In 2012 Ogier recognised the importance of Luxembourg as an international investment domicile and grew the local team to seven partners. Two of them share their views on the opportunities of this market and the recent phenomenon of retailisation of the funds.
What were the main milestones in your first decade of activity in Luxembourg?
Anne-Gaelle Delabye: From a market perspective, we have seen a shift from regulated to unregulated funds, plus the continuous growth of existing regulated funds, with a few milestones marking this period.
We have seen the implementation of the Alternative Investment Fund Managers Directive (AIFMD) in 2013, the introduction of the Special Limited Partnership the same year, as one of the measures to encourage the development of alternative investment fund industry; the modernisation of the Luxembourg law on commercial companies in 2016, ensuring a higher degree of certainty for parties involved; and the creation of the Reserved Alternative Investment Fund (RAIF) in 2016 – an unregulated fund with quick time-to market, having a regulated AIFM.
More recently, we have seen the cross-border distribution directive implemented in 2021 which led to major changes in the distribution rules, and ESG regulations have increased hugely as the sustainable finance sector has grown globally and the need for European, but also global, standards become vital.
We have become one of the firms which specializes in parallel fund structures with other Ogier jurisdictions and carried out re-domiciliation exercises from other fund jurisdictions to Luxembourg.
The decade hasn't been without its challenges. We have had to set up the right teams to adjust to the shifts in the market, including leveraging the expertise of Ogier Global's Sustainable Investment Consulting team to support the specialists in our ESG legal team and grow as specialists in structuring private equity funds, more specifically credit funds, for major players in the UK and US.
Which continental European markets have you targeted for development?
Anne-Gaelle Delabye: Definitely DACH, particularly Switzerland and Germany – we have developed a strong German desk in our Luxembourg office to maintain a high level of focus on that market. Advising clients in German has played an important role in Ogier's success in Luxembourg. It is one of the official languages and the preferred one for many clients who request that documents be drafted in German, as they want to conduct their international deal negotiations in their language of choice.
We also look at France, based on partner Benoit Rose' background, and ancillary markets such as Spain and Italy.
What impact has SFDR Level 1 on the ESG criteria for funds and what are the main lines of services you’ve developed in this regard?
Benoit Rose: SFDR has to be considered for all the funds and AIFMs we advise. While it’s had a major impact on our work, it is a positive step in sustainable finance. We have developed a certain specialism at our Luxembourg office and are very active in the industry, taking part in panels and working groups but also working closely with our ESG SIC team in relation thereto.
You’re active in the alternative-fund industry but also with institutional and highly regulated vehicles such as UCITS managers, MiFID firms or AIFMs: Do they have specific parameters in terms of ESG regulations?
Anne-Gaelle Delabye: Each client must consider specific parameters and we do bespoke analysis for every one of them. There are very highly regulated vehicles and managers in our portfolio for which we launched specific ESG products. For example, we advised on the first climate-neutral multi-asset investment fund combining exposure to green bonds and low-carbon equities, offsetting the associated carbon emissions through a reforestation activity. We are also working on a project with China which has decarbonization as a main strategy.
Debt funds need specific adaptation. Implementation of ESG criteria is more challenging than for others. This has led us to discuss very specific and bespoke analysis with our debt funds clients.
The SFDR Level 1 regulation is particularly focused on the environmental aspects of ESG criteria but the taxonomy concerning social criteria has yet to be determined. How do you anticipate the entry into force of Level 2 of the regulation in January 2023?
Benoit Rose: SFDR and Taxonomy Regulation on the establishment of a framework to facilitate sustainable investment are phased and we have to anticipate the timeline with clients, keeping them updated along the way. We do not have the social taxonomy yet – it has still to be determined. It will be interesting to see how social aspects are measured in practice.
All our clients are adjusting their precontractual documentation, plus questions on the various reporting requirements for implementation of Level 2 Regulatory Technical Standards (RTS), which is happening in January 2023. With Level 1, we have only seen the tip of the iceberg as regards ESG regulation.
Are there and new players arriving in the fund industry landscape in Luxembourg, such as new VCs, PEs or other type of investors?
Anne-Gaelle Delabye: We have seen some new venture capital funds in Luxembourg. Those that are already quite well-established in other jurisdictions come to Luxembourg to expand their interests.
Private equity is stable in Luxembourg, and we see this translating to more and more PE houses entering the market. Luxembourg is a jurisdiction that any PE houses would benefit from being located in.
Luxembourg has been a key investment jurisdiction since the 80s, with UCITS its star product. We have had many discussions recently with well-established EU and UK managers on the best structures for offering alternative strategies to retail investors. The “retailisation” of alternative investment funds is a hot topic at the moment. Structuring opportunities go from the highly regulated Part II fund and the recently revised European long-term investment fund regulation, to unregulated vehicles such as RAIFs. The trend toward structured options will become stronger in the year to come.
We also see a growing interest, especially from VC funds, in cryptocurrency and blockchain technology more generally: what are the related opportunities for these assets in Luxembourg?
Benoit Rose: We have indeed seen a lot of developments, in relation to products investing in virtual assets in Luxembourg. More and more service providers want to specialise in these strategies. Being an early adopter was not an easy step for many companies to take, given uncertainty over regulations and the regulator's expectations, a situation complicated by the fact that those active in Luxembourg didn't have a specific license to operate with. Regulators have since issued guidance on these products for investors and license requests are now underway for Luxembourg service providers Interest in crypto and blockchain will continue to grow in the next years.