capital v #3 after skype, wix! a nasdaq ipo success

V#3

capitalThe magazine of the Luxembourg Private Equity & Venture Capital Association

AFTER SkypE,

Wix!A NAsdAq iPO success

Need help with fund formation?

Loyens & Loeff is a leading Luxembourg law firm providing comprehensive and fully integrated

legal and tax advice in relation to fund structuring. We assist our clients in the structuring and

implementation of alternative funds pursuing all major investment strategies including private equity,

real estate, hedge, infrastructure, mezzanine, healthcare, renewable and alternative energy as well as

UCITS.

Our investment management practice is the largest in the Benelux, including one of the largest teams

in Luxembourg, offering a full range of investment management services.

Contact: Loyens & Loeff Luxembourg S.à r.l., 18-20 rue Edward Steichen, L-2540 Luxembourg, T +352 466 230

www.loyensloeff.lu

LPEA advert- Dec 2013.indd 1 17/12/2013 10:09:24

#3 – capitalV – 3

content

The magazine of LPEA editorial: Avishai Abrahami, Jean-Marc Goy, Arnaud Bon, Luca Gallinelli, Paul Junck, Gérard Lorent, Guillermo Morales, Pierre Weimerskirch, Alexandre Prost-Gargoz, Hans-Jürgen Schmitz, François Pfister, 360Crossmediaconception & coordination: 360Crossmedia Artistic director: Franck Widling cover photo: © WIX

capitalV

Disclaimer : To the fullest extent permissible under applicable law, LPEA does not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information and data from this documentation. The information and data provided in this documentation are for general information purposes. It is not investment advice nor can it take account of your own particular circumstances. If you require any advice, you should contact a financial or other professional adviser. No material in this documentation is an offer or solicitation to buy or sell any professional services, financial products or investments.

5. editorialWelcome to capitalV

6. cssF interviewAIFMD: transitioning to the new law

8. AiFMdLuxembourg as the next trade mark for Alternative Investment Funds

10. interviewCapitalising on the Luxembourg brand

12. cover storyMangrove Capital Partners: after Skype, Wix!

16. Regulatory• Is the Luxembourg Special Limited Partnership really so special?• Time is now

20. domiciliation• Setting up in Luxembourg

22. TrendsThe wisdom of crowdfunding?

24. Life in Luxembourg• Living in Luxembourg• University: 10 years of new thinking

28. BusinessWomenBetty Fontaine: Brewer from father to daughter

30. event calendarWhat, When, Where

IFLR Europe Awards 2013: Luxembourg Law Firm of the Year 2013 . Restructuring Deal of the Year Award 2013

Bonn & Schmitt is a leading independentLuxembourg law firm with a broad nationaland international client base.

In particular, in the area of Investment Funds & Private Equity the firm can evidence ample experience. We are assisting numerous interna-tional private equity clients pertaining to their structuring, financing andtaxation issues. The different teams advising consist of highly qualified lawyers from different countries including Belgium, France, Germany,Ireland, Italy, Sweden and others.

Initial private equity deals for the firm appeared in the mid 1990’s.Bonn & Schmitt advised 10 years ago in the set-up of a successfulItalian - Chinese private equity venture, which also saw follow-uptransactions until today. Furthermore, the private equity department has constantly grown over the last almost 20 years to fully support and propel the business development of our clients.

Our approach is to use small but effective teams with permanentsenior lawyer presence adapting to the velocity of each private equitytransaction accompanied by us.

Clients and the market have appreciated our work in several nomi-nations for awards recognizing innovative and cross-border advice. Bonn & Schmitt was awarded the IFLR Europe High Yield Deal of the Year Award 2012 pertaining to the sale of a German cable company by ourprivate equity client to a new owner.

We also were nominated for IFLR Europe Private Equity Deal of the Year Award 2013 pertaining to our assistance to a client purchasing a German medical group. Finally, we received the IFLR Europe Luxembourg Law Firm of the Year Award 2013, which also was partly due to our successful private equity work carried out last year.

PRACTICE AREAS

BONN & SCHMITT is a full service commercial law firm that practices all aspects of business law, with special expertise in:

Corporate Corporate Law Mergers & Acquisitions Insolvency and Restructuring

Tax Corporate and International Tax Advisory Indirect Taxes and VAT Tax Litigation

Banking, Finance Banking and Financeand Regulation Structured Finance and Securitisation Capital Markets, Securities Law Insurance

Investment Management & Asset Management and ServicesPrivate Equity Investment Funds Litigation and Commercial LitigationDispute Resolution Finance and Securities Litigation Employment and Benefits IP and IT

BONN & SCHMITT 22-24 Rives de Clausen L-2165 Luxembourg BP 522 L-2015 Luxembourg Tel.: (+352) 27 855 Fax: (+352) 27 855 855

Main contact: Marcus PETER [email protected] www.bonnschmitt.net

B&S InvMan&PrivEq01.2014new.indd 1 15/01/14 15:07


deAR PRivATe equiTy PROFessiONALs,

W e are proud to present the third edition of Luxembourg Private Equity & Venture Capital Association’s (“LPEA”)

proprietary publication, “CapitalV”. Similarly to our previous magazines, this one aims to provide you with a comprehensive understanding of the Luxembourg private equity and venture capital market.

We hope that the materials you find in this publication are helpful to you in getting to know Luxembourg, and considering it as a viable alternative jurisdiction for your future AIF developments.

This magazine will also give you insights on life in Luxembourg and markets trends. LPEA stands ready to welcome, guide and support you.

Kindest regards

Paul Junck, Managing DirectorHans-Jürgen schmitz, ChairmanLuxembourg Private Equity & Venture Capital Association

editorial

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InTErVIEW WITH JEAn-MArC Goy, CoUnSEL For InTErnATIonAL AFFAIrS – CSSF, LUXEMBoUrG rEGULATory AUTHorITy.

6 – capitalV – #3

requirements of the AIFMD. The CSSF has already author-ised 3 AIFMs established in Luxembourg.*

cHeckLisT: As AN AiF WHAT sHALL i dO ANd WHeN?The AIFMD provides for transitional provisions, which will expire on 22 July 2014. In order to avoid unnecessary pres-sure and tight timelines, as an AIF, it would seem highly advisable to be in full compliance with the requirements of the AIFMD as soon as possible.

AdAPTATiON OF cssF TO THe LATesT deveLOPMeNTThe active involvement of the CSSF in the work that ESMA is carrying out in the context of the AIFMD is demanding in terms of time and resources. The CSSF is currently still hiring staff, notably on account of the additional responsibilities, missions and functions which it will have to perform in the near future. To accommodate all our staff in one office building, we are currently in the construction phase of our new premises which will have a capacity for more than 600 people.

WHAT ARe THe key diFFeReNTiATiON FAcTORs FOR LuxeMBOuRg?our investment fund industry always likes to point out the experience and know how accumulated, particularly in the field of cross border distribution of its products and the leading role that Luxembourg is playing in that field.

*11 AIFMs as of January 2014. The interview was recorded in november 2013.

WHeRe dOes THe LuxeMBOuRg MARkeT sTANd iN TeRMs OF TRANsiTiONiNg TO THe NeW LAW (ALTeRNATive iNvesTMeNT FuNds MANAgeRs diRecTive - AiFMd)?Luxembourg was among the countries which have imple-mented the AIFMD within the timeframe given in the direc-tive. This was done by the adoption of the law of 12 July 2013 on AIFMs. It is worth noting that, as of today, a num-ber of EU Member States have still not implemented the AIFMD. In addition to the directive, a considerable number of texts have been adopted at the level of the EU institu-tions with the involvement of the European Securities and Markets Authority (ESMA), like in particular the level 2 Commission texts based on ESMA advice, the ESMA guide-lines on key concepts, the ESMA guidelines on sound remu-neration, the ESMA guidelines on reporting obligations, ESMA’s opinion on the collection of information for the effective monitoring of systemic risk, ESMA’s opinion and final report on the draft regulatory technical standards on types of AIFMs, ESMA’s opinion on practical arrangements for the late transposition of the AIFMD, ESMA’s work in rela-tion to the Memorandum of Understanding (MoU) concern-ing consultation, cooperation and the exchange of information etc. The CSSF is very actively involved in the work that ESMA is carrying out in the context of the AIFMD.The entities of the Luxembourg investment fund sector are now in the process of adapting and adjusting their struc-tures and operations to be in full compliance with the

cssF interview

AiFMd:

TrANsITIoNINg To ThE NEw LAw

WATch ThE

inTERviEW


Jean-Marc Goy, Counsel for International Affairs – CSSF.

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“iT iS WoRTh noTing ThAT, AS oF

TodAy, A numbER oF Eu mEmbER

STATES hAvE STill noT implEmEnTEd

ThE AiFmd.”JEAn-mARc goy


and shortens the time to market while preventing the bur-den (and costs) of an analysis of the private placement rules in each country where they have a potential investor. In this perspective, Luxembourg has a key role to play thanks to its unofficial but effective role as hub for cross border distribu-tion of UCITS, even beyond the European borders. As such, Luxembourg is more than well placed to allow Private Equity houses and other alternative players to ensure a safe and efficient marketing route.

RecOgNiTiONLuxembourg is well known in the financial industry mainly thanks to its global UCITS market share. In fact, Luxembourg has the largest market share in terms of net assets in the European fund industry. Among the asset management players located in Luxembourg, there are a significant num-ber of well-established Private Equity houses, which used to opt for non-regulated structures. Since 2008, the appe-tite from institutional investors to get exposure to alterna-tive investment via onshore vehicles has significantly grown and hence the success of Luxembourg funds such as Specialised Investment Fund (SIF) and risk Capital Investment Company (SICAr) has boosted the Luxembourg alternative fund industry.

NeW TOOLBOxLuxembourg has now adopted the limited partnership regime which sticks to the best international market practice in terms of flexibility, tailored terms and transparency to investors. Coupled with an AIFM in Luxembourg, Private Equity houses can raise funds in Luxembourg similar to off shore LPs in the blink of an eye.

A LeveL PLAyiNg FieLd cROss-BORdeR disTRiBuTiONThanks to AIFMD today EU domiciled funds with EU manager can benefit from the passport for distribution, not onlyto qualified investors across the 31 EEA markets, but also, where countries allow for, to retail investors. This passport significantly eases the fund raising for Private Equity houses

Alexandre Prost-Gargoz, LPEA member*

AiFMd

LuxeMBOuRg As THe NexT TRAde MARk FORALTErNATIvE INvEsTmENT FuNDs


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kNOW-HOW ANd suBsTANceFurthermore all service providers alongside the value chain of Private Equity asset class are already present in Luxembourg with sound systems and qualified people. In this respect, back in 2009 already, offshore (Cayman, Channel Islands, etc.) specialised boutiques have been set-tling operations in Luxembourg, not only to follow some cli-ent wishes but also as an anticipation of the growing demand of Luxembourg products.

iN cONcLusiON, while AIFMD is still often considered as an additional regulatory burden with no advantage for asset managers, Luxembourg, with its infrastructure, people and know-how can help Private Equity houses raising funds more easily, managing running costs more efficiently and building up an on shore platform for their back and middle office.

*Alexandre Prost-gargoz,Partner - deloitte Luxembourg

“ThE pASSpoRT SigniFicAnTly

EASES ThE Fund RAiSing FoR pRivATE

EquiTy houSES.”AlExAndRE pRoST-gARgoz

interview

GUILLErMo MorALES, EXECUTIVE CHAIrMAn oF GGM CAPITAL, SAyS LUXEMBoUrG IS An IDEAL BASE noT onLy For THE FIrM’S VEnTUrE CAPITAL FUnD AnD ITS MAnAGEMEnT BUT For PorTFoLIo CoMPAnIES, Too.


next five years in becoming the global leader in the sector. WHy did yOu seT uP yOuR gP iN LuxeMBOuRg?The fund’s management team is in Luxembourg, where I have been resident since 2008. We looked at different juris-dictions but soon realised that no other country could com-pete in offering an environment that benefited the fund, our investors and portfolio companies so positively. We certainly encourage our portfolio companies to consider establishing their headquarters and operations in Luxembourg and to benefit from its IP regime. WHAT is yOuR BAckgROuNd?I founded my first company when I was 17 and have spent my career so far investing in start-ups particularly in the security space, such as biometrics and electronic signa-tures. I first looked to raise money from government to fund r&D projects, but later decided to create a vehicle to invest in these projects at a higher level.As far as I know, I was the youngest person to establish a fully-regulated venture capital fund in Europe, at the age of 27 (I’m now 28). There’s a reason for that: it normally takes some time to acquire the IT and venture capital experience you need. I’m lucky I started so young and have built a solid team around me for many years.

WHAT ARe ggM cAPiTAL’s AcTiviTies?We are a boutique investment bank, headquartered in Luxembourg with offices in Spain and London. our three main divisions are investment management through, a SICAr vehicle; corporate finance, with transactions mainly in European IT; and capital markets, enhancing liquidity to nasdaq-listed companies.our first venture capital fund is the GGM High Growth IT Fund. We will launch two further funds in 2014, one focusing on IT venture capital in Latin America and the other invest-ing in the hospitality sector.

WHAT kiNd OF iNvesTMeNTs dO yOu MAke?The investment focus of GGM High Growth IT Fund is on early-stage companies that have the potential to be disrup-tive and game changers but that already show traction in the market. A prime example is optimitive, a highly disruptive technology company that saves its customers up to 20% on industrial energy bills. They have over three years of r&D, employee 15 people across Luxembourg, Spain and Germany and already generating revenues. The company received €1.4m from us to support further sales and marketing developments. We are also assisting optimitive with struc-turing, financing and growth, and will support them for the

cAPiTALisiNg ON ThE LuxEmbourg brAND


“mulTiply youR obJEcTivES by

ThouSAnd WiTh pASSion.”

guillERmo moRAlES©

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cover story

AFTER SkypE,

Wix!MANgROve cAPiTAL PARTNeRs

EvEryoNE rEmEmbErs ThE skyPE suCCEss sTory ThAT mADE mANgrovE CAPITAL PArTNErs FAmous. FoLLowINg ThE LIsTINg oF wIx oN ThE NAsDAQ IN NovEmbEr 2013, ThE LuxEmbourg-bAsED vENTurE CAPITAL ComPANy hAs AChIEvED ANoThEr mAsTEr sTrokE.


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Wix key FiguResusers: 40 millionEmployees: 576Turnover: +/- $55 million as of 30 september 2013.(first 9 months of 2013)

value: Over $800 million.

cover story


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iNTeRvieW hANs-JürgEN sChmITzHAnS-JürGEn SCHMITz, MAnGroVE CAPITAL PArTnErS’ Co-FoUnDEr AnD MAnAGInG PArTnEr, AnSWErS oUr qUESTIonS.

HOW did THe Wix sTORy sTART FOR MANgROve?In 2007, we began to explore the Israeli market. As a result of this investigation, we were approached by a seed financer who told us about Wix and asked for our opinion. Mangrove immediately purchased 3% of the company, before going on, 9 months later, to launch a financing round of 3 million dollars to help the start-up company move up to the next gear. This is completely in line with our philosophy, which is based on “getting a feel for” the company we are investing in, while aiming to acquire between 20 and 30% of the capital. At the time, the team in Tel Aviv had barely twenty members and the product was still in the test phase. However, the company’s three managers convinced us from the very start: these hard-working pioneers focused on innovating and on the precise statistic of the number of new customers acquired. They also had a broad vision of a platform offering unrivalled ease of use and encompassing different aspects of website management: creation, hosting, ranking, e-commerce, etc.

WHAT WeRe THe key MiLesTONes iN THis PROJecT uP uNTiL THe LisTiNg ON THe NAsdAq?There were two main question marks. First, back in 2011, we received a bid of 400 million dollars for Wix. We were tempted to take this “exit” on behalf of our investors, but we believed in the company’s potential and turned the offer down. Time has now proved us right. Following an investment of 10 million $, our share is now valued at $200 million.Secondly, in the beginning Wix used flash to display its customers’ websites. In 2012, prompted by the success of the iPhone and iPad, the company’s managers decided to recode everything in HTML 5, a language compatible with all terminals: computers, iPhone, tablets, etc. This could have caused delays, a slowdown in

commercial development or the appearance of new competitors, but none of these things actually happened. quite the reverse, the arrival of HTML 5 at Wix accelerated the arrival of new customers.

AFTeR RecORdiNg sALes OF MORe THAN 50 MiLLiON dOLLARs OveR THe FiRsT 9 MONTHs OF 2013, WHy is Wix NOT yeT PROFiTABLe?A break-even point was reached in some quarters, but this isn’t the main focus. We must bear in mind the many competitors, such as GoDaddy, operating around the world. It was the same with Skype: they were not the only people developing Voice over IP in the early days. For a long time, the priority for Wix was growth and winning market share. Today, the ability to precisely anticipate

the costs of acquiring new customers is allowing Wix’s managers to increase their marketing expenditure in a controlled manner to save time. In particular, as customers stay for an average of several years. If the CEo Avishai Abrahami wanted to return to a break-even situation, he could achieve this very quickly, but this would have consequences in terms of future growth! Financial analysts estimate that the funds raised on the stock market will enable Wix to double its turnover within the next 18 months.

“Wix REpRESEnTS ThE lARgEST ipo EvER FoR

An iSRAEli compAny in ThE inTERnET SEcToR”

hAnS-JüRgEn SchmiTz


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iNTeRvieW hANs-JürgEN sChmITz

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iNTeRvieW AvIshAI AbrAhAmIAVISHAI ABrAHAMI, Co-FoUnDEr AnD CEo oF nEWLy-LISTED WEBSITE DEVELoPEr WIX, SAyS THE WILLInGnESS oF MAnGroVE PArTnErS To KEEP FAITH AMID THE DEPTHS oF THE 2008 FInAnCIAL CrISIS WAS CrITICAL To THE CoMPAny’S SUrVIVAL AnD SUCCESS.

cAN yOu suM uP THe Wix success sTORy iN A FeW WORds?It all started in 2006 because we had a problem: we wanted to create a website, but couldn’t find a tool that would let us build one in an intuitive way. So we decided to create a tool that would allow people to build websites themselves.

We developed the code and unveiled Wix to the public with a beta version, enabling us to measure what users did and to develop the functionalities they wanted. Mangrove invested in 2007, we launched commercially in 2008, and revenues started to come in. Today we have 42 million users.

WHicH WeRe THe BiggesT cHALLeNges yOu’ve HAd TO OveRcOMe?The biggest was to move from Adobe Flash to HTML5 – we had to code everything from scratch. obtaining financing was also difficult after the 2008 financial crash and the

Madoff affair, when basically Mangrove saved us. Finally, scaling is very challenging. At the incredible speed the company grew, it’s difficult to maintain a strong structure.

nevertheless, most of it was fun, more than with other companies. Everything worked well with the team, investors, and client acquisition. And our competitors did us a big favour by failing to offer competitive products!

HOW WOuLd yOu descRiBe yOuR ReLATiONsHiP WiTH MANgROve?They are great friends and we love working with them. Marc [Tluszcz] will always push you, challenge you, bring in experts. It is a unique relationship and one we really enjoy. They are not like any other investor: they are closely involved, and friends at the same time. In 2008, when no-one else wanted to invest in us, they said: “We like what you do – keep going.”

WHAT’s NexT FOR Wix?Building the website is just a start. Wix aims to become a one-stop business solution where people can find marketing, inventory, sales and content. We recently launched an App Market allowing developers to offer new features for our clients’ websites. It’s a huge market.

“iT’S AlWAyS AbouT pEoplE, iSn’T iT?”AviShAi AbRAhAmi

Wix OFFices ANd sTAFFnew york: 4San Francisco: 70ukraine: 35Tel Aviv: 460lithuania: 7


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The introduction of the “Special Limited Partnership” (SLP) into Luxembourg company law, as part of the transposition of the AIFM directive is no coincidence. Private equity practitioners have been lobbying for this new vehicle enabling to more effectively compete with “offshore” jurisdictions like the Channel Islands, historically jurisdictions of choice for private equity fund domiciliation. But will the SLP help fill the gap? There are certainly strong technical arguments in favour.

A FeW diFFeReNces WHicH MAke NO diFFeReNceAlthough largely aligned with the most sophisticated limited par-tnership regulations elsewhere in the world there are a few dif-ferences. one relates to the nationality of the SLP. Where an English, Jersey or Guernsey limited partnership has the natio-nality of its place of registered office, a Luxembourg SLP would need to be effectively managed out of Luxembourg to retain its nationality and benefits. Public filing requirements also vary from one jurisdiction to another, England and Scotland for instance imposing more disclosure. Funding, equity contributions, distri-bution and claw-back mechanisms are more investor friendly in an SLP than in most of the foreign partnerships. However all these differences (mostly details in practice) will be only margi-nally important in the choice of a jurisdiction.now with essentially the same limited partnership regulations as other jurisdictions in addition to the existing fund vehicles and together with a longstanding experience of domiciling acquisi-tion and holding vehicles, Luxembourg has the tools to convince PE fund sponsors to consider Luxembourg as a jurisdiction of choice for their next generation of funds.

*François Pfister, Partner, OgieR

BeNcHMARkiNg OFFsHORe JuRisdicTiONsAround 50 SLPs have been created, but just a handful in the PE space and none of them yet regulated by the CSSF. not a quick starter, but that is not a surprise. PE players are seeking certainty and long term stability and will not test the water so quickly. Setting up a PE fund as an SLP may be considered as a bold move by some, although it is a logical one. Indeed the SLP legislation has taken on board the «best in class» elements of foreign limited partnership regulations in particular from Jersey and Guernsey. Main features include: contractual free-dom and ease of creation, flexible capital contributions and funding structure, confidentiality, tax transparency, clear governance and in particular «non management» safe harbour rules for active limited partners safeguarding limited liability of the LPs.

A Wide cONTRAcTuAL FReedOMInvestors and managers are seeking a modern legislative fra-mework tailored to their needs, an enabling not prescriptive envi-ronment and a limited partnership agreement which they are familiar with. Contractual freedom is thus paramount. There are very few statutory prescriptions and these are easy to comply with. In practice GPs and LPs may use existing limited partner-ship agreements and transplant them into a Luxembourg envi-ronment with few deviations from their present forms. Being able to establish the fund vehicle with its acquisition and holding SPVs (typically in Luxembourg) in the same jurisdiction is a com-pelling proposition for both tax and regulatory substance and operational efficiencies, particularly in a more harmonised envi-ronment for fund managers post AIFMD implementation.

Regulatory

“pRivATE EquiTy plAyERS ARE SEEking

cERTAinTy And long TERm STAbiliTy.”

FRAnçoiS pFiSTER

is THe LuxeMBOuRg sPeciAL LiMiTed PARTNeRsHiP rEALLy so sPECIAL?

François Pfister, LPEA member*


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... and climbing.

Custody-Depositary / TrusteeFund AdministrationIssuer Services

www.caceis.com

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Atoz, leading tax advice in Luxembourg. www.atoz.lu

ATOZ.indd 1 10/01/14 11:04

Regulatory

Pierre Weimerskirch, LPEA Member*


TiMe isNow

ence as well as services that can be delegated: an AIFM cannot outsource substantially more tasks and functions than it is itself carrying out. Having robust systems and organizational control frameworks in place as well as quali-fied and experienced staff is absolutely critical to success.

skiLLed ResOuRcesAnother key item under AIFMD is having adequately skilled resources to respond to the new requirements. new recruits and existing staff need to understand the AIFM mindset while at the same time being familiar with the requirements for regulated funds like UCITS since AIFMD has “borrowed” from the UCITS regulatory framework.To assist the AIFM in meeting the challenging regulatory environment, service providers in Luxembourg have come up with different solutions for managers of alternative funds facing the AIFMD requirements. Small and medium-sized managers are more likely to benefit most from specialized outsourcing solutions.

*Pierre Weimerskirch, Managing Partner, Luxembourg investment solutions s.A.

Since 18 June 2013 the Luxembourg regulator, the CSSF, admits applications for authoriza-tion as Alternative Investment Fund Manager (“AIFM”). Time is particularly critical for those managers that have taken advantage from the

transitional period but need to communicate their plans to the CSSF by 1 April 2014 as to how they intend to adapt their organizations to comply with the AIFMD rules by 22 July 2014.

In order to receive authorization as an AIFMD-compliant manager on time, they will have to move ahead swiftly with their applications. To assist the applicant AIFM in its filing process, the CSSF published their Faq already in July 2013 and it has an application template form available on its web-site (www.cssf.lu).

This application form foresees that the manager provides inter alia information on the applicant AIFM, the governing body and senior management, the ownership structure, the program of activities, the capital and financing structure and the internal organisation. However, prior to submitting the application file, the manager has to address a series of practical challenges upfront.

cOMPLiANce exPeRTiseAIFMD introduced more compliance requirements. Many smaller and medium-sized managers so far had no or very limited exposure to regulatory authorities – a challenge for their day-to-day operations. They have to respond to a long list of new requirements: documented independent valua-tion policies, fund risk profiles, fund stress tests and fund liquidity management processes, etc. AIFMD substantially impacts how alternative investment managers operate.

suBsTANce RequiReMeNTsThe AIFM also establishes substance requirements in terms of number of professionals, their profiles and experi-

“ThE SubSTAncE REquiREmEnTS Will bE

A chAllEngE FoR SmAllER AiFmS FRom A pRoFiTAbiliTy poinT

oF viEW.”piERRE WEimERSkiRch

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domiciliation

SETTInG UP A PrIVATE EqUITy FUnD In LUXEMBoUrG IS A SIMPLE FoUr STEP ProCESS.

seTTiNg uP iN LuxEmbourg

approval, to manage a Luxembourg fund that is a simple investment vehicle, either regulated or not. otherwise, a management company regulated in Luxembourg or the manager’s country of origin must be set up.

2. Point number two on the checklist – choose the legal form for the investment vehicle. Luxembourg has a wide spectrum of vehicles, ranging from corporate type struc-tures through to partnerships inspired by the UK/US model.

3. The next step is selecting suppliers of central administra-tion, deposit, audit, legal advice, risk management and eval-uation services. This phase includes drawing up the prospectus with lawyers and negotiating terms and condi-tions with investors.

4. The final step is submitting the application to the CSSF. Following this, the response time varies from 1 to 3 months. As soon as approval is received, the fund can be set up and transactions launched!

WRAP uPLuxembourg offers many advantages: a reactive regulator and a well-established Private Equity ecosystem capable of supporting fund managers. For LPs, Luxembourg offers efficient fiscal structures. Last but not least, it gives fund managers access to flexible solutions to transfer all or part of their team in order to benefit from the carried interest tax regime of up to 10% under certain conditions.

*Arnaud Bon, Head of capital Markets & Funds, sgg s.A.*Luca gallinelli, industry Leader Private equity clients, sgg s.A.

A HeAd sTARTThe first three jurisdictions to grant licences for the man-agement companies under the AIFM Directive (AIFMD) are the Grand-Duchy of Luxembourg, France and Ireland. Luxembourg’s regulator has once again demonstrated its responsiveness and readiness to adapt. The AIFMD is not a major revolution in Luxembourg as, even before the intro-duction of the AIFMD, the country had decided to make protection of investors its priority. Despite the new obliga-tions imposed by the EU text, ultimately the environment remains very close to what it was before under the SICAr (2004) and SIF (2007) regulations. Back in 2012, new obli-gations governing service delegation and risk management were introduced under Luxembourg law. cHeckLisTA four-stage process must be applied to establish a Private Equity operation in Luxembourg.

1. First, you need to ask yourself three fundamental ques-tions: what are (i) the fund distribution policy, (ii) the manage-ment environment and (iii) the fund raising aims for this project.

A full AIFMD licence is required to receive the pan-European distribution passport, regardless of the amount of assets managed. Without this licence, distribution is restricted to the private placement regime of each of the countries in which the fund is marketed. We then come to the question of the organisational model: will the Luxembourg fund be managed from abroad, by an AIFM management company, or from Luxembourg? It is possible for a management com-pany governed under European regulations, and with AIFM

Arnaud Bon, LPEA Member*

Luca Gallinelli, LPEA Member*

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Quality Experience InnovationFrom investment structuring to exit strategies

PE Fund Set-upStructuring & Strategy

Merger & AcquisitionFinancing

Asset ManagementManagement Participation

TTax optimisationAIFMD compliance

www.ehp.lu

Luxembourg Office2, Place Winston Churchill / BP 425

L-2014 LuxembourgTel: +352 44 66 440 / Fax: +352 44 22 55

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3 Garden Road / Central / Hong KongTel: +852 2287 1900 / Fax: +852 2287 1988

Your direct contact forNon-Regulated Products:

Toinon HossPartnerTel: +352 44 66 44 [email protected]

Your direct contact forRegulated Products:

Sophie LaguessePartnerTel: +352 44 66 44 [email protected]

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Trends

CroWDFUnDInG AIMS To SoLVE THE CLASSIC ProBLEM ConFronTInG MAny STArT UPS: LoTS oF BrILLIAnT IDEAS BUT InSUFFICIEnT CAPITAL. IT IS A VEry FASHIonABLE ConCEPT, BUT IS rEALITy MATCHInG THE HyPE?

THe WisdOM OFCrowDFuNDINg?

allowing a concept whereby investors never meet the pro-ject promoters. In the US (where the idea began) a range of funding limits and filing requirements were imposed in 2012. These appear to negate the advantages of this form of accessible, flexible funding. The Italian government has taken a different view, with their regulatory regime intro-duced in July 2013 being significantly more liberal. The land that gave us the phrase “caveat emptor” (buyer beware) appears more keen to unlock funds to help their struggling economy. Few other countries have legislated so far.

AMBiTiONs FOR LuxeMBOuRg?In Luxembourg, only one company and one cultural project have sought crowdfunding so far. During the recent election campaign, the minister responsible for small businesses Françoise Hetto-Gaasch promised action to help local entrepreneurs. Alternatively, maybe Luxembourg could become a platform for European and global crowdfunding. Private sector energy would have to drive this, working with a conducive regulatory regime.

HOW iT WORksIn an attempt to harness the “wisdom of the crowd”, fund-raising web platforms have emerged. Entrepreneurs, social activists and cultural promoters post enticing descriptions of their plans inviting many individual investments of hun-dreds or thousands of euros. Potential backers can view a history of how support has been granted and comments from others. Whether through loans or equity, small investors can thus become venture capitalists, taking a big risk in the hope of big returns. Generally these projects are too small or unu-sual to interest the established private equity industry.

dOes iT WORk?Although crowdfunding is a great idea and makes for inter-esting press articles, some analysts suggest results are lacking. Funding remains elusive. Investors are wary, requir-ing substantial marketing efforts to bolster the on-line descriptions. As well as these costs, the platform provider receives 5-10% commission of all funds raised. Then there is the regulation set by law makers with concerns about

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Established in Luxembourg since 1995, we provide a full range of services to major private equity firms, leading institutional and corporate clients and individual entrepreneurs.

In particular, we undertake the following: Fund admInIstratIon sErvIcEs

• central administration • registrar and transfer agency • ongoing monitoring and compliance support

company managEmEnt company FormatIon domIcILIatIon accountIng and admInIstratIon tax compLIancE assIstancE In sEttIng-up own oFFIcEs

For further information, please visit our website or email us

www.haLsEy-group.com174, route de Longwy L-1940 Luxembourgt. +352 22 60 22 | F. +352 22 42 52 | [email protected]

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IT IS onLy WHEn HoUSE PrICE BUBBLES BUrST THAT WE CAn BE rEALLy SUrE THEy EXISTED. HoUSInG CoSTS In LUXEMBoUrG APPEAr To BE HIGH, WITH THE AVErAGE HoUSE AroUnD THE CAPITAL SELLInG For €865,000. BUT ArE THESE VALUATIonS ABoUT To CrASH?


living in LuxeMBOuRg

HOW TO sPOT A BuBBLe?To estimate if housing supply and demand are out of sync, economists compare home prices with average rent and household income. The most recent data we have is from 2011, calculated by the national statistics office Statec and the Luxembourg Central Bank. The price/income ratio was 20% above its long term average and with the price/rent measure 30% higher. These figures were then approaching the peaks seen in 2007, after which prices fell. Since 2011

Life in Luxembourg

home prices have increased further (around 7%) with income unlikely to have kept pace.

suPPLy ANd deMANd iN LuxeMBOuRgSo although we should be concerned, the Central Bank poin-ted to several apparently sustainable causes for this in its recent annual Financial Stability review. They point out that supply and demand are impacted by strong population growth, a relatively limited supply of new homes, the overall


improvement in the quality of the housing stock and tax breaks for home loans. Planning law has resisted major reform for decades; so many communes will continue to veto the creation of new building plots. As well, the price to income and rent ratios are much lower than in many other European countries.

Risk FAcTORsThe picture looks relatively benign; but the Central Bank also highlighted risks. Since 2008, the value of mortgage loans granted has risen strongly and repayment schedules have increased. Most home loans have variable interest rates. So while repayments may be affordable now with current histo-rically low base rates, increases could push some households to the brink, especially if jobs are lost. This would put downward

pressure on prices and the willingness of banks to lend. That said, although Luxembourg has higher than European average debt, saving and other investments are also unusually high.

ecONOMy is keyPerhaps the greatest risk is simply the outlook for the eco-nomy. State spending is currently unsustainable and correc-ting this will cut demand in the economy. The Eurozone is recovering to the benefit of the country’s export-oriented firms, but this improvement is fragile. So far the financial sec-tor has been slowed but is still doing fine, despite the mass of new regulation. This too could change. Immigration will slow down and unemployment will rise if jobs are not created. Home prices would be affected. The outlook seems okay, but the buyer should still beware.

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uNiveRsiTy: 10 yEArs oF NEw ThINkINg

which is from national public funds. As well, the Cité des Sciences will eventually cost €600m. So what is the pay back? There were 1,161 scientific publications last year, five patents have been registered, a further 21 are pending and there have been a handful of business spin-offs. Established firms (such as Deutsche Bank, ArcelorMittal, UBS, SES, BCEE, IEE, HiTec, Post, Eurobeton and Delphi) are also offering funding and prac-tical assistance for research. They benefit from the new ideas, the University helps attract train and retain skilled staff and it boosts their corporate social responsibility profiles.

ideAs ANd RePuTATiONThe symbolism is clear. The University will be hosted in the shiny new “Cité des Sciences” being constructed in the shadow of a rusting blast furnace on the Belval brownfield site. So, where hot steel once made the country wealthy, cool ideas will help the country innovate and thrive. This is a boost for Luxembourg international reputation. The facility will host a business start-up zone and the country’s independent public research centres. The move will start in 2014, with only part of the Law, Economics and Finance faculty staying in the capital.

iNTeRNATiONAL ReseARcH FOcusThere is a clear focus on fundamental and applied research, with almost three times as many master’s and PhD pro-grammes (29) as bachelor’s degrees. Five research priorities match the country’s existing expertise: international finance, secure, reliable and trustworthy information technology, sys-tems biomedicine, European and business law and education and learning in multilingual and multicultural contexts. Bio-tech is something of a new departure for the country, but the University is forging a unique role. Whereas researchers in larger countries often feel bound to work with national experts, the University can seek the most appropriate partnerships from anywhere in the world. It is currently working with around 60 universities globally. This is helped by around half the 6,000 students being non-Luxembourgers, coming from around 100 countries. As well, the 600 teaching staff originates from more than 50 countries.

cOsT ANd BeNeFiTThe government’s commitment is clear, with state spending increasing through the crisis. The University received €150m this year, along with €27m from research tenders, much of

FoUnDED TEn yEArS AGo, IT HASn’T TAKEn THE UnIVErSITy LonG To BECoME A rESPECTED nATIonAL TrEASUrE. AS A rESEArCH-BASED, InTErnATIonALLy-FoCUSED InSTITUTIon, IT HAS SHrUGGED-oFF InITIAL ConCErnS THAT IT WoULD BE InWArD-LooKInG.


«WhERE hoT STEEl oncE mAdE ThE

counTRy WEAlThy, cool idEAS Will hElp

ThE counTRy innovATE And ThRivE»

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Luxembourg Investment Solutions S.A.Airport Center Luxembourg 5, rue Heienhaff L-1736 Senningerberg · T: +352 26 34 56-1 · F: +352 26 34 56-66 [email protected] · www.investment-solutions.lu

• Management Company (AIF & UCITS)• AIFM Solutions• Risk Management• Compliance• Management Services

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BusinessWomen

AS HEAD oF THE BrASSErIE SIMon SInCE 2003, BETTy FonTAInE IS DEVELoPInG HEr BUSInESS In A DELICIoUS nICHE MArKET: SPECIALTy BEErS.


BeTTy FONTAiNe:

brEwEr From FAThEr To DAughTEr

vation, and then she moved from theory to practice. At the time, the brewery only had one brand and a production of 18,000 hectolitres. In 2006, the Brasserie Simon bought ourdaller microbrewery, based in Heinerscheid, which pro-duced a special beer from buckwheat. The following year, the okult brewery was taken over: an organic beer flavoured with coriander and orange peel. THe MALT WARThe results of this strategy bore fruit in 2009. This meant that the company could invest in the modernisation of its production tool and innovate: for example, okult launched a ‘stout’ similar to the famous Guinness and the Simon Pils was marketed in a beautiful aluminium bottle, 100% recy-clable. This niche strategy allowed Betty to strengthen her position on the Luxembourg market while avoiding confron-tation with the two giants on the market, Bofferding-Battin and Mousel-Diekirch, which boast incomparable production volumes and marketing budgets. «you can’t go and pee with the big dogs if you can’t lift your leg as high as them» she likes to joke. Future growth may be driven by exports, but in the meantime the lorries of the Brasserie Simon criss cross the country with their deliveries, even calling in on private customers.

A BReAk WiTH TRAdiTiONThe Brewery was created in 1824 by Charles Mathieu, whose wife was a member of the Simon family. It was sold 15 years later and returned to the hands of the family in 1890 when it was bought at auction by Jules Simon, Betty’s great-great-grandfather. Jules’ son, Joseph, was to take over the business, followed by his daughter, Jacqueline, Deputy Mayor of Wiltz, who married Charles Fontaine. Their son, Jacques took over the reins in turn in 1975. Betty’s arrival in the brewery in 2003 marked a break with tradition: she is the first person in the family since 1890 to join the brewery without a first name that starts with a ‘J’! THe ‘BeTTy’ TOucHShe was not destined to take over the brewery and, indeed, the subject was taboo at home. Her mother thought she would become a housewife. Finally, her big brother chose to go into computing and Betty completed a course in electro-mechanical engineering. She had intended to specialise in aeronautics, but graduated in mechanical engineering, which had a less theoretical bent. She still regards the 27th of June 2003, the last day of her studies, as a milestone even though she went back to study for an MBA at night school later on. Her mission began at the brewery with a first year of obser-

LPEA/SECA Breakfast

LPEA Board Meeting

LPEA New Year’s Event

EVCA Responsible Investment Summit

Polish & CEE Private Equity Conference

German Private Equity Summit

SuperReturn International 2014

LPEA London Roadshow

EVCA Investor’s Forum

ALFI Spring Conference

EVCA CFO-COO Summit

EVCA Symposium

January 15, 2014

January 28, 2014

January 28, 2014

January 28, 2014

January 31, 2014

February 24, 2014

February 25-27, 2014

march 11, 2014

march 12-13, 2014

march 18-19, 2014

may 13-14, 2014

June 11-13, 2014

Au Premier, Zurich

Luxembourg

Luxembourg

Stanhope Hotel, Brussels

InterContinental Hotel, Warsaw

InterContinental Hotel, Berlin

InterContinental Hotel, Berlin

Natural History Museum, London

InterContinental Hotel, Geneva

Nouveau Centre de conférences, Kirchberg (NCCK), Luxembourg

London

Vienna

WHAT WHeN WHeRe

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event calendar

eveNT CALENDAr

LPeA in Brief

ABOuT LPeA

execuTive cOMMiTTee

TecHNicAL cOMMiTTee LeAdeRs

T he Luxembourg Private Equity and Venture Capital Association (LPEA) is a member-based, non-profit trade association established in 2010. LPEA represents, promotes and protects the interests of the Luxembourg private equity and venture capital industry.

LPEA’s role includes representing the interests of the industry to regulators and standard setters; developing professional standards; providing industry research; professional development and forums, facilitating interaction between its members and key industry participants including institutional investors, entrepreneurs, policymakers and academics. LPEA’s activities cover the whole range of private equity, from venture capital (seed, start-up and development capital), to buyouts and buyins.

LPEA is a member of the European Private Equity and Venture Capital Association (EVCA).

Hans-Jürgen SchmitzChairman

Legal Committee: Séverine Michel, Xavier Le SourneTax Committee: Marianne Spanos, Patrick MischoAImFD Committee: Hans-Jürgen Schmitz, Paul JunckAccounting & valuation Committee: Benoît Cheron, Yves Courtoismarket Intelligence & Training Committee: Axelle Ferey, Maarten VerjansPromotion Committee: Bertrand Manhe, Benjamin Lam

Alain Kinschvice-Chairman

Antoine Clauzelmember

Patrick Mischomember

Emanuela Brerovice-Chairman

Paul Junckmanaging Director

Gilles Dusemonmember

Jérôme Wittamermember


A law firm with global reach & local depth, serving you in Luxembourg

Allen & Overy is a truly global law practice. Our people work in 43 offices across 30 countries. It’s an international network that helps the world’s most successful businesses implement their strategies on a global stage. The fact that our lawyers are based on the ground in every region means that we can combine our global reach with in-depth local knowledge. From our Luxembourg office, this means giving our clients intelligent advice in banking, capital markets, competition, corporate, intellectual property, insurance law, investment and pension funds, private equity, labour law, litigation, real estate and tax. In short, we’re an international full service practice of local experts.

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