Investment Management and Corporate Structuring Considerations for Third-Party Litigation Funders in Luxembourg
In the context of investing in Third-Party Funding structures, providing adequate investor protection, transparency as to the origin of the funds and addressing anti-money laundering and terrorism financing considerations, require submitting a funder’s investment strategy, processes, risk management and policies to appropriate regulations. Such concerns may only be addressed if the right choices are made at the moment of determining the funder’s investment management strategy and of setting up its corporate structure.
The Grand Duchy of Luxembourg positioned itself early on as the first EU jurisdiction to adapt to the evolution of EU legislation in a business-friendly manner, while successfully competing with offshore jurisdictions’ efficiency. Following the 2007-2011 global financial crisis, the regulatory wave aiming at protecting investors gave Luxembourg further opportunities to widen its offering to fund initiators. This includes creating a highly successful and favourable regulatory environment, including investment vehicles and legal system, for Private Equity/Real Estate investments.
From a financial and asset management point of view, the assessment of litigation/arbitration cases, the selection process, the asset’s behaviour during its lifetime and the risk management process of financing disputes bear many fundamental similarities with traditional Private Equity investments. Depending on the corporate form and investment vehicle chosen, Specialized Investment Funds and Reserved Alternative Investment Funds can offer the mix of flexibility and compliance required by funders and their investors. Further, Luxembourg’s most recent limited partnership structure, the Special Limited Partnership, provides significant competitive advantages as compared to offshore structures, offers a number of attributes addressing specifically funders’ and investors’ concerns and may become the vehicle of choice to conduct Third-Party Funding activities globally.
This article has been published in the ASA (Swiss Arbitration Association) Bulletin and by Kluwer Law International. The full article is available here!