market downturn and geopolitical uncertainty. As the graph below shows, PE Fundraising in Europe stands at around €60bn as of H1 2022 - thus it is highly unlikely that end-year figures will come close to last year’s (which were strongly bolstered by the post-COVID market upturn). Fundraising may come under further pressure as LPs digest market sell-off Private equity managers had $1.2tn of dry powder at their disposal at the end of 2021, which represented 26.3% of total private equity AUM (Fig. 15). Coming quarters may see additional pressure on fundraising, as LPs delay allocations due to the strong correction in risk assets, which has left private equity allocations higher as a percentage of their portfolios. Many of the clients that we have spoken with in recent months suggest that the fundraising environment is indeed becoming more challenging. The exit environment will remain so, especially in the IPO market. GPs will likely still be reluctant to accept exits at depressed valuations and we expect additional use of continuation vehicles in coming quarters. Similarly, we expect a bright outlook for the private equity secondaries market as some LPs also look to rebalance positions. In our opinion, private equity remains one of the asset classes most at risk from market turmoil. Why is Luxembourg an attractive destination for the Alternative Investment Industry? Although there have been some challenges to the Grand Duchy’s competitiveness in recent years, Luxembourg remains an attractive destination for the Alternative Investment Industry and is the 2nd largest investment fund centre in the world and the leading country in global fund distribution. In fact, an astonishing 98 out of the top 100 asset managers worldwide have funds domiciled in Luxembourg. AUM in Alternative Investments have grown by 39.5% on average per year between 2017 and 2020. Luxembourg’s international approach towards fund management Since the implementation of the Alternative Investment Fund Managers Directive (AIFMD) in 2013, laws such as the Special Limited Partnership (SLP) have fuelled the rise of Luxembourg as the preeminent destination for the private equity and real estate industry, offering a gateway to Europe through utilising familiar features from established US and UK limited partnerships. Furthermore, when it comes to dealing with UCITS, the Grand Duchy boasts over 30 years of experience. Its AAA rating, emblematic of political and fiscal stability, allows for legal and regulatory certainty. Luxembourg’s regulated status offers investors stability in an otherwise uncertain world. Luxembourg is well known for the expertise of its service providers in back and middle office functions, and third-party AIFM services, with the ability to tailor solutions to the size and complexity of each asset manager. Fund Toolbox We attribute the exponential growth in recent years in no small part to the RAIF; a unique multipurpose alternative fund that can be marketed quickly as a diversification option. Coupled with regulatory supervision at fund manager level to ensure robust levels of investor protection, they form part of a grand arsenal of investment vehicles available in Luxembourg. But in order to remain competitive, what is clear is that an innovative legal and fiscal environment is critical to defend and improve Luxembourg’s competitive position as a centre for the domiciliation, administration and distribution of investment funds. “2022 brings other types of challenges and therefore we are waiting to see the impact of market volatility, increase of interest rates as well as geopolitical crises on transactions.” Finance Monthly. Bus i ne s s & Economy 19
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