What is a SICAR in Luxembourg and what does private equity mean?
In this article we will talk about SICAR in Luxembourg, however, first of all, it is important to understand what private equity means, because the two entities are strictly connected.
The term "private equity" means the institutional investment activity in risk capital of non-listed companies but with high potential for development.
Private equity funds are becoming more and more important within the national and international economic scene because of their intervention function to support companies of any size in order to develop their business.
Therefore, they are alternative investments, which are currently considered as relevant for the stabilisation and diversification of the portfolio, especially in the presence of low interest rates and poor returns on conventional financial markets.
The importance of this activity may be found in giving the opportunity to small and medium size companies, which are not listed on the stock exchange, to secure capital.
In accordance with what described above, private equity may basically be considered a type of medium-long term investment, which is mainly undertaken by institutional investors with the aim to obtain a substantial income on account capital deriving from the acquired shareholdings or stock market flotation.
SICAR and private equity in Luxembourg: the place to be for Private Equity in Europe
The country which has acquired much more prestige in the matter of SICAR and private equity interests certainly is Luxembourg.
Talking in numbers, nine out of ten of the largest SICAR and private equity establishments of the world appear to be operating in the Grand Duchy of Luxembourg.
Moreover, there are at least 25.000 holdings domiciled in the territory.
In view of the above described phenomenon and in order to improve transparency in the field, Luxembourg has set up two main vehicles of private equity and capital venture, namely SICAR and the more recent SIF.
Private equity funds in Luxembourg are structured in the form of regulated funds subject to CSSF monitoring, or in the form of non-regulated funds, namely SOPARFI, and thus not subject to CSSF monitoring.
SICAR and private equity in Luxembourg: their advantages
SICAR or private equity funds in Luxembourg provide different advantages, as you may see below.
A SICAR is a private equity fund, designed for investment in risk capital, recommended for start up companies, or developing companies or companies about to enter the stock exchange.
SICARs may benefit from more flexible regulations and a more favourable taxation. Therefore, the first advantage is to provide limited risks.
SICARs are requested to actively contribute to the development of the project and the creation of added value, for any type of investment they are engaged in. However, they do not need to be in any compliance with rules of risk diversification. This is the second advantage.
In regard to advantages for private equity fund investments, the following is a list of some:
- Risk sharing;
- Long-term performance is often higher than listed securities;
- Private equity operators benefit from a greater strategic freedom compared to listed companies;
- Investments in private equity often have less quotation volatility than other type of investment;
- Private company investors have more joint decision rights than those investors in public limited companies.
SICAR and private equity in Luxembourg: see how we can help you
Before providing an answer to the question above, that is: "How may our Law Firm help you?", you need to know all pheses to set up a fund in Luxembourg.
They are the following:
- definition of the objectives;
- choosing the right vehicle;
- specification and preparation of the operating model;
- choosing suppliers;
- submission of any document to the supervisory authority;
- constitution of a legal entity;
- launching the product and implementing the operating model.
The Arnone & Sicomo Law Firm headquartered in Luxembourg supports entrepreneurs interested in setting up a private equity fund or a SICAR in Luxembourg.
What is probably still unknown to the public is that Luxembourg may actually rely on real expertise in the field of Private Equity.
A law firm specialised in private equity funds or SICAR is what European and International entrepreneurs need, as they may benefit from advantages provided in Luxembourg.
Indeed, it is to be hoped that entrepreneurs use Private Equity not only as a funding system, but also as a means of improving expertise and supporting the company growth, by finally moving away from the traditional funding system.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.