Insights / 18 June 2020
Luxembourg domiciled funds and the new normal
Writing in Real Deals, Crestbridge’s Group Head of Management Company Services Daniela Klasen-Martin explores some of the measures private equity firms have put in place to help them deal with the Covid-19 crisis, and looks at some further measures they can adopt.
Daniela observes that private equity has historically demonstrated a great deal of resilience in the face of crises, and if GPs display dynamism and take the proper precautionary measures, there’s no reason why they can’t replicate their previous performance. She identifies several operational adjustments they can explore to achieve this:
Firstly, there is the issue of risk management. The way firms calculate and quantify risk needs to be reconsidered, with amendments needing to be made to firms’ Value at Risk calculations. Citing the head of quantitative modelling at Cepres, Daniela recommends making liquidity decisions based on a 10% VaR scenario.
Secondly, she recommends a number of principles GPs can adopt to best manage and administer their portfolio holdings. These include checking the duration to the end of the closing period when raising funds, reviewing fund documentation to consider an extension to this with investor consent, and pausing additional bolt-on acquisitions to focus on cash generation.
Lastly, Daniela presents some of the steps taken by the Luxembourg regulator to assist firms during these challenging times, such as grace periods granted to a range of regulatory reporting deadlines.
Click here to read the full interview with Daniela Klasen Martin (subscription only).