Agefi Luxembourg - avril 2025

Avril 2025 23 AGEFI Luxembourg Fonds d’investissement BySophieVANESSE,PartneratDeloitteLuxembourg T he private equity (PE) indus- try is undergoing profound transformation. The emer- gence of new technologies, evol- ving investor expectations, and the increasing complexity of regula- tory frameworks are compelling PE firms to reassess their operational, investment, and growth strategies. To remain competitive in this rapidly shifting landscape, these firms must demons- trate agility and proactively embrace strategic changes. HowcanPE firms harness innovation for competitive advantage? Technology has transitioned from being merely a back-officeenablertobecomingafundamentaldriver ofvaluecreation.Modernadvancementssuchaspre- dictiveanalytics,real-timedataprocessing,automated risk assessments, andAI-driven insights are revolu- tionizing the private equity landscape. These sophis- ticatedtoolsareenablingPEfirmstoenhanceportfolio management and identify high-yield opportunities withgreater precision and efficiency. PE firms that integrate innovation into their core operations are better positioned to capture value in emergingmarkets, optimize their processes, and stay ahead of evolving trends. The use of big data and cloud-based platforms is transforming deal sourcing, evaluation, and execution. However, the transformative journey extends beyond merely adopting new technological tools, it requires de- veloping a cohesive digital strategy that alignswith the firm’s investment objectives, risk appetite, and long-term vision. This comprehensive approach ensures that technology serves as a catalyst for sus- tainable growth and competitive advantage. Cybersecuritymust be given toppriorityduring the digital transformation process, especially as firms manage ever-increasing volumes of sensitive data. Implementing robust defenses against cyber threats is crucial not only for protecting valuable assets but also for maintaining stakeholder trust. Ef- fective cybersecuritymeasures safeguard a firm’s integrity and reliability, thereby enhancing its reputation. Moreover, these measures support long-term strategic goals, ensuring that the firmremains a trusted entity for in- vestors, partners, and clients. Establish- ing comprehensive and up-to-date cybersecuritypractices is fundamen- tal to building a resilient and trust- worthy organization in today’s data-driven landscape. HowshouldPE firms navigate an evolving regulatory landscape? The regulatory landscape in the PE sector is rapidly evolving, with a growing emphasis on transparency, accountability, andsustainability.Key developmentsincludeanincreasedfocusonESGcri- teria, more stringent compliance regulations related to anti-money laundering (AML) and know-your- customer (KYC) requirements, and heightened at- tention to data privacy and cybersecurity. Furthermore, the introduction of complex tax regu- lations,suchasthePillarTwoframework,isprompt- ing firms to adjust their strategies to ensure alignment with global tax standards. These changes offer bothchallenges andopportuni- ties for PE firms, requiring proactive measures to stay compliant and competitive. With regulations continuously evolving, it is essential for PE firms to stay informed about both global and local changes. Investing insystems or resources thatmonitor regu- latoryupdates enables firms to swiftly adapt tonew requirements andmaintain compliance. Given the growing regulatory scrutiny, strengthen- ing compliance frameworks must be a top priority. This involves not only adhering toAML, KYC, and taxcompliance regulationsbut also integrating these processes intodailyoperations. Investing in compli- anceautomation tools andreal-timemonitoringsys- tems can streamline these tasks,minimizing the risk of human error. Withdataprivacyandcybersecurity regulations be- coming increasingly stringent, PE firms must take measures to protect sensitive information. Investing insophisticatedcybersecuritysystems, dataencryp- tion, and ensuring compliance with privacy regula- tionssuchasGDPRorCCPAiscrucial.Furthermore, adopting technologies like blockchain can enhance transparency and security in transactions, thereby supporting regulatory compliance. Withtheintroductionofcomplextaxregulationslike the Pillar Two framework, PE firms must ensure compliance with these new tax rules. Collaborating with tax experts is crucial for understanding inter- national tax requirements. Prioritizing tax efficiency and compliance not only minimizes risks but also provides long-termfinancial benefits. Finally, regulatory compliance is not just about sys- tems and tools, it’s about fostering a culture of com- pliance. Regular trainingandeducation for teamson evolvingregulationswillensureemployeesarewell- informed and equipped to handle new challenges. Continuouslearningpromotesaproactiveapproach to regulatory changes, ensuringfirms remain ahead of the curve. Given the complexity of the regulatory landscape, partnering with trusted advisors is essential for PE firms. Expert guidance in areas such as compliance frameworks, tax structuring, and risk management helps firms navigate evolving regulations and stay ahead of changes to ensure long-termsuccess. Why ESG integration is no longer optional? Investor expectations have evolved, making ESG more than just a “nice-to-have”; it’s now a defining metric for performance, risk, and futureproofing. It is becoming an expectation for private equity to demonstrate how they integrate environmental, so- cial, and governance criteria into every stage of the investment lifecycle. Implementing a robust ESG strategy starts with cus- tomization.Thereisnoone-size-fits-allapproach;each fundmust define its ESG goals in alignment with its investmentthesis,regulatoryrequirements,andstake- holderpriorities.Fromduediligencetoassetselection andportfoliomanagement, ESGneeds to be embed- ded into the very core of decision-makingprocesses. However, strategy alone is not sufficient. Effective ESG performance requires ongoing measurement, management, and reporting. Leveraging advanced data platforms enables firms to track relevant KPIs, ensurealignmentwithglobalstandards,andproduce transparentsustainabilityreportsthatsatisfybothreg- ulators and investors. When executed correctly, ESG is not a constraint but acatalystforlong-termvaluecreationandpositiveim- pact.ByintegratingESGintotheiroperations,private equity firms can achieve sustainable growth while meeting the rising expectations of their stakeholders. Embracing change to create sustainable growth Three converging forces are reshaping thePE indus- try: technology, regulation, and sustainability. Firms thatrespondwithagility,insight,andinnovationwill lead the next chapter of growth. Success in this evolving landscape hinges on seam- lesslyintegratingadvancedtechnologies,strengthen- ing compliance frameworks, and embedding ESG principlesintoinvestmentstrategies.Theseinitiatives should not be treated as isolated efforts but as inter- connectedpillars of a future-ready operatingmodel. By embracing cutting-edge technologies such as AI, blockchain, and bigdata analytics, PEfirms can enhance operational efficiency, improve decision- making processes, and unlock new opportunities for value creation. Strengtheningcomplianceframeworksisequallyim- portant.Asregulatoryscrutinyintensifies,firmsmust ensureadherencetoincreasinglystringentstandards suchasAML,KYC,dataprivacy,andtaxregulations. Investing in compliance automation tools and real- timemonitoringsystemscansignificantlyreducethe riskofhumanerrorandenhanceoverallcompliance. EmbeddingESG into investment strategies is crucial as well. Developing customized ESG frameworks, measuringrelevantKPIs,andtransparentlyreporting outcomeswill alignfirmswithglobal standards and investor expectations. When these components are effectively integrated, they create a cohesive and robust operating model that not onlymeets regulatory requirements and in- vestor demands but also drives sustainable growth and long-termvalue creation. Leading the future: How technology, regulation, and sustainability are reshaping the private equity industry By Norman VILLAMIN, Group Chief Strategist, Union Bancaire Privée (UBP) F ormore than a century, the UnitedStates has been a ‘Eu- rope-first’ powerwith its in- tervention in the twoWorldWars aswell as its role facing off against the Soviet Union in theCold War and then as the secu- rity guarantor of the continent in its aftermath. However, in 2011 then-USPres- ident Barack Obama formally announced a shift in America’s strategic focus, away from Eu- rope and making a ‘pivot to Asia’ as its primary geostrategic focus. Since then, however, certainly fromamilitaryperspective, that pivot has beenunsuccessful. TheRandCorporationestimates that as of 2023, nearly 56% of American forces de- ployed overseas remain within the United States’ European Command military structure compared toonly 12%for its PacificCommand,which encom- passes the Indo-Pacific region. In their first fullmonth in office, USPresident Don- ald Trump, US Vice President J.D. Vance as well as US Defense Secretary Pete Hegseth have all laid groundwork to proactively and forcefully close these imbalances and accelerate the pivot an- nounced in 2011. Indeed, theAmericanDefense Secretary’s February speech in Brussels overtly reiterated this long-held US desire to pivot to Asia, now bluntly stating the administration’s objective of ‘…prioritising deter- ringwarwithChina in the Pacific…andmaking re- source trade-offs to ensure that deterrence does not fail.’ and then emphasising for his European audi- ence, ‘…safeguarding European security must be an imperative for Europeanmembers of NATO.’ In light of the American directness, German Chancellor-to-be Friedrich Merz, even before the victory of his Christian Democratic Union party in the February German elections, em- phasised the focus of Germany’s incoming government, ‘My absolute priority will be to strengthen Europe as quickly as possible so that, step by step, we can really achieve inde- pendence from the USA…(as) it is clear that theAmericans, at least this part of the Americans, this administra- tion, are largely indifferent to the fate of Europe.’ He has since followed up on these statements with a constitu- tional change to allowGermany to borrowto fund a build-up of its de- fence capabilities and an upgrade of its domestic infrastructure, while encouraging the wider European Union to match its aspirations. These pivots effectively lay the groundwork for a historic change in the transatlantic relationship by shifting the structure of the alliance that has been at its foundations since WorldWar II. What is now clear among the leadership on both sides of theAtlantic is that Europewill need to bear a disproportionate share of the costs of its own se- curity – both economic and military. TheAmericanwake-up call comes at anopportune time given the stagnation and deindustrialisation taking place at Europe’s core. Bruegel, a Brussels- based think tank, estimates that Europe would re- quire 300,000 more troops – roughly the size of the Italian or French armed forces, the continent’s largest – and an additional EUR 250 billion per annum in defence spending to counter European concerns over potential Russianaggressionwithout the historicAmerican security umbrella. This EUR 250 billion equates to an added 1–1.5% of the EuropeanUnion’s GDP andwould raise de- fence spending from its 1.7% of GDP in 2023 back toColdWar era levels. However, recall that during the height of the ColdWar the US maintained not 84,000 active-duty personnel like today, but in- stead 475,000 at its peak. This means that even these defence spending figures likely understate the potential cost of achieving security ‘indepen- dence’ fromAmerica. In any case, these estimates suggest that such spending alonewould lift Germany’s and the EU’s GDP growth by a similar magnitude with debt-fi- nancing, as is currently envisioned by both, and the focus on research and development spending could have an even more meaningful long-term multiplier effect on European growth. Recognising the shortcomings of the German (and European) economies is not simply a function of their underinvestment in defence; German Chan- cellor-to-be Merz has cast a wider net, proposing a EUR 500 billion infrastructure investment pro- gramme toupgrade andmodernise the nation.Ad- mittedly, the package is half the size of the 2022 nearlyUSD 1 trillionAmerican Inflation Reduction Act, but for an economy one-sixth the size of the United States. Indeed, the proposals are mirrored by similar plans put forth by former Italian Prime Minister and ECB President Mario Draghi, in his ‘Futureof EuropeanCompetitiveness’ report,which suggests his aspirations are nowcoming to fruition. Undoubtedly, the year-to-date outperformance of European equities (and underperformance of Eu- ropean bonds) shows that themarket has begun to price in this anticipatedfiscal largesse. However, it seems two structural opportunities remain un- priced in light of this seminal shift in German and European policies. First, with Germany and the EU having long been exporters of their excess capital, even the year-to- date strength in the euro does not capture the scale of the capital repatriation that is likely ahead to fund these endeavours. Assuming that the single currency simply reverts to its historic trade-weighted exchange rates, in- vestors can expect the near parity to the US dollar that has characterised the post-pandemic era for the European exchange rate to reset higher towards 1.10–1.25 in the years ahead. Moreover, though European banks continue to be tarnished with the stigma of their near failures in 2011–12, much like their Asian counterparts after the 1997–98Asian crisis, their decade of repair and recapitalisationnowleaves themwell positionedas fundingproviders for European economies’ return to more normalised growth. Indeed, despite still being up 10% year-to-date (notwithstanding its late-March/early-April tariff-induceddeclines), Eu- rope’s banks are still tradingbelowbookvaluewith dividend yields above euro cash rates, suggesting, in our view, that markets are underestimating the potential reacceleration in loan and profit growth that should occur as European investment spend- ing begins. Admittedly, as seen over recent months, this change in the near eighty-year relationshipbetween the United States and Europe will not be without its risks. Investors should expect the fissures be- tween the two allies as well as the overt American pivot to Asia to continue to create economic and geopolitical volatility asmarkets seek toprice in the pace and magnitude of the change ahead. As a re- sult, gold should continue to offer an anchor for in- vestors’ portfolios amidst the rapid transformation of the global economy and of the global order that is now clearly underway. Thus, investorswho have long only thought of Eu- rope as a tourist destination and ignored the conti- nent as an unattractive one for investment should pay attention: the events of recent months have ef- fectively compelled Europe to rewrite its future – fromone of stagnation anddecline to one of poten- tial investment and growth –, creating new oppor- tunities for investors to explore, and new risks for them to manage simultaneously. Europe: rewriting its future