Private Equity in Luxembourg: The Power of Trust, Tech, and Showing Up

Luxembourg is home to more than €690 billion in private equity assets, report the Luxembourg Private Equity & Venture Capital Association and PwC Luxembourg. According to a recent collaborative report by these organizations, the country is considered to be one of the biggest investment fund centers in the world.

After attending Luxembourg Private Equity and Venture Capital Association events this year, one thing has become strikingly clear. If you want to succeed in Luxembourg’s private equity and fund administration scene, you need more than just great ideas, you need to be physically present.

That means boots on the ground. And this summer I did just that. I did the usual CEO mental packing list: sleek laptop, a deck of untouched business cards, and enough dark blazers to pass for a moody tech exec. Just kidding.

But I did go to Luxembourg and it was a privilege to attend a Luxembourg Private Equity and Venture Capital Association (LPEA) conference. The conference yielded invaluable insights into the latest market trends and gave me the chance to connect with both old colleagues and new faces.

According to a report by LPEA and PwC Luxembourg, more than €690 billion in private equity assets are domiciled in Luxembourg.

For this level of investment per capita and deal activity to continue, personal relationships and trust cannot be overstated. 

To really embed yourself in Luxembourg’s business society, establishing a local presence is key. Setting up a SARL (Société à Responsabilité Limitée), Luxembourg’s go-to legal structure for holding companies and investment vehicles, is more than a box-ticking exercise. This signals you’re serious. From opening a local bank account with the minimum share capital before incorporation to networking with the Luxembourg Chamber of Commerce, these are the moves that show you’re not just passing through.

Being on the ground at LPEA networking events has shown me that credibility in this market isn’t built overnight, and it certainly isn’t built from afar. Luxembourg is a country where trust and personal connections matter, and attending industry events is the perfect way to make those connections.

If you’re not attending and engaging locally, you're missing out on great opportunities to integrate into the community. Having a Luxembourg-based legal entity isn’t just a smart move, it’s mandatory if you’re serious about gaining traction in this thriving market. And, of course, we can’t overlook the benefits of Luxembourg’s generous corporate tax structures. But we’ll dive into that later.

Building Relationships in Luxembourg’s Private Equity Market

More so than any other market I’ve encountered, the Luxembourg city market is built on a more tactile form of trust, and establishing yourself within this business space requires more than just a great product or service.

Networking events, conferences, and after-work gatherings are great for those deeper conversations, and the strategic introductions that can ultimately prove to be make-or-break as you navigate the private equity space here. And that’s why engaging with the LPEA was such a fantastic opportunity.

What Fund Administrators are Looking for in a Tech Partner Like Vestlane

At Vestlane, we constantly strive to streamline how private market transactions and fundraising are managed, in close partnership with fund administrators. Through conversations at events like LPEA, it’s clear that several factors are top of mind when fund administrators consider a tech partner like us:

1. Frictionless Ease of Use: The interface has to be as intuitive as Apple’s iOS – user experience is key given that many entrepreneurs and high-net-worth individuals (HNWI) now favor using smartphones over laptops, reinforcing the renewed prevalence of in-person business as the norm. A seamless mobile-ready solution is essential. With this in mind, Vestlane’s platform is designed to be simple yet powerful, offering a smooth experience for those who prioritize efficiency.

2. Fully-evolved Processes: Conditional logic is crucial in reducing friction for all parties involved – General Partners (GPs), Limited Partners (LPs), and fund administrators alike. Over the years, we’ve seen how short-term solutions that fail to account for long-term compliance issues coming down the pipe often fail.

A flashy frontend is essentially worthless without a backend to support it and provide the secure functionality required. Long-term success comes from distilling the complexity of private equity, and making it as effortless as possible to navigate.

3. Integration and APIs: Despite any wishful thinking to the contrary, the private equity industry is still too complex for a single one-stop-shop solution. Instead, the next generation of tools we use must all talk to each other through APIs.

This allows for real-time data sharing, and reduces outdated, asynchronous information, and the subsequent back-and-forth fact finding missions which can drain time, energy and resources. Without this, the back-and-forth communication can quickly erode and undo any efficiency gains a platform like Vestlane provides.

4. IT Security: In the current but constantly changing business landscape, data protection and security, most notably in relation to SOC 2 compliance, is non-negotiable. Did we mention that Vestlane is SOC 2 accredited? For those who aren’t steeped in the world of IT audits, SOC 2 is a serious win. It's the top-tier standard for data protection. In 2024, with cybersecurity on everyone’s mind, this certification means we’re not only meeting the industry’s strictest standards but really living our commitment to data security.

Fund administrators might second guess a tech partner without this level of security. At Vestlane, securing data is paramount, and forms a core principle on which our platform was designed. So we’re delighted with our security offering. 

5. Social Proof: Finally, the question of social proof always comes up. Who can vouch for your product? In our case, having established clients like Capmont, UVC, Headline, and YPOG, who can speak to our quality and efficiency is crucial in winning over new partners.

Private Equity Market Trends: AI, Retailization, and Blockchain

Keeping the future front of mind, several exciting market trends will shape the private equity landscape, both in Luxembourg and globally, in the next decade and beyond.

1. AI in Private Equity: One of the most widely-discussed developments in the space is the growing role of AI in accelerating private equity processes. AI can support reviewers by spotting flaws in documentation and highlighting inaccuracies, though a human pair of eyes still remains crucial for thorough due diligence. Beyond that, AI can serve as an educational tool, helping teams interpret data more effectively and providing insights into how to improve processes from the ground up. For the time being, though, AI remains a powerful tool, not a panacea, and must be deployed carefully. 

2. Retailization of Private Equity: We’re also watching closely as the retailization of private equity opens up investment opportunities for retail investors, with smaller amounts to invest — often below 100k, to further diversify their portfolios in exciting new ways. The upcoming ELTIF 2.0 regulations could further democratize access to private markets. Luxembourg currently hosts 61% of all ELTIFs in the European market. Firms like BlackRock have already raised nearly €1 billion across multiple ELTIFs in private equity and infrastructure. Platforms like Vestlane are ideally positioned to handle this shift smoothly and efficiently, making it easier to onboard and manage larger volumes of smaller investors, and welcome them to the space. 

3. Blockchain and Tokenization of Fund Interests: Lastly, blockchain and the tokenization of fund interests are emerging trends that also boast the potential to boost private equity by improving liquidity, reducing transaction costs, and enhancing transparency. While still in its infancy, tokenization is something we’re keeping a close eye on as it could become a key factor in fund administration in the not-so-distant future.

What is the Key to Luxembourg’s Private Equity Market competitiveness?

Doing business in Luxembourg has taught me that while technology is transforming the private equity space, relationships and trust form the foundation for any long-term success. Involvement with the LPEA has reinforced that idea for me, hearing from colleagues and partners, face to face, about their victories, challenges and solutions has been eye-opening. Ideas articulated in person provide a level of nuance often lost in the video conferencing environment. 

This really hit home when I heard how smoothly many colleagues navigated Luxembourg’s incorporation process. Setting up the right legal entities, even for sophisticated or high-risk investments, seemed remarkably straightforward for them.

But time and again, I learned how Luxembourg’s business-friendly regulatory environment made the usual toil of setting up a business entity, replete with endless paperwork and legal forms, as anyone operating in France or Germany might attest, as frictionless and pain-free as possible.

Luxembourg offers fast setup for investment vehicles like SIFs and SICARs, among others, which makes them all the more attractive to non-resident investors. Its stable political climate and strong ties within the EU make it a highly reliable and stable environment for long-term investments.

In addition, its advanced and mature financial structures provide flexibility and tax efficiency, supported by an ever-growing network of expert legal and financial professionals. The country’s extensive double tax treaty network, with over 80 signatory countries, also enhances returns on international investments by preventing double taxation on cross-border income.

The country’s tax rates are designed with entrepreneurship front-of-mind, making it all the more attractive to do business there. SIFs (Specialized Investment Fund) benefit from exemptions on corporate income tax, wealth tax, and municipal business tax. However, they are subject to an annual subscription tax of 0.01% on their net assets. 

SICARs (Société d'Investissement en Capital à Risque), on the other hand, are fully exempt from corporate income tax, wealth tax, and municipal business tax only on qualifying risk capital investments. Non-qualifying investments are subject to standard corporate taxation. Additionally, dividends and capital gains derived from risk capital investments are typically tax-exempt.1

Reflecting on these advantages, Jérôme Wittamer, now Vice-President of the Board of the LPEA, highlighted Luxembourg's unique position: "Besides a legal toolbox second to none... political and economic stability, and predictable taxation on the back of an unrivalled financial infrastructure, Luxembourg boasts a business-friendly attitude combined with a strong governmental commitment towards private equity." And who can argue with that?

The Road Ahead in Private Equity

At Vestlane, we see tremendous opportunity within Luxembourg’s thriving investment community to streamline private market transactions. Our focus remains on long-term innovation goals while ensuring compliance stays front and center in all we do. For more insights on this, see my recent interview with The Drawdown.

As the private equity landscape continues to develop, whether through AI, retailization, or blockchain, it’s clear that success will come to those who can combine the latest innovative technology with strong, trusted relationships.

I’m grateful for the insights gained and the connections made during my time in Luxembourg at the LPEA event. It’s an exciting time to be part of this space, and I’m already looking forward to returning for more networking and industry insights.