reserved Alternative Investment Fund.
ey.com/private-equity #BetterQuestions
© 2017 Ernst & Young S.A. All Rights Reserved.CAPITAL #10 I 11
INTERVIEW
A HANDS-ON
APPROACH
TO LUXURY
AND BOUTIQUE
HOTELS ©DR
IN THIS INTERVIEW, JAUME TAPIES, FORMER CEO OF RELAIS & CHÂTEAUX,
CO-FOUNDER OF AINA HOSPITALITY INVESTMENT FUND (A FUND THAT
INVESTS IN THE LUXURY HOTEL SECTOR), IN PARTNERSHIP WITH THE EDMOND
DE ROTHSCHILD GROUP, REVEALS THE KEY POINTS OF THE FUND’S BUSINESS
MODEL AND THE REASONS FOR DECIDING TO BASE IT IN LUXEMBOURG.
What’s the origin of the Aina the children of my business partner, Liza
Hospitality Investment Fund? Masias, used to go to holiday camp. Liza
Aina originated in the Principality of and I worked together previously at Relais
Andorra, where I’m from. It’s actually the & Châteaux, where I was the international
name of a place where my children and CEO until 2013. Liza’s family owns12 I CAPITAL #10
INTERVIEW
several establishments in Latin How is the Edmond de Rothschild knew well as owners of the Domaine du
America. We identified an opportunity to Group working with Aina? Mont d’Arbois, a superb Relais & Châteaux
develop this type of boutique hotel (small Edmond de Rothschild is one of our in Megève. We shared many values, in
luxurious hotels with 40-100 rooms) in founding shareholders. When I left my particular the French art de vivre. To us, it
major European cities and capitals, position as president of Relais & Châteaux seemed obvious that Edmond de
whereas Relais & Châteaux are generally to found Aina, we immediately held Rothschild would be a sponsor of Aina
located outside urban areas. discussions with the Group, which we from the outset of the project. We are also
honoured to be part of the Edmond de
Rothschild Private Equity platform, which
is contributing its full investment fund
expertise. Several of the Group’s
managers belong to our Board of
Directors, providing us with their
know-how.
Have you achieved the targets
that you set?
The initial goal was to set up a fund with
around EUR 70 million, and to invest in
seven or eight hotels. However, our initial
research led us to launch a larger fund
with boutique hotels as well as larger 4-5
star hotels, provided that they represented
great opportunities. The first fund, Aina
Investment Fund – Hospitality Sub-fund,
was therefore able to raise EUR 153 million
(double what we originally envisaged),
through private and institutional investors.
This enabled us to build a diversified
portfolio of hotels in several European
cities: Vienna, Brussels, Berlin, Eindhoven,
Madrid and, more recently, Paris.
What is your investment
philosophy?
The fund is built on four main areas: the
hotel sector, of course, but also real estate,
corporate finance (i.e. the method used to
structure the transactions) and sustainable
development. These four areas can be
found in each of our projects.
We are able to acquire a hotel, take shares
in an establishment or even undertake a
complete development. For instance,
©DR
we’ve just acquired an office building in
the up-and-coming Belleville district of
“Luxembourg has an outstanding
Paris to turn it into a 119-room hotel. We
are also able to make opportunistic
reputation, in our investors’ opinion,
investments in hotels in distress.
How do you identify opportunities?
whether they are from the US, Asia Our Research team continuously analyses
or Europe. It has become a global
the market and has developed our own
attractiveness index per city. We have
hub for domiciling companies.”
identified a segment with approximately
66,000 hotels in Europe and ourCAPITAL #10 I 13
©DR
development team continuously analyses better suited to private banking or family Why did you choose a
2,000 of them. office clients seeking geographical Luxembourg corporate structure,
diversification. a Specialised Investment Fund
How do you manage and monitor (Fonds d’Investissement
your establishments? Have you identified enough target Spécialisé – FIS) for your fund?
Each hotel has its own personality and its investments for the planned “Luxembourg has an outstanding
own management. So we choose the most launch of your Aina Investment reputation, in our investors’ opinion”, whether
suitable business model based on the Fund II? they are from the US, Asia or Europe. It has
location of the hotels that we find. Then, we Absolutely. Our index accurately identifies become a global hub for domiciling
select a brand with an appropriate potential targets on a real-time basis. Out companies. Luxembourg is close to all the
distribution network for each situation and of the ten most visited countries in the countries in which we invest. The country
an operator to manage the hotel. As world, seven are in Europe. Furthermore, offers an exceptionally high number of
owners, we oversee all the tasks and 70% of European hotels belong to professionals in all areas of expertise. It can
operations and their implementation independent proprietors, but hotel also offer a very high quality of service and
through this three-way relationship. This investments are highly capital-intensive. highly competitive administrative efficiency.
means using real-time hotel monitoring to There are many opportunities in European
manage the various hotel indicators such hotels. How can Luxembourg further
as occupation rates and average prices, increase its attractiveness?
as well as staff management and pricing, How long do you keep your hotels? To increase its attractiveness, Luxembourg
which fluctuate depending on supply and An average of five years. This is how long must continue to develop its transport
demand. Our hotels are monitored by it takes to purchase, carry out works and network and international links. It should
several Aina teams: an operations team, a have a track record of at least three years. also adjust its company management
marketing team and a team of engineers. costs, which are quite high.
How do you go about reselling
What are the typical investors in your hotels? Interview by Nicolas Raulot,
your fund? Once we have restructured them, the Marketing & Communication of
Only ten or so investment funds invest in hotels can become highly attractive to Edmond de Rothschild (Europe)
the hotel industry, four in luxury hotels. institutional investors such as pension
Practically all of them target institutional funds. These may be strategic or financial
investors. We are of course open to such investors. We always pit potential buyers Read the full article on our website:
www.lpea.lu
investors but our investment strategy is against one another.The world is evolving and so is tax.
We’re ready to take up the challenge with you.
www.atoz.luCAPITAL #10 I 15
RISK
QUANTIFYING RISK
FOR PRIVATE EQUITY –
CHALLENGES
AND APPROACHES
©DR
T
VALUE-AT-RISK (VAR) AS he AIFMD requires the quantifi- est from institutional investors for VaR
cation of VaR for alternative indicators for a number of reasons.
THE MOST IMPORTANT (illiquid) assets as well, although Firstly, investors are using risk measures
RISK INDICATOR IN THE there are no standard models
available yet. Apart from formal require-
for investment allocation purposes on an
overall level. Secondly, they want to have
WORLD OF LIQUID ments, it is fair to say that many experi- a measure to quantify the risks of invest-
enced market participants in the “illiquid ing into private equity. Last but not least,
ASSETS IS WELL world” are not really convinced whether investors want to get independent input
KNOWN AND it makes sense at all to calculate VaR. for their own internal risk management
systems.
GENERALLY ACCEPTED As investors are allocating a higher frac-
BUT STILL OFTEN tion of their portfolios to alternative Calculating VaR for private equity funds
assets, quantifying the risks related to is difficult for several reasons. Firstly,
CRITICALLY DISCUSSED. these assets becomes more important. market prices and hence data are rarely
The objective of the VaR models for alter- available and thus there are considera-
native assets should not only satisfy ble limitations in using it for risk measure-
regulatory requirements but also provide ment purposes. Secondly, returns of
added value to market participants. illiquid assets are generally not normally
Accordingly, there is an increased inter- distributed and therefore higherLeading
Luxembourg
Fund
Lawyers
LEGAL AND TAX ADVICE
- Client focus
- Connected to the market
- A global perspective with local expertise
- Knowledge and experience
> loyensloeff.luCAPITAL #10 I 17
RISK
moments of distribution functions
have to be taken into account which “Despite conceptual challenges,
leads to additional complexity. Thirdly,
assets in private equity portfolios are the models for measuring the VaR
often extremely heterogeneous and
have to be analysed individually, which for investments in private equity
makes the exercise inefficient and
expensive. have been successfully
There are quite a few solutions offered in implemented and are producing
academic literature, but they only work
with plain vanilla portfolio structures and satisfactory results.”
are hard to standardize for the day-to-
day business of an AIFM. Private equity
managers on the other hand usually rely to be the most likely outcome. However, such that monthly data up to the current
on well-known valuation models calcu- because it is far from certain, we intro- reporting date are available. This bridg-
lating simple scenario analyses in order duce probabilities into the valuation ing problem is addressed by forecasting
to find out what happens to the portfolio model which is the key difference the volatility and VaR figures by applying
company value if certain parameters between simple valuation scenarios and a specific GARCH model. An appropri-
change (e.g. the discount rate). However, a true risk calculation. Finally, we gener- ate model specification delivers a fore-
in terms of risk assessment, we not only ate a probability distribution of the asset cast model providing an up-to-date risk/
want to know what could happen but value through Monte Carlo Simulations return profile of a specific pre-deter-
also the probability for it to happen. from which VaR figures can easily be mined Private Equity exposure. In a final
derived. This is done for each single step this tailor made PE benchmark will
In order to deal with the above-men- asset but also for the whole portfolio be used to forecast the current VaR.
tioned challenges, Luxembourg which allows us to quantify diversifica-
Investment Solutions has developed two tion effects as well. Despite conceptual challenges, the
principal models for calculating VaR for models for measuring the VaR for invest-
private equity investments. Considering The “benchmark model” is used for ments in private equity have been suc-
the “look-through” principle, we have a fund-of-funds. Based on quarterly IRR’s cessfully implemented and are
“single asset model” which generally from a Thomson Reuters/Cambridge producing satisfactory results. Most
works for all kind of income producing Associates database, and a so-called importantly, investors are keen to use the
assets even if there is no historical data “asset allocation” from the manager with risk figures as proper risk measurement
available. The second approach is a information about invested strategies, in private equity is increasing.
“benchmark model” which comes into countries, regions, vintage years etc. we Luxembourg has already developed its
play in the case of fund-of-fund struc- calculate a fund-specific benchmark. reputation when it comes to UCITS funds
tures where it is extremely difficult or This benchmark needs to be econo- and the associated risk management of
even impossible to analyse each single metrically adjusted in two steps. The first liquid portfolios. Promoting those risk
underlying asset. step is to rescale the quarterly IRR’s of models for alternative assets on an inter-
the benchmark to monthly returns, with national scale would strengthen the
The “single asset model” starts with a a specific frequency conversion and a reputation of Luxembourg as a leading
valuation provided by the asset man- so-called unsmoothing methodology center of competence in terms of risk
ager/advisor or a third-party appraiser which takes the autocorrelation structure management for alternative asset
usually as a traditional DCF model (flow of the time series into account. The typi- classes as well.
to equity or WACC). This valuation is not cal multi-lagged autocorrelation struc-
challenged by our models (although they ture of the PE indices is mainly due to the
can easily be used for plausibility inherent illiquidity, the smoothing effect Dr. Jörg Henzler,
checks) but rather replicated through a stemming from quarterly appraisals as Professor of
so-called “reverse valuation” procedure. well as stale pricing, for instance due to Economics and
In a second step, certain and uncertain at-cost valuations. This methodology Financial Markets
parameters in the model are identified produces a time series which is usually University of Applied
©DR
and the uncertain parameters are mod- three to six months old due to the time it Sciences Trier
elled with appropriate likelihood func- takes the target fund managers to com- Member of the Board
tions. The idea behind this is that the pile the financial statements (“reporting of Luxembourg
manager has the best knowledge of the gap”). Therefore, an additional step is Investment Solutions
asset value hence this value is expected necessary to bridge this reporting gap S.A.18 I CAPITAL #10
RECRUITMENT
ARE JOBS KEEPING UP
WITH PRIVATE EQUITY’S
GROWTH?
HOW IS LUXEMBOURG DEALING WITH THE TWICE THE OFFERS
LPEA has been monitoring the positions
SOARING RISE IN PRIVATE EQUITY JOBS? advertised in open job platforms2 for the
past year and has concluded that the
keyword “private equity” has been gain-
P
rivate Equity (PE) is in the busi- requests for experts in private equity is ing popularity. From 405 jobs posted
ness of growing firms’ value in perceived in the recruitment market with related to “private equity” in July 2016,
the market. However, what has some concerns on the availability of requests doubled to 805 in one year, an
been most remarkable these resources to fuel the sector’s growth. impressive increase which peaked at
past years is the growth of the private Many of the requests come from the “PE 864 in February 2017.
equity market itself. The asset class is departments of Luxembourg-based ser- These figures should be taken as a refer-
attracting more investors and therefore vice providers such as corporate ser- ence and not as an absolute value given
calling for more managers. According to vices, law firms and consultancy firms” that several positions may be repeated in
Preqin1, in the past 10 years, an average notes Gabriela Nguyen-Groza, Executive different platforms while others, notably
of 241 firms entered the private equity Search Consultant. Julien Frighetto, C-level offers, may not be advertised at
and venture capital market each year. Managing Consultant at Edouard Franklin all. Nguyen-Groza details the typical set-
Luxembourg is no stranger to such focuses on the surge in requests coming up for a company settling its first office in
growth, with more GPs and LPs continu- from “central administration and fund ser- Luxembourg: “we usually recruit the Head
ing to set foot in the country. A surge in vices”. Many requests are also coming of Luxembourg (a highly-skilled Financial,
from “oversight functions in accounting, Tax or Risk profile, very well-connected
legal risk and compliance” says Rana locally) who will put the basis of the activity
“At the Hein-Hartmann, Director at Funds
Partnership, “smaller and mid-sized PE
here. This person works with service pro-
viders during the first months of the office
moment, companies started to set up asset man-
agement teams locally, although that is
and afterwards he or she will recruit sev-
eral highly qualified executives to work
front not yet the norm in Luxembourg”. within the entity in Luxembourg”.
©DR
office candidates PRIVATE EQUITY JOB POSTS IN LUXEMBOURG DOUBLED WITHIN ONE YEAR
from the UK are 900
applying to 800
senior vacancies,
but there is not
700
the plethora of 600
jobs available to 500
them. In time, this
will change.”
400
Source: LPEA
300
Rana Hein-Hartmann 2016-07 2016-08 2016-09 2016-10 2016-11 2016-11 2017-01 2017-02 2017-03 2017-04 2017-05 2017-06 2017-07CAPITAL #10 I 19
Regarding recruitments from Service
Providers, the evolution to in-house
example, where compensation packages
increased significantly comparing to a few “We have
executives is very smooth, as they have
deep expertise and long experience of
years ago. The shortage in experienced
PE profiles, as well as the arrival of a cer- been very
working with PE clients, provided that tain number of executives, will pull up the
active in
©DR
there is a “no-compete” clause conflict, compensation level in Luxembourg”. “The
as this clause is the norm in work con-
tracts in Luxembourg. “People coming
mid-level bracket of €60-85k wages is
already 20% better than the average sala- the recruitment of
from service providers are generally
very attracted to PE firms as they see the
ries for equivalent roles in London” points
out Hein-Hartmann. more operational
passage from a client-services firm to
working within a PE house as a challeng-
A solution to increase the talent pool is to
recruit outside of Luxembourg, especially PE professionals
ing and professionally rewarding step
forward in their career. They are people
in positions less exposed to local specific
knowledge. Outside Luxembourg is not so for bigger clients
with a very ‘hands-on attitude’, who are
attracted to the ‘inside’ work of a PE
distant with the country’s borders as far as
15 kilometres away from other financial which have to
house” concludes Nguyen-Groza. neighbourhoods. The “Greater Region”
surrounding Luxembourg has for long face the
EVOLVING TALENT POOL
Recently, at an LPEA presentation in
been a source of talent with a pool of 11
million inhabitants. But the sector may as increasing
London, Martin Eckel, Head of Legal at
Oaktree Capital Management addressed
well go further away. “We are already see-
ing a big shift of talent from the UK, volume of work.”
the difficulties of finding and retaining Eastern Europe and Southern Europe.
local talent in Luxembourg. Such an The Luxembourg Financial Centre needs Julien Frighetto
obstacle is not actually new to to market themselves with high level grad-
Luxembourg. The banking and invest- uates in finance from the top universities
ment funds industries also faced the in Europe” notes Hein-Hartmann. To this Groza reminds that “Luxembourg’s offer
same comments years ago and today recruiter, the challenge is not so large “the of internationally oriented schools has
fuel a financial sector estimated at talent pool, because it is here, but the increased in the last few years. There is
45,000 employees. employment law which unfairly falls on the now even English or French sections in
Frighetto notes that “the PE sector’s side of employees in most cases. More public schools for free. Plus there is the
rapid growth has created a mismatch rights to companies to take action against tremendous opportunity for children to
between work offer and work demand. poor performance and poor behaviour easily become multilingual”. An advan-
Such shortage of profiles is making sala- would drive positive performance and tage that adds to the growing cultural
ries (and therefore general costs) to growth”. scene is the easy access to other major
rise”. He adds that “Luxembourg has to For Frighetto, talent is attracted with cities such as Paris, Brussels or
develop its talent pool to ‘normalize’ the “competitive compensation packages Frankfurt. Investments in infrastructure
situation and to sustain the sector’s but also with good work-life balance”. such as the tram line to open at the end
growth on a long-term basis”. While quality of life is difficult to estimate of the year also makes it easier to live
Nguyen-Groza notes that the rise in sala- and compare, local authorities are mak- closer to the job than professionals living
ries “is recurrent in some lines of busi- ing a lot of effort to create a welcoming in busy London.
ness, the latest being Compliance, for environment for expatriates. Nguyen- In summary, great candidates follow
great jobs and Luxembourg is adapting
to attract the very best talent.
“Good professionals in 1. 2017 Preqin Global Private Equity & Venture
Capital Report
Luxembourg are well 2. Platforms monitored: eFinancialCareers.lu,
Jobs.lu, LinkedIn and Monster.lu.
respected, well paid and
©DR
their companies are doing the best
they can to keep them happy.”
Luis Galveias,
©DR
Gabriela Nguyen-Groza LPEAFinally, the planets
align for
blockchain
Out of Luxembourg comes
FundsDLT, a blockchain-based
product in development for asset
managers created by KPMG, InTech,
and Fundsquare.
Please visit www.fundsdlt.net
to experience this new platform.
www.kpmg.lu
© 2017 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.CAPITAL #10 I 21
START-UP
TALKWALKER
TALKS
THE TALK
©DR
AND WALKS
THE WALK
FROM TECHNOPORT INCUBATOR TO MONITORING
700 GLOBAL BRANDS, THE SUMMARY OF A
LUXEMBOURG SUCCESS STORY.
A
rriving in Luxembourg in 2009, ity of Luxembourgers and finds in the
very little was happening in the greater region a valuable pool of resources. Thibaut Britz,
entrepreneurial start-up space As we write, 23 positions are open mostly co-Founder,
and few could suspect that one in IT, marketing and sales. Talkwalker
of Luxembourg’s success stories was
about to emerge. FINANCING
Talkwalker was founded back then by Despite the start-up status, money has not
Thibaut Britz and Christophe Folschette, been a recurring issue. The two founding
two young Luxembourgers disappointed partners welcomed on-board Robert
with the perspective of “career jobs”. Britz, Glaesener who joined the firm in 2010 as
by the age of 17, had already created “blue. an investor and CEO. Additional private
lu”, the first local full text search engine in funding of €3 million followed in 2013 from
Luxembourg. With an academic back- local individual investors but only in
©DR
ground in computer science it didn’t take January 2017 did the firm reach out for fur-
long for the two to develop a service to ther funding. Amsterdam-based Main
monitor brands’ online presence. Today Mezzanine Capital pooled a €5 million greatly from the Luxembourgish govern-
Talkwalker monitors social conversations mezzanine loan from wealthy individuals, ment help, especially from the Jeune
and pictures from 150 million websites in family offices and (former) entrepreneurs, Entreprise Innovante programme and sub-
187 languages across the globe, providing an option mentioned by Britz to further sidies to participate in business fairs
its clients with automated reports on how finance expansion. With subscription plans abroad. If something could change, it
consumers interact with their brands. starting at €500/ month, the company has would be to be awarded a subsidy in the
been able to fund its growth with a consist- very first two years of activity for which we
INTERNATIONAL FOOTPRINT ent base of 700 clients. Nevertheless, Britz did not receive any salary, in order to allow
Starting at Technoport incubator in 2010, doesn’t exclude the possibility of seeking everyone committed to start a business.”1
the company continued its growth moving out new investors in the future. As for the future, “the market is very com-
later to the Lux Future Lab and more petitive and requires companies to inno-
recently to a dedicated office in the city A CASE STUDY WITHIN vate and be big to succeed” says Britz.
centre hosting most of its 150 staff. Three LUXEMBOURG START-UPS After developing artificial intelligence to
business development offices in New York Although already a “case study” in the perform image recognition, Talkwalker will
(opened in 2015), San Francisco (opened Luxembourg entrepreneurial landscape, continue investing in keeping up its innova-
in 2017) and Frankfurt (opened in 2017) the team tries to ignore that local status to tive lead. Eventually it will finally get its first
complete the footprint. continue focusing on international develop- client from Luxembourg!
Recruitment has not been a problem for ment. Anyway, there are no major remarks
the fast-growing firm. Although having a about the local resources available for 1. A €50.000 grant is now available in the context
of the Fit4Start programme for the first 4 months
very international team, it employs a major- start-ups according to Britz: “we benefited
of activity.22 I CAPITAL #10
COVER STORY
PRIVATE EQUITY
MEANS
LUXEMBOURG
F “We like the
or the last few decades a majority
of Private Equity (“PE”) houses
have set up back-office struc-
tures in Luxembourg and started region’s macro-
to use Luxembourg as a hub for their
European operations. Over the last five environment.”
years, with the introduction of the AIFM
Directive as well as the increasing pres-
sure from the OECD BEPS project (“Base result of significant changes in the inter-
Erosion & Profit Shifting”), the substance national political and tax environment but
of these PE houses has been constantly are also a combination of locally driven
©DR
reinforced and the operating model sig- initiatives and innovations, long-term
nificantly upgraded, moving from passive political and economic strategies, and
JEAN-YVES HÉMERY, back-office structures to very active the collective efforts of all the market
INTERNATIONAL DELEGATE European Hub structures frequently players towards a single goal: Let’s make
OF ORANJE-NASSAU,
headed by Luxembourg-based Luxembourg THE prime location for PE in
WENDEL
Alternative Fund Managers (“AIFMs”). PE Europe. Although there is still a long way
Having been present in Luxembourg
businesses started effectively with vari- to go to achieve the principal objective,
since 1930, the Wendel Group has
chosen to develop its private equity ous portfolio companies offered by which is to onshore to Luxembourg the
business here owing to the country’s Luxembourg but are now very often pack- offshore PE funds, Luxembourg should
very high level of stability and the aged together with AIFMs and different not be shy of saying that it has achieved
safety of its legal and tax systems and funds that together provide a real logisti- a great deal so far and is probably in the
the favourable environment in terms of cal advantage which goes beyond the best position to offer PE houses all they
the competence of the various players substance of the initial objective. With need in the current environment.
(supervisors, bankers, lawyers,
more than 6,000 PE professionals, Let’s take a few concrete examples and
auditors), all key components in
having a long-term vision, which is a Luxembourg is now home to the top 13 look at the main reasons for this success,
pillar of the Group’s strategy. PE players worldwide. The changes which has certainly not come about by
which are happening now are not only the chance!CAPITAL #10 I 23
©DR
PETER VELDMAN, MANAGING
DIRECTOR, HEAD OF FUND
MANAGEMENT, EQT
The decision to create a hub for future
EQT funds in Luxembourg formed a
natural part of EQT’s growth strategy.
We are looking at ways of future-
proofing every single part of EQT, and
consolidating the GP presence is one
way of doing this. With Luxembourg,
we can be sure that future funds are
managed under the AIFM Directive
within the EU, which is an important
consideration for us. We also like the
©DR
region’s macro-environment and its
ability to offer one-stop solutions for
deal structures. On balance,
1
Luxembourg is the best long-term
COMMUNITY OF
A for the level of skills, development and qual- solution for EQT.
EXPERTS AND TALENTS ifications of its employees. It can be in no
WHO HAVE SHARED THEIR doubt that the skills of people who special-
PASSION FOR PE FOR ise in PE contribute strongly to the attrac-
2
MORE THAN 25 YEARS tiveness of the country. Beyond the N ATTRACTIVE AND
A
When Luxembourg started to look at PE as technical skills that all the professionals in SUSTAINABLE GATEWAY
a real and different strategic opportunity, it this industry have developed, genuine FOR PE INVESTMENT AND
mainly focused on the banking sector, but expertise has also been gained over the CAPITAL-RAISING IN
at the same time it led the Asset years in the PE business model. Far from EUROPE
Management industry, along with the U.S. the old model of passive LBO (“Leveraged What Brexit revealed more than a year ago
The expertise and reputation of Buy Out”), the PE business model has is that an attractive tax and regulatory
Luxembourg built on the Asset Management played a much more active role in develop- framework without political stability is not
industry was therefore probably one of the ing targets and assisting the potential for sustainable in the long term. This is also a
main cornerstones of the foundation of the growth, both locally and internationally. This reason why Luxembourg is today the prime
PE community which serves PE businesses change has helped to reinforce the attrac- location for PE as it has always demon-
today. According to the World Economic tiveness of PE to Luxembourg’s employees strated a form of continuity and political
Forum’s 2015 Human Capital report, while the country’s strong multicultural bias stability which is second to none. Although
Luxembourg contains the highest propor- has enabled it to attract levels of interest in Brexit plays an effective role in accelerating
tion of the world’s most highly qualified peo- PE which are unavailable to almost all other the re-allocation of key functions to
ple. In other words, the study ranked EU countries without such a lack of cultural Luxembourg (such as risk management
Luxembourg “First”, ahead of Singapore, or language barriers. and oversight), the Luxembourg authorities
have always actively pursued the develop-
ment of this market by setting up a “PE
“Private Equity is and will continue proof” regulatory and tax framework. Since
2004, when the SICAR law was enacted,
to be the rising star of the there have been many initiatives to come
up with new laws or to develop specific
Luxembourg economy.” vehicles dedicated to the PE industry.Since 1798 in Finance.
Since 1973 in Luxembourg.
Since 1998 in Private Equity.
M.M.Warburg & CO Luxembourg S.A. · 2, Place François-Joseph Dargent · L-1413 Luxembourg
Telefon +352 42 45 45-0
businessdevelopment@mmwarburg.lu
www.mmwarburg.luCAPITAL #10 I 25
COVER STORY
The Luxembourg special limited part-
nership (“SCSp”) and the Reserved
“The Luxembourg authorities
Alternative Investment Fund (“RAIF”) are
now completing a toolbox which is able to
have always actively pursued
compete with those in any other jurisdiction
but which, above all, offers to PE managers
the development of this market
a comprehensive list of attractive, flexible
and very competitive solutions from a “time
by setting up a “PE proof”
to market” standpoint. This Luxembourg
toolbox, which includes AIFMD-compliant
regulatory and tax framework.”
vehicles, is “tried and tested” and therefore
probably one of the best ways to gain BEPS project, is the response of countries better adapt to the new expectations of
access to EU Investors. and the ability of their business communi- their customers, including Chinese, Islamic
ties to adapt to changes and to incorporate as well as Green Private Equity players.
3
ROACTIVE, REACTIVE
P these changes into local law when required.
5
AND BUSINESS-ORIENTED On 7 June 2017, Luxembourg signed the AST BUT NOT LEAST –
L
ENVIRONMENT Multilateral Convention at the OECD in AN OUTSTANDING
At the current time no amount of confident Paris, underlining once again its commit- AND UNDISPUTED
economic predictions or indicators can tell ment to transparency in tax but also its QUALITY OF LIFE
us how an economy will perform in the rapid implementation of the BEPS meas- All of us have heard someone dispute the
future or what changes will be needed to ures agreed by the G20 and the OECD. potential attraction of Luxembourg, a tiny
keep up with developing economic circum- The Luxembourg government has consist- country without mountains or sea borders
stances in five, ten or 20 years’ time. What ently pursued proactive economic devel- at least once. Although we should admit
matters more, now that a number of signifi- opment policies, while easy access to that, on the face of it, this statement is true,
cant changes have been made, such as the senior civil servants has always been a key those who express such a view should
pillar of growth in the Luxembourg econ- probably just look at the facts and figures
omy. PE is and will continue to be the rising produced by our leading financial com-
star of the Luxembourg economy and it is mentators which indicate no compromise
no coincidence that Luxembourg, with its on the quality of life. The Independent and
business-oriented mindset, is now a per- Business Insider UK, in a survey carried out
fect match for the PE community. by InterNations and published in 2017,
ranked Luxembourg as the safest country
4
A PRIME in the world for expats and as having the
LOCATION best healthcare system in the world. The FT
FOR LISTING also recently commented on Mercer’s
Did you know that Luxembourg is the num- Quality of Living Survey, where Luxembourg
ber one market in terms of listed interna- was ranked 20th and London 40th, glob-
©DR
tional bonds in Europe and the world’s ally. With the second highest Gross
number one exchange for international Domestic Product per capita (“GDP”) in the
SEBASTIEN PAULY, HEAD OF securities listings? Issuers can list in world (Qatar is first) and a growth projection
FINANCE LUXEMBOURG, Luxembourg in as little as 24 hours and for national GDP of 4.7% for 2017,
OAKTREE CAPITAL have a choice of two markets, amongst Luxembourg is more than equipped to con-
MANAGEMENT which is the so-called Euro-MTF market for tinue to invest in its hard and soft infrastruc-
For PE/RE/DD houses of any type and which the PE Industry has always had a ture and to strive for excellence and the
size, the main drivers in using
strong appetite. This market is generally highest quality of life as well as offer the
Luxembourg as an investment hub are
the flexibility of the marketplace, its seen as more flexible and is often selected best environment for international busi-
smooth and quick adoption of EU/ by PE houses to list bonds aimed at financ- nesses, skilled professionals and their
OECD regulations, and the wide ing the growth of their portfolio companies families.
variety and availability of experts who (add-ons) or at refinancing their pre-acqui-
are able to advise efficiently sition external debt. Relying on its vast
throughout the entire lifecycle of an 80-year experience, the Luxembourg Stock
investment. Luxembourg is also well
Exchange keeps on diversifying to new
known for its stability, which is one of
the reasons why Oaktree decided to markets such as those for CoCo Bonds
list funds out of Luxembourg before (Contingent Convertible Bonds), Dim Sum Alban Aubrée,
Brexit took place. Bonds (Renminbi), Islamic Bonds (Sukuk) EY Luxembourg
©DR
and, more recently, Green Bonds, so as to Private Equitylaw is our art
the leading business
law firm in Luxembourg
95 experts covering
the full spectrum of Private Equity
LUXEMBOURG DUBAI HONG KONG LONDON MOSCOW NEW YORK PA R I SCAPITAL #10 I 27
TECHNOLOGY
UNLOCKING THE VALUE OF
DISTRIBUTED LEDGER TECHNOLOGY
(BLOCKCHAIN) IN PRIVATE EQUITY
N
ot long ago, distributed ledger PROPERTIES OF DIGITAL LEDGER TECHNOLOGY (DLT)
technology (DLT) was dismissible
sci-fi hype, a faraway idea interest-
ing but not yet relevant. However,
times have rapidly changed: DLT, commonly
called blockchain, is revolutionising the tra-
ditional and alternative asset management
sectors while producing real use cases in
banking, real estate, hedge funds, and pri-
vate equity (PE). Prominent examples in PE
include Northern Trust Corp’s use of block-
chain for record-keeping, or Citi-Nasdaq’s
partnership enabling payment services.
PE players face many challenges remedia-
ble, perhaps, by DLT.
CHALLENGES IN PE:
Intense competition, tight profit margins, and
investors’ cost sensitivity have created rising
cost pressures and necessitated new stand-
ards of efficiency and scalability. POTENTIAL USES: “DISTRIBUTED LEDGERS” are ledgers that are
shared, replicated, synchronised, and spread
Simultaneously, the increasing volume of •
investment analysis, sourcing, and
across multiple locations. DLT allows parties in a
investment strategies, regulatory hurdles, decision-making; value chain or ecosystem to share data securely
and reporting requirements bring additional • administration of investments; and in near real-time, thereby opening up new
complication. • ash-flow management. opportunities for peer-to-peer collaboration and
In operational terms, PE is ripe for evolution. transactions.
Standardisation has not yet taken place, For example, creating digital identifiers for “BLOCKCHAIN” is a type of DLT. It shot to fame
because it powers the bitcoin cryptocurrency and
data is managed across disconnected plat- portfolio companies would enable them to
is now commonly used as a synonym for DLT.
forms, and technological solutions seem to gather and share information, which would
“SMART CONTRACTS” are self-executing
be lacking compared to other financial streamline investment analysis, decision- contracts programmable on a distributed ledger.
sectors. making, and due diligence processes. Standardised, fully-automated, and autonomous,
Now would be the time for PE firms to invest Administrative processes like transactions, they can ensure that agreements are fulfilled by
in better technology. Both decision-makers capital calls, distributions, charges, and all parties, automatically and nearly in real-time.
and administrators stand to gain from DLT. financing could also happen via DLT. Cash-
flows and contracts could additionally be tribution supply chain players, from custodians
BENEFITS OF DLT: done using smart contracts, as could the to transfer agents to asset service providers,
• real-time transaction settlement and auto- handling of investor rights, shares, and units, harmonising a currently fragmented ecosys-
mation: smart contracts can automate the meaning transparency and real-time infor- tem. As an auditor who often leads operational
validation of, for example, transactions or mation accessibility and reconciliation. discussions with clients, I am looking forward
automatic payments; Industry players must be on the lookout for new to revolutionary tools like this one.
• transparency and disintermediation of dis- tools and start thinking about how DLT tech-
tributed data: this results in there being one nologies may create value within their value
single source of truth, significantly decreas- chains. One future offering is FundsDLT, a DLT-
ing the amount of reconciliation work; and powered platform for asset managers cur- Valeria Merkel,
• notary function: blockchain can guarantee rently in the testing phase. Under development Associate Partner,
the authentication of documents and the in Luxembourg by KPMG, InTech and Audit at KPMG
©DR
traceability of records. Fundsquare, FundsDLT will interlink fund dis- LuxembourgYou can also read
