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Private Equity (PE) is part of the non-traditional assets (NTA) universe. Over the past decade, the thriving PE landscape has been mirrored by corresponding growth in the demand for insurance-based investment products (unit-linked life insurance), which enable the integration of NTAs within a client’s policy portfolio.
As for other categories of investors, NTAs and PE investments are increasingly on the radar of High Net Worth (HNW) clients and their advisers we work alongside. Those investments that sit within these asset classes do have different characteristics, but whether it’s real estate, commodities, or private equity, each has the ability to deliver an attractive and consistent ‘real’ yield over the longer term, with low to minimal dependency on market fluctuations and volatility, and enables greater portfolio diversification and risk mitigation.
At Lombard International Assurance, we now administer over €6 billion in non-traditional assets, most of which are PE. This means that non-traditional assets make up more than 13% of our European assets under administration.
HNW families continue to demand a holistic long-term asset allocation strategy, but as their planning, preservation, and wealth transfer requirements have evolved, 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.
Our team has grown significantly over the past decade, in line with the emergence of PE as a burgeoning asset class for alternative investing. While it used to be the case that PE investing would be a niche request by the occasional client, its popularity among current and prospective HNW clients means that we have built a substantial team with the necessary expertise to manage the complex onboarding, administration, reporting, and liquidity planning of PE assets.
Notably we have developed our strategy to a much more proactive and comprehensive approach too as we look to facilitate and embrace this type of alternative investment space, working in tandem with banks and asset managers to provide clients with this option.
PE has taken on a new significance and stature - European private equity deal volume and value posted its second-highest quarterly numbers ever in the second quarter of 2021 according to Dealroom. As quoted markets see rising volatility and inflationary pressures, today’s sophisticated clients see the decorrelated and tangible assets of PE investment as providing a buffer against this uncertainty.
The asset class is not just better understood, it is also increasingly accessible to a broader range of clients with high-quality and advanced insurance solutions. In fact, Lombard International Assurance has long been a pioneer on a global scale with our approach to integrating alternative asset funds into a policy, thus enabling clients to benefit both from the many advantages of a life insurance contract – in terms of asset protection, international portability and tax deferral – at the same time as they diversify their portfolios and access to greater yield potential.
As PE has developed in Luxembourg and beyond, so too has the country itself. 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. In addition, considerable investment and a forward-thinking government has established enviable infrastructure and economic stability, ensuring Luxembourg’s attractive position as the jurisdiction of choice for structuring PE funds and deals.
The modern world seems to accelerate time, with technological and social change happening at a seemingly unstoppable pace. While change in financial services tends to go somewhat slower, the past decade has been a period of transformational change for Luxembourg, Lombard International Assurance, and private equity as an asset class.
The pandemic acted as a catalyst for digitalisation within financial services, but how that technology and digitally-enabled proposition progresses over the next decade remains to be seen. The question is how to enhance even more the potential of life insurance using technology and digitally-enabled solutions as enablers. Taking the example of a Luxembourg life insurance policy as a flexible investment platform, it requires a comprehensive and up-to-date overview of exposure to different asset classes. Clients expect to be able to access this information in real-time, as well as to be able to use transaction tools while they are on the move via a digitally enabled servicing platform. Successfully fusing digital capabilities and expertise and experience with the many benefits of unit-linked life insurance will only make this option more attractive.
Whilst economies across the world look to lock-in economic growth, the importance of PE cannot be overstated. Luxembourg has succeeded in establishing and maintaining a global reputation for banking and investment excellence, not to mention solidifying itself as a leading hub for setting up Private Equity and Venture Capital funds. But its future will be built on its commitment to sustainable finance and digital innovation in which it is a world leader. As an internationally recognised tool for wealth structuring and planning, wealth assurance should continue to play a crucial role in sating the appetite for PE and facilitating capital flow and investment.