Luxembourg was already on the map with Private Equity, but over the last 18 months there has been a substantial increase in asset managers building new offices and growing existing businesses on the ground. The rise is so sharp, that most companies operating in Private Equity are growing in Luxembourg simultaneously.

Impact on local talent pool

The impact this is having on the local talent market is extreme, both is it growing in size as well as complexity. The job profiles that we get these days for Private Equity roles are the most broad ranging we have ever seen, and clients are more willing to hire candidates who have say 60% of the job description and teach the rest.

This means that the local talent pool is changing, and fast. Both culturally, and technically-speaking.

We know it’s a growing market, because some firms are securing talent so quickly that they are paying over the odds for staff which don’t seem to fit their needs, leaving businesses within 6 months of being hired. Despite fast growth, it is still important to hire the right person.

Why the sudden growth? EU investors, want an EU-based fund

Historically, PE businesses relied on a UK or partly UK-based workforce. Since Brexit, especially for funds whose main investors are in Europe, the link to Europe via the UK is not strong enough to continue as before.

Investors are the driving force, and they are asking the questions

Investors are not only motivated by having an on-shore solution, but because they feel more comfortable with Luxembourg governance, and ESG requirements.

These days investors are not just looking at ROI, more than ever before they are asking questions about the middle and back office. Not just how they are run, but who is running them?

Suddenly, Luxembourg is an investor topic.

So, what are they looking for?

These entrepreneurial businesses seek out the most driven and dynamic candidates, with strong commercial acumen, and an excellent academic background. Ideally candidates have experience of working with Private Equity already, but superstars from other alternatives (RE, Infrastructure) are moving into PE given the shortage of staff. While staff from other centres are interesting for some roles, they miss the local experience on Luxembourg regulation – which takes some time to understand.

Why Private Equity is about people performance like no other

Whereas other alternative asset classes typically have longer hold periods, or mixed investments are combined to generate results within a fund (for example, closed-ended Real Estate Funds which can have a 10-year cycle), PE is both more binary, and more immediate.

PE Investors often focus only on the last investment as a sign of value, and this filters down into every last decision. Performance at every level is key, and has to be there every time.

This makes hiring for Private Equity, and in fact working in a PE environment, a truly unique experience that is not suited to every type of candidate. Candidates who thrive working in Private Equity are detail-orientated, extremely driven, and able to analyse large amounts of data, without making assumptions. Sounds easy, but that is a difficult ask for most people. They are characteristically, ‘left-brain’ people, who have developed a heightened sense of value creation and analysis.

We have been inundated with requests from Private Equity since Brexit became more real in 2017. We don’t talk about it much, because we have to be discreet, but it’s only by having a deep understanding of what is happening, that we are able to advise on the types of hires needed for each role. I.e. the patterns we see with the Lux Regulator (the CSSF), and how to carve out roles and responsibilities across the business structure, so that we can make sure all bases are covered, and open doors to specific candidates.

Commitment from the top team

It’s complicated, but interesting work, because with PE there is always a real commitment from the top team to find the right person, knowing that the right person can make or break the business – especially, but not limited to, senior roles. I recognise that type of commitment when I used to hire in Investment Banking in London more than 15 years ago – the heyday of IB in London. I could be on the speed dial of a top C-suite exec if they knew I had someone special. The fact that this is happening now, is a sign of how important talent has become in this space, and in this country.

And a word on the front office

People in the past used to talk about ‘bringing the front office to Luxembourg’, as if it was a pre-requisite to perceived success in the Private Equity Industry here. I don’t think that really matters anymore. Why?

Because for some PE firms, Luxembourg is winning such a large (and growing) selection of every other role, it really is only the front office that is left anymore. And when you already have the majority of your operations here, how long is it possible to justify having large teams in other locations as well?

Add to the mix that your investors are European, and that wage increases in Ireland have meant the difference between these two locations isn’t what it used to be, and you end up with a powerful formula for growth.

Reversal of Lux as a supporting location, and becoming a leading one

This is the reason that more and more Private Equity companies will start to have more front-end teams here as well (if not investment right away, then certainly investor relations, and sales).

My expectation is that the current trend of Luxembourg being a smaller office supporting an overseas (larger) one, will actually reverse within the next 10 years. I believe this because over time every industry that becomes this large globally, has then been followed by an increase in regulation. That will have an enormous effect on the country.

And that might not be a bad thing, when you look at the total number of assets currently being managed, and the size and complexity of investments running through Private Equity Firms right now. If you compare this world to the world of Investment Banking 15 years ago, there are many striking similarities. Especially but not limited to, the way that Private Investment has stepped into the lending / financing space the Investment Banks occupied before the crisis. Regulation would be our best and only way of preventing another global economic slowdown when it all goes wrong.

A note of caution

What could go wrong for Luxembourg? Well, hiring in Lux for over 15 years has given us a blueprint for that. Look at what happened with Mutual Funds. If automation and off-shoring improve for Private Equity, and in parallel the Lux salary indexation keeps on creeping up and up, things could get worse, if and when the costs of being here outweigh the benefits.

Finally, Luxembourg needs to keep attracting top international talent, and for that ironically, it’s not the financial sector that needs evolution, but the cultural one. In order to make sure the talent pool stays strong, Luxembourg needs to keep going with the kind of creative investment that we have seen over the last few years – the excellent skate park and ongoing investment into art institutions are key, but so are the jaw dropping views from the enormous glass lift in the Grund. All of this beauty and expression allows busy workers to relax at weekends, and enjoy themselves. The best way to attract a world class talent pool.

So for now, Lux is doing well.

And it seems a trend unlikely to be reversed, given the degree of detail needed for operations, and the amount of regulation. Also given that in the offshore centres, things are growing more scarce, and more complicated in tandem, making offshoring and automation difficult for this asset class. We will have to watch which opposing forces win this one out.

The EU Private Equity scene is just waiting for next guidelines from ESMA to see what the next 10 years will bring.

One thing I doubt, is that it will mean less in Luxembourg.

#PrivateEquity #AssetManagement #Luxembourg #Talent

@ALFI @LPEA @XavierBettel @LuxembourgForFinance @FundsTalent

Rana is the Managing Director of Funds Talent, a Search and Selection Firm for the Funds Industry. Along with being a company director, she is a passionate people person, and an executive recruiter for the funds and asset management industry.

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