23 November 2017

ALFI surveys confirm: Real assets move into the focus of asset managers and investors

Three surveys issued by ALFI confirm the trend towards the simplification of Real Estate Fund structures and strategies; that Luxembourg’s fund structuring toolbox attracts large international Private Equity houses; and how loan funds fill the financing gaps by investing in real asset classes.

The quest for return in an environment of persistently low or even negative interest rates is driving demand for alternative asset classes, in particular real estate, infrastructure, private equity and private debt. Three surveys issued by the Association of the Luxembourg Fund Industry (ALFI) at the occasion of its Private Equity and Real Estate Investment Funds Conference confirm the upward trend in specific alternative investment markets.

Real Estate Funds: Trend towards simplification of structures and strategies

ALFI’s Real Estate Investment Funds (REIFs) Survey 2017 shows that in 2016 and during the first two quarters of 2017, the population of Luxembourg domiciled REIFs continued to expand by 43 Direct Funds of which 16 are manager-regulated alternative investment funds (AIFs), and 15 reserved alternative investment funds (RAIFs) dedicated to real estate.

Regarding the fund structures, the Specialised Investment Fund (SIF) regime can be said to be firmly established as the favored legal regime for regulated REIFs in Luxembourg. The legal forms of the limited partnerships SCS & SCSp continue to increase in popularity since their introduction in the Luxembourg law in 2013. The most common investment strategy still remains the ‘multi-sector’ strategy accounting for 40%, despite a decrease of this strategy compared with 2016 (53%).

Though umbrella funds remain popular due to various practical and cost considerations, the trend over the last few years has been towards simplification of structures and strategies, a trend that is again evidenced in this survey.

Private Equity: Luxembourg’s fund structuring toolbox attracts large international PE houses

The Luxembourg Private Equity and Venture Capital Investment Fund Survey conducted by Deloitte on behalf of ALFI confirms the good health of the Private Equity industry globally.

The sector raised 338 billion USD over the first three quarters of 2017, which is an increase of 18 percent compared to the same period in 2016. In 2016, capital distribution reached an all-time high of USD 488 bn, with nearly USD 1.5 trillion returned to investors since 2013. Those distributions, combined with the poor performance and volatility linked to traditional asset classes, have driven a number of new investors to enter the Private Equity world. The other sign of the coin is that PE firms experience increasing difficulties to deploy capital efficiently.

Loan funds: filling the financing gaps by investing in real asset classes

Since bank lending in Europe has been significantly reduced in the aftermath of the 2007-2008 financial crisis due to the tightening of banking regulations and higher capital ratios imposed on banks, regulators and policymakers are increasingly becoming aware of the benefits of non-bank intermediation and especially loan funds which provide an alternative to the banking industry as a source of financing the real economy. Encouraging greater diversity in funding is thus one of building blocks of the EU’s Capital Markets Union initiative.

The development of non-banking credit intermediation has led loan funds to expand significantly in the Grand-Duchy. The authors of the Loan Fund Survey commissioned by ALFI and carried out by KPMG Luxembourg expect this trend to continue.

Press release

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