Alternative investment funds: the view from Luxembourg

Alternative investment funds with exposure to private equity, real estate, infrastructure, and debt are gaining popularity in Luxembourg. Barbara Martin, Head of Private Funds—Sales EMEA, and Johannes Höring, Head of AIFM, Intertrust Fund Management, look at the current market trends.

Luxembourg has many advantages as a financial centre. It has a multilingual workforce, is economically stable, and has an established infrastructure of legal, tax, and financial professionals who are able to assist clients from a multitude of jurisdictions.

It is also a key location for innovative financial products, including alternative investment funds (AIFs). Corrections in equity prices and rising inflation are driving interest in AIFs around the world as investors search for new markets and new sources of investment return.

Globally, the alternative investments market, which includes private equity, real estate, infrastructure, and private debt, is growing rapidly.

This growth has been particularly robust in Luxembourg. According to figures from the Association of the Luxembourg Fund Industry (ALFI), net assets of Luxembourg investment funds were EUR 5.19trn (USD 5.62trn) on 31 January 2023.

Investment in these funds has come from both retail and institutional investors, with economies of scale enabling managers to offer funds at lower costs, making them more attractive, according to the ALFI report.

The net assets of investment funds (UCITS and AIFs) domiciled in Europe totalled EUR 21.9tn at the end of 2021, according to ALFI, with Luxembourg confirmed as the largest domicile.

Investors looking to hedge against inflation

Investors are also taking stock of the correction in the equity markets, factoring in the rise of inflation, and trying to predict how continuing issues around global supply and demand will affect returns in the future. Indeed, investor appetite, particularly in commercial real estate and private debt, could function as an inflation hedge and we expect to see demand in these areas to grow.

Take infrastructure funds. These investments have much longer-term horizons, but this asset class has also proven its resilience. It offers investors access to returns not necessarily correlated with equity markets.

For this reason, we expect to see more interest in these structures in 2023, as well as demand for real estate funds and evergreen funds as investors seek alternatives to equities and bonds.

As this sector grows so does demand for administrative expertise in this burgeoning product. It will take specialist knowledge to provide a comprehensive solution for fund administration requirements and secure the best deals in capital markets and corporate services.

Despite their increasing popularity, AIFs face some obstacles. Under current regulations, AIFs cannot be sold to retail investors due to the illiquid nature of the underlying investments. However, should the inclusion of retail investors change, the segment is primed for growth in 2023 and beyond.

Why Intertrust Group?

CSC completed its acquisition of Intertrust Group in November 2022. Together we offer a global solution for subsidiary governance, fund strategies, and capital markets transactions, and navigate the ever-changing compliance and regulatory environment that our clients face. With capabilities in more than 140 jurisdictions, we are capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve.

For clients active in the alternative investments field—including private equity, venture capital, real estate, long/short equity, and debt strategies—Intertrust Group offers AIFM, depositary, fund administration, capital markets, and corporate services.

Other services include inter alia:

• Risk management and valuation
• Distribution and distribution oversight
• Pre-marketing
• Pre-notification
• Portfolio management and portfolio management oversight
• AIFMD reporting

Intertrust Group provides a cost-effective, long-term outsourcing solution for EU and non-EU alternative investment funds. Intertrust Group has been acquired by CSC, the world’s leading provider of business, legal, tax, and digital brand services.

Intertrust Group provides world-leading, specialised administration services in more than 30 jurisdictions. Our focus on bespoke corporate services, fund, capital market, and private client services enables our clients to invest, grow, and thrive anywhere in the world.