A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

MAIN ACTORS AND STRUCTURES

2.2.1

Luxembourg

Benefiting from a flexible tax and legal environment, but also from a well-educated, mul- tilingual and multinational workforce, as well as a concentration of highly skilled service providers and niche experts, the Grand Duchy of Luxembourg has in a few decades become one of the major locations for investment funds, being today the world’s second largest fund centre, surpassed only by the United States. In addition to being the leading domicile and servicing centre for cross-border distribution of UCITS worldwide, the country has been taking active steps over the past few years to at- tract a significant share of the alternative investment industry and has been quietly building up a solid reputation as a home for structuring regulated private equity funds and private equity deals. The expertise gained in fund administration has been successfully transferred to the private equity arena and Luxembourg has built up a robust private equity model and servicing platform. • The SOPARFI (“Société de Participation Financière”) is a financial participation company and was first introduced in 1990. As a fully taxable company, this structure was designed to benefit from the large double tax treaties network concluded by Luxembourg, as well as from the European Union’s parent-subsidiary directive. The SOPARFI was the most suit- able structure for private equity until the implementation of the SICAR in 2004 35 . Today the SOPARFI is still extremely popular as an intermediary vehicle. • The UCI Part II (Undertakings in Collective Investment) is Luxembourg’s traditional mutual fund vehicle, which is retail-oriented and subject to the standard supervision by the CSSF Luxembourg financial services sector regulator. • The SICAR (“Société d’Investissement à Capital A Risque”) is an investment company in risk capital launched in June 2004, that has since become the Grand Duchy’s flagship vehicle for private equity. In October 2008, the new SICAR Law of 24 October introduced a set of further enhancements to the SICAR law such as the possibility to create sub-funds and the upgrading of the Luxembourg Limited Partnership SICAR structure. The number of SICARs, in particular, has dramatically increased every year since their creation in 2004, reaching 239 registered vehicles as at 31/12/2009, as per the CSSF records. This vehicle has been used by some of the top 20 private equity houses, as well as by small- and mid-sized private equity players, to invest in venture capital, private equity, mezzanine and other risk capital investments such as opportunistic real estate, microfi- nance or, more recently, clean energy technologies. All types of fund structuring are avail- able (direct funds, private equity fund of funds, master-feeder structures) 36 . Luxembourg offers a choice of both non-regulated and regulated structures that meet the different requirements of investors and sponsors:

• The SIF (Specialised Investment Fund) was created in February 2007 specifically to en- courage the development of the alternative investment industry in Luxembourg. Contrary

35 Source: Privateequitywire, “Luxembourg private equity services 2008”, August 2008 36 Source: Ernst & Young, “Private Equity Ernst & Young Luxembourg”, February 2009

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