What makes Luxembourg unique?

Luxembourg provides several options for establishing private equity enterprises. Luxembourg has become an internationally leading destination for private equity funds, the 2nd largest investment fund hub after the United States, and the public finances domicile in Europe, with about EUR 5 trillion in assets under management.

Furthermore, private equity funds founded in Luxembourg can be distributed more readily inside the EU due to existing passporting under the alternative investment fund manager‘s directive.

Why establish a Luxembourg investment fund?

The country is a founder member of the European Union.

• Political stability
• Financially secure.
• AAA-rated.

It has:

• Trustworthy investment regulations.
• There are over 4,200 monitored investment entities with over 14,500 sub-funds.
• A rigorous framework for fund passporting within the EU.
• Luxembourg funds are sold in over 70 countries, making it the leading fund distribution jurisdiction.
• A well-known financial regulator.

It offers:

• A diverse assortment of supervised and unsupervised investment funds are available.
• The umbrella funds.
• Unsupervised funds.
• Tax advantages

Depending on the needs of investors, Luxembourg provides tax-free or taxable investment vehicles.

What exactly is Private Equity?

Like a private equity firm, a private equity fund invests in the equity of privately owned enterprises focusing on the long-term prospects of the acquisition. Such investments are typically made following seed, pre-seed, and Venture Capital Fund rounds.

Private equity investing phases are typically regarded as pre-IPO.

How long will starting a Luxembourg private equity fund or company take?

The setup length is determined by whether the fund is supervised or unsupervised. A non-supervised investment option can be established in two weeks, whereas a supervised investment account can be established in one to four months, based on the fund structure and its investment philosophy.

How can you set up a private equity fund in Luxembourg?

Luxembourg provides a variety of fund forms for private equity deals.

The Specialized Investment Fund, or SIF, is the most adaptable investment fund form, suitable for asset classes and investment techniques, including private equity transactions.

The Luxembourg SIF is a monitored business entity typically only available to professional or experienced investors. It has modest diversification needs and can be set up like an umbrella fund with many sub-funds, allowing for various transactions in the same structure.

The Reserved Alternative Investment Fund (RAIF) may also be of interest since it is an unregulated alternative investment managed by an alternative investment manager who must be supervised by CSSF (Commission de Surveillance du Secteur Financier or Financial Sector Supervisory Commission)

A Luxembourg SLP, or Special Limited Partnership, is an unregistered Alternative Investment Fund (AIF) that can be formed in Luxembourg with one General Partner (GP) who serves as the fund management and one Limited Partner (LP) as the investor.

The Luxembourg SLP structure is based on partnerships established in other countries like the United States, the United Kingdom, and the Cayman Islands. Their tactics are typically illiquid, with typical investments in real estate, private equity, or debt markets. There are, however, no restrictions on asset classes or fund strategies.

A Limited Partnership Agreement oversees the operation of the SLP and provides the fund with contractual flexibility to form the fund. An SLP is not limited to a specific asset class or subject to risk diversification regulations.

Benefits of establishing a Luxembourg SLP:

The following are the advantages of establishing an SLP in Luxembourg:

• It can be up and running in 2-3 weeks.
• There is no need for prior regulatory permission.
• As an unsupervised fund, it is not subject to onerous regulatory regulations.
• When the AUM exceeds Euro 100 million, the GP must be regulated (in the case of closed-ended funds, when the AUM crosses Euro 500 million).
• There are no limitations on hedge fund strategy.
• There is no need for a custodian, audit, or prime broker.
• The vehicle itself is tax neutral.

Can a Luxembourg SLP benefit from European passport ?

Yes, it certainly can. It would have to select an Alternative Investment Fund Manager (AIFM) for the SLP to be issued to authorized investors across the European Union. It needs about a month to complete the process.

How long will it take in Luxembourg to establish a Private Equity Fund?

A non-supervised fund framework can be established in two weeks, whereas a monitored fund can take one to four months. A significant portion of this is partly due to the lengthy procedure of opening a bank account, which can take up to a month, traditionally.

SOPARFI is a Luxembourg holding corporation (Financial holding company).

The SOPARFI has emerged as the favored vehicle for cross-border private equity deals in Europe. Companies, sovereign funds, family offices, and fund managers employ Luxembourg SOPARFIs because of their flexibility, structural advantages, and Double tax treaty access.

What is the cost of establishing a private equity entity in Luxembourg?

The cost varies depending on the structure chosen and the quality of responsibility. It is supervised funds are more expensive than unsupervised funds.

A SOPARFI, for example, can be established three days after a bank account is formed and share capital of EUR 12,000 is deposited. Notary fees are roughly EURO 1,700, and the SOPARFI can enter into a domiciliation agreement with a service provider to get a registered address.

To establish a Special Limited Partnership,  The cost of SLP would thus be determined only by the type of constitution ( notarial deed or private deed). Once completed, the Limited Partnership Agreement can be registered with the Luxembourg Trade and Companies Register.

Other costs vary based on the structure and whether or not supervision is chosen.

Damalion specializes in helping fund promoters and foreign investors establish a private equity structure in Luxembourg.

We understand how important your time is and how significant your investing goals are. Our global service network draws on years of expertise and experience to deliver exceptional results to informed investors wishing to expand their portfolio in Luxembourg. Our Damalion consultants have extensive industry knowledge, which, when paired with our local financial market understanding, enables us to assist you in determining the optimal business structure, management, accounting, bank account creation, taxation, and other areas of running a fund in Luxembourg at cost effective prices. We think that each client deserves relevant and engaged customer service that propels their businesses forward. Contact a Damalion expert today to learn more about our network in establishing a private equity structure in Luxembourg.