I. PRIVATE EQUITY FUNDS IN LUXEMBOURG
Introduction
The Grand Duchy of Luxembourg is one of the world's leading fund domiciles and is the leading private equity fund centre in Europe. With nine of the 10 largest private equity firms worldwide doing business from Luxembourg, it is an attractive jurisdiction in which to domicile private equity funds for many reasons, including its stable political environment where traditional political parties and policy makers, regardless of their position on the political spectrum, work together to ensure that Luxembourg remains a leading investment fund centre.
Beyond this, Luxembourg's corporate laws and regulations are flexible and competitive, and Luxembourg offers a wide range of partnership and corporate vehicles, each adaptable in its own right, to allow partners and shareholders to tailor the management and general governance of such vehicles to their specific needs. In addition, the Luxembourg tax framework is regarded as one of the most stable in Europe, which provides many advantages for companies and partnerships as well as their shareholders, partners and employees.
In the alternative fund space, Luxembourg has developed an impressive range of regulated and unregulated investment fund vehicles, a variety of which may be utilised when establishing a private equity investment fund. The regulated fund regimes are opt-in regimes and, therefore, not obligatory and as such are typically used in relation to fund vehicles in corporate form or if an umbrella structure is required.
equired. Unregulated funds, save for the potential need to comply with the AIFM Directive under certain circumstances, are the most commonly utilised vehicles for private equity funds. Luxembourg limited partnerships, in particular the special limited partnership (société en commandite spéciale, the "SCSp"), have become the preferred structures for private equity houses. Luxembourg benefits from significant depth and experience in relation to servicing private equity funds, and Luxembourg funds are familiar to private equity investors which typically regard them as the gold standard in terms of investment vehicles.
As a result of these various factors, Luxembourg is the most attractive jurisdiction amongst the civil law jurisdictions and, indeed in Europe, in which to establish and operate a private equity fund.
II. WHAT IS A PRIVATE EQUITY FUND?
General concept
| 5-2 | The general concept of a "private equity fund", as detailed in Ch.1, applies equally with respect to Luxembourg private equity funds. |
Private equity fund structures
| 5-3 |
Private equity funds in Luxembourg may be established as unregulated or regulated structures. Within these two categories, various types of vehicles are available. Unregulated limited partnerships have, however, generally become the vehicle of choice for most managers who wish to establish private equity funds which are domiciled in the EU. In circumstances where it is preferable to establish a fund which is subject to a regulatory regime, the reserved alternative investment fund (fonds d'investissement alternatif réservé, the "RAIF"), the specialised investment fund (fonds d'investissement spécialisé, the "SIF") and the investment company in risk capital (société d'investissement en capital à risque, the "SICAR") are most frequently selected. The application of one of these regulatory regimes can provide additional structuring flexibility and help to accommodate specific commercial and regulatory considerations. A wide range of different factors, including the choice of available legal vehicles and their suitability for the relevant asset class, the likely preferences of target investors and the extent of local regulation, will influence and determine the fund structure which the manager of a private equity fund ultimately selects and implements. |
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