Private Equity Real Estate (PE/RE) Substance Survey 2019

PE/RE Substance Survey 2019

A snapshot of the current landscape in Luxembourg

Christophe Diricks

Partner, Head of Alternative Investments

KPMG in Luxembourg


Also on

Coloured chalks

More than ever, substance is on everyone’s mind, especially in the context of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) action and the Principal Purpose Test (PPT) included in the Multilateral Instrument (MLI).

The PPT is an anti-treaty abuse clause that “allows contracting states to deny the application of treaty provisions when transactions or arrangements (such as the setting up of a SPV (Special Purpose Vehicle) in Luxembourg) are entered into in order to obtain the benefits of these provisions in inappropriate circumstances.” (Source: OECD) Such a broad interpretation of the PPT concept might prevent some private equity (PE), real estate (RE), and hedge/debt funds managers from accessing treaty benefits through the SPVs set up underneath their funds. However, an SPV armed with sufficient substance and economic purpose should in principle not see its access to treaty or directive provisions denied.

As a consequence of the above-mentioned tax policies, what are the substance trends in the Alternative Investment Fund (AIF) landscape in Luxembourg? To understand organizational models in terms of staff, structures, funds etc, 62 AIFs’ General Partners (GPs) (Figure 1), with a footprint in Luxembourg, took part in a KPMG substance survey.

Figure 1. Composition of the surveyed population







Multiple asset classes


Pure Debt







The first interesting insight is that the 62 GPs surveyed employ circa 1.100 Full Time Equivalents (FTEs) and manage more than 5.500 entities, including 600 investment funds. Luxembourg is more than a location for SPVs, indeed 76 percent of PE/RE respondents have investment funds in Luxembourg.

Like Luxembourg UCITs (undertaking for collective investment in transferable securities) for retails investors, PE/RE players favour Luxembourg investment funds, unregulated or regulated, to raise money for their investors (Figure 2).

Figure 2. Types of funds set up by the surveyed population
Figure 2. Types of funds set up by the surveyed population

View the full image here.

These investments funds are predominantly managed by regulated and authorized Alternative Investment Fund Managers (AIFMs) in Europe. Out of the 62 GPs surveyed, 46 have an EU AIFM and the remaining are still using the so-called National Placement Regime (NPR) with funds established outside EU (Jersey, Guernsey, Cayman, etc.). Luxembourg seems to be the preferred place for the establishment of AIFMs, as out of the 46 EU AIFMs, 20 are based in the Grand- Duchy. 

As you may see from the Figure 3, US PE/RE mostly setting up Luxembourg AIFMs, while UK promoters prefer to remain outside the AIFM Directive through the use of local NPRs.

Figure 3. AIFMs and promoters by country of origin
Figure 3. AIFMs and promoters by country of origin

What about staff in Luxembourg?

On average, all sectors combined, the GPs surveyed employ 14 people and manage 90 entities. Half of those surveyed have less than 10 employees and 60 entities in Luxembourg.

To perform their functions, GPs are generally staffed with administrative and executive profiles. The below Figure 4 illustrates the team composition of the offices observed.

Figure 4. Staff composition in a Luxembourg office
Figure 4. Staff composition in a Luxembourg office

View the full image here.

Unsurprisingly, the vast majority of the local teams carry out back office work –administrative, finance/accounting and paralegal. However, a quarter of the staff employed in Luxembourg has a “management” profile. Is this a change of the organizational model? Yes, it is. And the responsibility does not lie with the introduction of BEPS, MLI or PPT but with another acronym: Brexit.

Brexit had a huge impact on the asset management operating model as UK Management Companies will no longer be allowed to commercialize/distribute funds to EU investors.

The direct consequence is the establishment of regulated AIFMs outside UK, predominantly in Luxembourg and Ireland. Following our KPMG relocation tracker (Figure 5), Luxembourg and Ireland are the two winners of the relocation of Asset Management activities due to Brexit.

Figure 5. Brexit relocation announcements
Figure 5. Brexit relocation announcements

Please note that the data is constantly changing.

View the full image here.

Relocation of activities in Luxembourg since the Brexit referendum

Business area/Sector

N° of companies



Asset/fund management








Sources: STATEC, KPMG Press release


In the field of funds, British companies have been the second largest initiator of Luxembourg funds since 2014 (18 percent of assets under management at the end of 2018 - STATEC) and their market share has been increasing steadily (+1.7 percentage points since the Brexit referendum in June 2016 - STATEC).

And in terms of jobs, the Luxembourg governmental statistic body, STATEC (National Institute of Statistics and Economic Studies of the Grand Duchy of Luxembourg), estimates that of the 66 announcements, 37 companies have already increased their activity in the country, creating 535 direct jobs between the Brexit referendum in June 2016 and December 2018, including 495 in the fund sector (Source: STATEC).

The establishment of regulated AIFMs implies an increase of the middle management in Luxembourg.  This trend is confirmed when we compare the evolution of the staff of the same players (40) surveyed in 2017 and 2019: 26 percent staff increase in 2 years but the accounting/finance function remains stable while risk and global compliance management increases significantly (Figure 6).

Figure 6. Evolution in staff composition
Figure 6. Evolution in staff composition


Luxembourg remains a holding/financing platform for PE/RE players with the setting up of SPVs but it also becomes their fund hub through the use of Société en Commandite Spéciale (SCSp), Reserved Alternative Investment Funds (RAIFs) and Specialised Investment Funds (SIFs) generally managed by their regulated Alternative Investment Fund Manager. This organizational change goes along with a need of different staff profile to perform the new functions specific to the management of a fund and underlying structure, i.e. monitoring the portfolio and the delegates such as the asset manager which is usually delegated and at the same time to comply with the AIFM Directive and the CSSF 18/698 Circular. Also, it is definitely a good move to cope with the so-called “Principal Purpose Test” provided in the MLI and explained in the non-CIV example issued by OECD. 

This is probably why the GPs having their fund and AIFM in Luxembourg are significantly more confident in their level of substance.

© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organisation please visit

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Save, Curate and Share

Save what resonates, curate a library of information, and share content with your network of contacts.

Sign up today