Article initially published in LPEA’s 10-year anniversary book
Much like Luxembourg itself, the private equity (PE) industry has transformed over the past decade. And so has the unit-linked life insurance business which has seen a surge in investor appetite for non-traditional assets.
Life insurance and PE may not immediately seem synonymous; however, they are more natural bedfellows than one might expect and the last 10 years has seen this relationship bloom. At Lombard International Assurance, we now administer over €5 billion in non-traditional assets, most of which are PE – in fact, over 10% of our European assets under administration would be considered non-traditional. This type of investment is increasingly on the radar of our clients and the managers we work alongside.
Having worked for almost 30 years in Luxembourg, I have been privileged to witness the evolving needs of high net worth individuals and their families who have had a growing focus on the planning, preservation, and transfer of their wealth. And as part of a holistic long-term asset allocation strategy, there has been an increasing market-wide appetite to take account of and deliver exposure to non-traditional asset classes such as PE. Unit-linked life insurance solutions have played a key role in nurturing this trend, thanks to their ability to support diversified and decorrelated portfolios.
Although we are a relatively new member of the LPEA, there has always been a PE need from our clients in terms of their asset allocation and investment strategy, but it is fair to say, in previous years we were working on a more reactive basis. Most of our dealings with PE assets were when a client would specifically ask for them and ten years ago our PE team looked very different. A 2-man band, referred to as the ‘non-quoted’ team, handled these assets. Fast forward to today, we have a double-digit strong dedicated group of experts dealing with the onboarding, administration, reporting and liquidity planning of such assets.
Nowadays we have a much more proactive approach and an explicit strategy from our side, as we look to facilitate and embrace this type of alternative investment space and work in tandem with banks and asset managers to offer this option to clients. Across the wider investment world and globally, PE has taken on a new significance and appeal as quoted markets see rising volatility and low inflation. Today’s sophisticated investor is looking to complement their portfolio with decorrelated and tangible assets, and given current global economic uncertainty, PE investment provides a buffer against this volatility. It’s also become better understood and increasingly attainable to a range of investors; before it was the prerogative of the happy few, but now, high-quality solutions are capable of making PE investments more accessible through insurance for affluent clientele. In fact, Lombard International Assurance has long been pioneering on a global scale with our approach to integrating alternative asset funds.
As PE has developed in Luxembourg and beyond, I have been lucky enough to observe the development of the country itself during my twenty plus year career at Lombard International Assurance. It has always been firmly established as a fund centre, quietly standing as the second largest in the world after the US and was the first to implement AIFMD regulation.
On a more personal note, one of my favourite things about Luxembourg, apart from the wonderful food, is the multiculturalism and how this creates a real melting pot of different backgrounds and nationalities and an open-minded and highly skilled workforce. And our Luxembourg head office is just one example of that, with no less than 43 different nationalities amongst our team – individuals who have gained experience across the world, speaking multiple languages, and have now found a home in an indomitable country at the heart of the European continent. It is these aspects that enrich both our business and Luxembourg’s position as a unique financial eco-system. Over the years, considerable investment and a forward-thinking government has created incredible infrastructure and economic stability, ensuring Luxembourg’s attractive position as the jurisdiction of choice for structuring PE funds and deals. Indeed, it was certainly a deliberate decision to headquarter our business in an environment like this and we are proud to be part of such a special community that nurtures business in such a way, and the opportunities it can offer.
Luxembourg, Lombard International Assurance, and private equity as an asset class have matured remarkably in the past decade, and as the world undergoes an extraordinary pandemic induced transformation before our eyes, I’m intrigued to see what the next ten years holds. Undoubtedly, the impact of Covid-19 has triggered a change in attitudes for many wealthy individuals and families – the realisation of one’s own mortality has put the topic of wealth planning and legacy higher on the agenda and accordingly, we’ve certainly seen an increase in such people reaching out to consider life insurance.
At a macroeconomic level, the number of very wealthy people continues to increase year on year - individuals with a net worth of between $5 million and $30 million rose to 2.67 million in 2019, a 10% growth from 2018[1]. As wealth around the world continues to rise, individuals are turning to unit linked life insurance policies as a sophisticated wealth planning mechanism and alternative assets such as PE are increasingly front of mind. And I am confident that this is a structural shift, not just a trend.
On a more granular level, regulatory frameworks are advancing and becoming more sophisticated and there will unquestionably be further evolutions in what high net worth investors are interested in. It is a great privilege to be a part of LPEA and to join 300 other members who contribute to the development of PE in Luxembourg and internationally. Our involvement at Lombard International Assurance represents the dynamic ability and versatility of this industry and we are looking forward to working closely with LPEA over the coming decades to educate interested parties as to why life insurance is philosophically and structurally a match with PE.
Happy birthday LPEA!
LPEA 10th anniversary book – Jurgen Vanhoenacker
Executive Director, Business Development and Wealth Structuring,
Lombard International Assurance