Corporate financing in Europe is currently undergoing a significant transformation. Historically, it has been largely dominated by banks, but with banks being in the process of deleveraging and currently burdened by additional capital requirements, debt funds have stepped in and increasingly provided funding to small- to medium-sized enterprises, either through direct lending or through loan acquisition/participation. Debt funds have grown significantly in number and size in recent years and are constantly winning market shares vis-à-vis banks. In Luxembourg, for instance, the number of assets managed by debt funds has increased by a factor of six over the past five years.
Regulatory background
In order to keep pace with this market development from a regulatory perspective, the European Securities and Markets Authority (ESMA) published its opinion on 'Key principles for a European framework on loan origination by funds' at the European Commission's request. In doing so, the ESMA took stock of the national practices towards loan origination by investment funds and proposed the cornerstones around which a harmonised European framework on loan origination could centre.
In response to this, the Commission de Surveillance du Secteur Financier (CSSF) published an update of its AIFM Law FAQ in June 2016, where it officially confirmed that Luxembourg-based AIFs may engage in loan origination, loan acquisition or loan participation activities, subject to specific organisational and operational requirements.
Even though market participants could always obtain swift feedback from the CSSF through its approval and supervisory process, the update of the AIFM Law FAQ provided most welcome clarification to the market players in Luxembourg, reflecting the growing importance of debt fund activities here. After all, Luxembourg is the largest fund distribution centre in Europe and second largest in the world.
Our service offering
In order to support market participants in the various challenges related to loan origination, loan acquisition and loan participation activities by funds, we have designed a training curriculum covering all relevant aspects of these activities from audit, risk management, tax, and valuation perspectives.
These topics are set up as separate, stand-alone 'modules', and it is possible to select all of the modules or only single ones for a training session. For each of the modules, a dedicated team of experienced professionals will provide you with an in-depth view on the relevant regulatory provisions, methodologies, and market best practice.
Besides the aspects mentioned above we are delighted to talk to you on any further aspects around debt funds. Please contact me for more information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
