How is private wealth, that of rich families, mobilized today to invest in private property?
Pascal Rapallino. – “In recent months, especially due to the rise in key rates, the market has changed significantly. Not so long ago, the major private equity players essentially favored institutional investors in fundraising. When given the opportunity to invest in this asset class, wealthy families had no choice but to do so through a fund, although they often wished they could co-invest part of their funds directly into the entrepreneurial project, which works with the fund.
Now, when money is increasingly difficult to mobilize, the situation has changed. Fundraising is less straightforward for private equity asset managers. The latter had to adapt their strategy to attract investors. They prefer to turn to wealthier families, almost systematically offering them the possibility of co-investing with them and thus achieving a higher return.
For family managers therefore they become privileged partners?
“Yes. In the current context, private equity funds are no longer oversubscribed, as was the case just a few months ago. Managers are therefore turning to these more flexible investors, less susceptible to the dangers associated with rate variations. Wealthy families, with this ability to invest directly, flexible are also sensitive Decision-making processes are much shorter.
Private equity enables support for development projects and approaches to economic diversification, while maintaining a consistent debt/equity mix for these acquisitions. Because of all this, today private clients are more and more in demand.
The challenge is to attract innovative players and help them grow from Luxembourg, especially through private investment.
How can we characterize the family’s attraction to this private property?
“When we talk about private assets, we are mainly talking about private equity and real estate, although there are many other types of core assets, such as art, leisure goods, travel… For families, these investments are more popular than ever. If we talk about private equity, the company’s valuation, calculated in multiples of Ebitda, is slightly reduced. There are opportunities for families not affected by debt. Real estate remains attractive, with still attractive return prospects.
If certain markets, such as Luxembourg, are experiencing a real slowdown, other regions are still benefiting from positive dynamics. We must not forget that investment in private property is intended for the medium and long term. I am confident that, after the next two semesters, which promise to be difficult, the Luxembourg market will start again in 2025 on a new basis and continue to attract investors.
The wealthy families you serve from the Grand Duchy are international and do not necessarily have the primary ambition of investing in Luxembourg…
“No, not necessarily. However, from the moment you have your investment vehicle in Luxembourg, it is important to invest there as well and promote the local economic essence. It is good for the national economy as much as it can be interesting for the customer. Luxembourg, the founding country of Europe, with its triple A, has a healthy economic ecosystem, with attractive investment opportunities for the families we support. In this area, recent regulatory developments, such as the approval of a tax credit for investments in research and development, contribute to the revitalization and diversification of the economy. The challenge is to attract innovative players and help them grow from Luxembourg, especially through private investment.
Isn’t investing in private property more risky in a period of stagflation and even technical recession?
“At the heart of an investment strategy, the search for significant return necessarily implies significant exposure to risk. This is not new and it is not changing. If we talk about real estate, the trend in the last thirty years, despite the crisis, remains mostly positive. If we make the right decisions, and the role of family offices is to help families in their investment decisions, risk remains under control. It’s about identifying the right markets. In terms of private capital, the advantage that wealthy families have lies in their ability to adopt an opportunistic approach, to make the right deals at the right time, thanks to their flexibility and agility.
This clientele has the opportunity to generate impact according to their own convictions, through selected projects, using a long-term approach, without short-term social pressure.
How to properly understand these possibilities?
“Through our family office, to take a personal example, we have co-invested with some of our clients in the acquisition of the world’s second largest shelter player and started the consolidation of the sector through partnerships and other ongoing acquisitions. We can only lament the grim prospects associated with the situation, and especially with the tensions that rule the world. However, this situation allows us to benefit from the sustainable growth of activity in this area. This is one example among others. The concept of risk money is also increasingly present in the investment approaches that clients want.
What does this concept cover?
“The idea is to dedicate a small portion of significant assets, 1% of a few hundred million for example, to pleasure or very risky investments, but representing a significant potential return on investment. Since the heritage is huge, families can afford it.
With this in mind, certain families seek, for example, to invest in very innovative technologies, but not yet proven, especially in terms of cleaning or even in Ukraine, based on the belief that the reconstruction of the country will require significant resources. By investing in it, families are making a strong gesture to help populations that are in dire need. By positioning ourselves, economically and financially, although investing in strategic assets within a war-torn country is very risky, our clients plan to contribute to this reconstruction.
Here we are talking about investments related to strong beliefs. Do wealthy families feel the same way about ESG?
“Quite frankly, families don’t take a forced approach to ESG. However, most of the families we support want their investments to make a positive impact. This is an important topic for them. Given the available funds, which can be mobilized directly for private investments, this clientele has the possibility of generating influence according to their own convictions, through selected projects, according to a long-term approach, without short-term social pressure. .
This article was written for addition to ALFI from the edition October 2023 Paper of the Month published on September 13, 2023. The content of the magazine is created exclusively for the magazine. It has been published on the site to contribute to the complete Paperjam archive.
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