18th May 2021
It is with great pleasure that I can report that Langham Hall is 15 years old this month. I thought it was worth reflecting for a moment on the key changes in the industry which have shaped our business, especially over the past five years, which has seen unprecedented challenges but which may also give us a clue as to what may happen in the next five.
On our 10-year anniversary in May 2016, we were a little over 200 people and had successfully navigated the initial challenges of business set up and, in 2013, the implementation of the role of depositary where we were one of the first to be regulated. In the summer of 2016 the Brexit result, followed by the increased complexity of marketing and managing of European funds, resulted in our European business pivoting towards Luxembourg. Of the 500 people currently working at Langham Hall, 110 of those are based in Luxembourg, working in administration, depositary and Host AIFM roles; up from only 14 people there five years ago.
The growth in Luxembourg has been fuelled in part by many of the larger private equity and real estate funds raising successor-funds in Luxembourg, rather than in the UK. The strong preference is for a one stop shop of administration, depositary and Host AIFM. The US and Asian managers have now also started raising parallel funds to pool European capital to invest back in the US or Asia. This, together with its extensive European treaty network, makes Luxembourg an obvious choice for domiciling funds. However, there are a few clouds on the horizon. The arduous regulation (now at transaction level) and difficulty even in opening bank accounts may give managers cause to pause for thought. One high profile Asian manager recently said they would give the administration mandate to whoever could open a bank account.
Ireland is pushing the new Irish Limited Partnership, which may take a share of the growth with Luxembourg in the private equity and debt fund market. US and Asian GPs will be watching with interest and the effect on the parallel fund market in Luxembourg will be worth watching.
Our Asian and US businesses have seen exciting growth in the past few years. We set up in Hong Kong and Singapore 13 years ago and we are now the biggest administrator of international private equity funds investing into the Asian continent, with over 150 funds under administration. Australian funds under administration have also seen significant growth.
In the UK Langham Hall offers administration, depositary, Host AIFM and Appointed Representative services, often provided as a one stop shop. There will likely be a bumpy couple of years ahead as the UK resets its relationship with Europe, but we believe there will also be a resurgence of international investment into the UK, following the period of uncertainty caused by Brexit, which had a palpable negative effect on fund raising for UK real estate and private equity. We have witnessed an uptick in the use of UK structures, which will benefit our UK and Channel Islands businesses where lower mid-market funds are still prevalent due to the costs and time delays associated with other jurisdictions.
As far as jurisdictions are concerned it is hard to see too much change to the current structuring options. We may see a marginal tilt back to the UK, Channel Islands and perhaps Ireland as fund managers seek more straight forward structuring options, especially for those funds with only a small handful of European investors.
As well as funds seeking to capitalise on the post Covid environment by providing liquidity in the form of debt, secondaries, GP stakes etc, we are also seeing the next generation of technology, ESG, healthcare and food science funds. These will likely be lower mid-market funds and the target businesses may well be domiciled in the UK which could present more opportunity for our Channel Island and UK businesses.
As far as prospects for the whole industry are concerned, it is worth reflecting on China’s recently announced drop in its population, mirroring a phenomenon in many other developed nations. With improved healthcare and age expectations (interestingly financed in part by alternative asset investing), and with the burden of financing retirement falling on a smaller workforce, it is hard not to forecast the continued demand for higher returning alternative asset products for the foreseeable future.