Clifford Chance has a strongly growing investment funds practice in Luxembourg, run by the four Investment Funds partners in this article and employing over 40.
How does Clifford Chance’s investment funds practice distinguish itself?
Paul Van den Abeele (P.V.A.) – Investment Funds Partner
Our network certainly distinguishes us. But it’s the strength of our global funds team that is the biggest differentiator, giving us the biggest footprint of all international firms in Luxembourg.
How has Brexit impacted your practice?
P.V.-A. – June 2016 meant an immediate increase in work. First in setting up funds, so that the managers could ensure the future passport ability of those funds, while during the transitory period, we looked at the management arrangements. This resulted in a suite of licensing applications for AIFMs (Alternative Investment Fund Managers), management companies and top-up licences.
Brexit means a loss of the passporting ability for marketing. That remains probably the thorniest issue coming out of Brexit. It’s often not yet fully resolved for many of our clients. Amongst others, we’re seeing Luxembourg teams being more ‘front’ in fund marketing.
Europe sometimes has more complex, even considerably more complex retail fund products than the US.
How are regulatory changes influencing the fund advisor?
Emmanuel-Frédéric Henrion (E.F.H.) – Investment Funds partner
There is a very important transparency topic that’s off most asset managers’ radar, which is undue costs. EU regulators will make you justify your fees and the costs charged to the funds. In the US, this is already the top regulatory enforcement priority.
Europe sometimes has more complex, even considerably more complex retail fund products than the US. That’s why the European Securities and Markets Authority (ESMA) is constraining such products. Nowadays, there are less indirect strategies and synthetic strategies, for example.
These two developments (combined with other factors) could trigger an industry consolidation sooner or later.
How have pension fund rule changes worked on the industry?
E.-F.H. – Pension funds are multi-layered products, involving national laws: pension, labour, social security and tax.
People need pension funds, because states are no longer in a position to finance pensions. Under the new EU PEPP initiative, the pan-European personal pension product, individuals get an account which follows them throughout their career when they move across the EU and change of employer. It’s great, but it is a complex initiative to implement.
What are the challenges in real estate?
Kristof Meynaerts (K.M.) – Investment Funds partner
Traditional real estate assets like office spaces and retail centres have suffered because of Covid-19. Our clients are challenged in managing that and keeping returns up.
In a post-Covid-19 world, questions arise on what office space will look like, with agile working, homeworking, etc.? More and more clients are moving to a broader range of assets including logistics, mixed-use properties, health care and office labs, to name a few. These often require a special expertise.
Fund managers have to understand that ESG is so broad that even if you believe that your strategy has nothing to do with ESG, in the end, you may realise that it does.
What is the current state of private equity?
K.M. – There are a lot of opportunities out there. Last year, close to 250 special purpose acquisition companies (SPACs) raised over 80 billion USD in the US. In February 2021, 300 SPACs were looking for targets. I think it’s one of this year’s trends. In Europe, Luxembourg is seen as a good jurisdiction for such vehicles.
How do the recent developments in ESG and the SFDR affect fund managers?
Maren Stadler-Tjan (M. S.-T.) – Investment Funds partner
With the Sustainable Finance Disclosure Regulation (SFDR) applying since March, we see a change in fund structuring where Environmental, Social and Governance (ESG) is now high profile, and investors ask what their fund manager is doing about it. Fund managers also have to understand that ESG is so broad that even if you believe that your strategy has nothing to do with ESG, in the end, you may realise that it does.
Neighbouring countries such as Switzerland, for example, say they really see this as a differentiator for Luxembourg because we are so far advanced.
What issues are involved in serving the German market?
M.S.-T. – The German market is important as it’s home to big fund managers. But Germany is also interesting for investing there, especially for the private equity or real estate market.
Luxembourg funds must meet specific legal requirements, so that certain German investors may invest in them, and that is one of our sweet spots. Together with our funds specialists in Germany, we jointly combine our in-depth knowledge in the structuring of funds reflecting requirements for German fund managers and/or German investors.
What do these areas have in common for your practice?
E.-F. H. – Our clients need to move very quickly to take advantage of the best investment opportunities. And to do so, they need quality services from a global services provider.
P. V.-A. – I think it’s about bringing it into something that’s workable for our clients. And I think that’s where having the right experts in the right places is very, very helpful.
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