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56
Legal Focus
JULY 2014
Private Equity
We take a look at Private Equity in this edition, and the legal implications surrounding it, by speaking to three partners from MNKS.
Please introduce yourself, your role and your firm. Ranked amongst the top ten law firms in Luxembourg, MNKS is a leading business law firm providing high quality legal services to both international and domestic clients, not only in traditional practices for a Luxembourg law firm such as corporate (including corporate structuring, private equity and M&A), banking and finance (including setting up alternative investment funds, capital markets and financial services regulation) and tax law, but also in practices such as employment, litigation/dispute resolution and information technology & IP law, in which MNKS has top-tier expertise.
Raquel Guevara (Partner Tax) is a tax specialist who focuses on the planning and implementation of cross border tax efficient structures.
Catherine Baflast (Partner Corporate) is involved in the implementation of group structuring projects and deals with mergers and acquisitions involving companies on the Luxembourg market.
Max Welbes (Partner Investment Funds) is proficient in the setting-up, day-to-day maintenance and restructuring of regulated alternative investment vehicles and of UCITS compliant funds.
What are the key legal implications that need to be considered when dealing with Private Equity projects in your country?
As far as Luxembourg private equity funds are concerned (as opposed to private equity transactions), key legal implications include:
• Determining the appropriate fund structure, taking into account whether there is a need for the fund vehicle:
(i) to be regulated / supervised by the CSSF?
(ii) to be under corporate form (SICAV/SICAF and type of company) or contractual form (FCP)?
(iii) to comply with any investment restrictions and/ or risk spreading requirements?
(iv) not to have any restrictions in terms of eligible investors?
(v) to have several segregated compartments?
(vi) to offer flexibility in terms of key fund terms (structuring of the voting rights, financial rights and carried interest, governance, confidentiality etc.)?
• Determining whether the fund vehicle qualifies as an alternative investment fund under the AIFM directive, benefits from any available exemptions, grandfathering provisions, de minimis threshold, needs to appoint an authorized (internal or external) AIFM and comply with ongoing obligations under AIFMD or not.
• Determining where the investors are located and if a marketing passport would be needed under AIFMD or EUSEF/EUVECA regulations.
What are the main issues to be aware of when dealing with cross-border PE deals?
Among the main issues to keep in mind for cross border PE deals, the following may be mentioned:
- Marketing issues and potential need for a passport under AIFMD / EUSEF-EUVECA regulations depending on the location of investors;
- If AIFMD provisions apply, anti-asset stripping rules and provisions related to major control in non listed companies shall be kept in mind.
Trends also show there is increased interest in investing in SMEs; is this something you have witnessed? What do you think are the reasons for this?
Luxembourg is attracting managers and sponsors for the structuring of many different types of fund vehicles investing in all kind of asset classes including among others, as far as PE funds are concerned,
Contact:
Raquel Guevara Partner Tax
Catherine Baflast Partner Corporate E: baflast@mnks.com
Max Welbes
Partner Investment Funds E: welbes@mnks.com
venture capital, private equity, socially responsible investments, infrastructures, sharia compliant funds, opportunistic real estate, debt fund vehicles in light of shadow banking discussions at European level…
As a result, it is difficult to assess whether in Luxembourg there was an increased interest in investments in SMEs rather than in other types of asset classes since there is a global growth in all types of Luxembourg PE funds.
Is there anything else you would like to add?
Luxembourg has set out a favourable legal and tax environment for the private equity industry in order to attract private equity houses in Luxembourg. In the framework of the implementation of the AIFMD into Luxembourg law, the Luxembourg common limited partnership has been modernized and a new form of partnership, the special limited partnership, has been created in order to offer products similar to anglo-saxon limited partnerships and increase the competitiveness of Luxembourg as location of choice for funds and SPVs. A favourable tax regime for carried interest has also been set out under Luxembourg law.
Luxembourg service providers (lawyers, auditors, depositary, administration agents…) have developed a thorough know-how and expertise in this industry and Luxembourg associations such as LPEA (Luxembourg Private Equity Association), ALFI (Association Luxembourgeoise pour les Fonds d’Investissements) and LFF (Luxembourg for Finance) are promoting Luxembourg around the world as a place of choice for this industry. LM