Benefits and implications of Luxembourg partnerships structures for APAC asset managers from a legal and tax perspective
The first session of the Hong Kong breakfast seminar focused on the benefits and implications of Luxembourg partnerships structures for APAC asset managers from a legal and tax perspective. Facilitated by Xavier Le Sourne, Partner at Elvinger Hoss Prussen, Cedric Carnoye, Tax Director at Deloitte and Patrick Cordes, Managing Director & CFO at Baring Private Equity Asia (BPEA), the discussion focused on the growing importance of Luxembourg as an alternative investment fund centre for Asian players.
Due to a reputation of high regulatory standards, APAC asset managers may not have given dully attention to European investors over the past few years. However, with roughly 50% of the worldwide PE/RE funds’ invested capital raised in Europe (in 2016), Europe remains an area hard to ignore for fund distribution.
As stated by Xavier Le Sourne, Luxembourg has skilfully managed to combine the AIFMD requirements together with new flexible vehicles (the SLP created in 2013 or the RAIF created in 2016) that allow players in the Region to retrieve features they are familiar with in Cayman or BVI structures.
In addition, Cedric Carnoye reminded the audience about the recent and
upcoming changes in terms of worldwide taxation such as MLI, ATAD, etc. The introduction of the “Principal Purpose Test” will trigger requirements for specific commercial purposes for entities within the context of cross border double tax treaty benefit. This will most likely influence asset managers in the choice of their fund domicile going forward. This convergence between tax and regulatory requirements benefits to Luxembourg as a fund domicile that offers 81 double tax treaties to date.
As a conclusion, Patrick Cordes, based on his recent experience, noted that a Luxembourg fund platform requires a level of cost slightly higher than what Asian sponsors may be used to with offshore structures, but it would definitely broaden the fund’s marketability which is a “must” for further growth and an “onshorisation” of the fund platform also required by large investors, whether EU based or otherwise subject to local regulatory requirements. The legal and tax flexibility of the structuring as well as the flexibility around the appointment of a third party licensed manager (AIFM) makes, in the end, Luxembourg alternative funds a “must have” tool that APAC asset managers currently consider setting up or have already implemented.
Luxembourg, your financing partner of the Belt & Road Initiative
Panel facilitator Toufik Chaib, Partner Asset & Wealth Management at PwC Hong Kong, asked participants Alicia Garcia-Herrero, Chief Economist for Asia Pacific at NATIXIS, Stéphane Karolczuk, Partner and Head of the Hong Kong office of Arendt & Medernach and Betty Zhou, Business Development Manager at CACEIS, about Luxembourg’s ability to help fund the gap of US$4 to $10 trillion for the 125 BRI announced projects.
Luxembourg is placed second after the US when it comes to capital raising for infrastructure assets. Various industry forecasts and surveys confirm its appetite for real assets from global investors.
Luxembourg is engaged in numerous BRI projects from a structuring and financing perspective. Over 45% of the flows from China to Europe are already structured using Luxembourg entities and Chinese financial players, including most large Chinese banks are driving part of this. Funds such as SIFs, RAIFs and SLPs have been engaging in BRI investments in particular in Eastern Europe; and bonds issuers, especially green bonds issuers, are listing those bonds on the Luxembourg Stock Exchange and its Green Bonds Exchange (LGX) to finance BRI projects.
The EIB acts as a catalyst and offers guarantees for complex financings which will help attract Institutional Investors.
As the target investors of BRI related PE funds are often SOEs and international corporates that require sufficient regulatory and risk controls, Luxembourg is famous for its highly regulated legal framework that has made it the ideal jurisdiction for this type of PE fund.