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A compelling jurisdiction for private equity

Luxembourg’s stock is rising in terms of Private Equity asset volumes and its reputation with the international LP and GP community. In this article, Olivia Zitouni looks at foundation for this success, and reveals the key factors driving the future development of this dynamic sector.

Olivia Zitouni - Group Head PERES Coverage & Business DevelopmentOver the past two decades, Luxembourg has emerged as a leading global centre for the Private Equity (PE) industry. Luxembourg’s share of the European PE market increased from 7.4% in 2010 to 51.5% in 2022. This makes it the largest domicile for PE funds in Europe, followed by Ireland with 18% market share. Luxembourg remains the natural choice for PE firms, bolstered by a strong appetite from limited partners, such as asset managers, insurance companies, pension funds, family offices and high net worth (HNWI) individuals, to invest into a wide range of investment strategies, including leveraged buyout, venture capital, growth capital, and mezzanine capital. Below, review the three key pillars that shape the Grand Duchy’s PE industry to gain some insight into its future.

A rising tide lifts all boats

According to Preqin, European PE and VC managed a record €1 trillion in capital at the end of 2022, up from €873 billion in 2021?–?the first time the European industry has broken the €1 trillion barrier. Following the record-breaking performance of 2021 and a second-best year in 2022, it was slightly dampened in the second half as interest rates spiked, leading to a reduction in deals, exits, and fundraising. European dry powder (investable capital) reached €348 billion in 2022, highlighting the lack of deal opportunities. Overall, the European PE market remained fundamentally sound during 2023, carried by growing interest from institutional investors for the portfolio-diversifying, non-market-linked performance opportunities that PE offers.

In addition to market forces, events and trends have benefitted Luxembourg. The Grand Duchy helped many UK PE managers maintain access to the EU market post-Brexit with Luxembourg-law structures’ “European Passport” facilitation cross-border distribution. ESG trends have also positively impacted PE’s development as it plays a role in driving progress on sustainability, social and governance factors in the companies it acquires, unlocking lasting benefits and generating value.

A business-friendly and proactive Government

Luxembourg’s AAA-rated economy has a heavy bias towards financial services and its stable government has always been quick to adapt domestic regulations and adopt European regulations to give its financial services players a first-starter advantage. The country combines [...]

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