Belgium fund reform to boost PE fundraising

Belgium has reformed its private fund structure regime by making a raft of changes that lawyers say will enhance the ability of funds to bring in investor capital, as European countries compete ahead of a post-Brexit landscape.

Maxime Colle, a partner in the Brussels office of law firm NautaDutilh, told pfm the changes to the law would help make investment vehicles “more attractive, especially in the framework of private funds management.”

The primary reforms include allowing investors to extend the life of a private privak (the Belgian equivalent of a limited partnership structure) beyond the previous 12-year limit by up to six years. It also abolishes the restriction that forbade a privak to take majority control of a portfolio company, a limitation that Colle says was the primary reason it was not widely used. The reforms also allow a 25 percent tax reduction of losses incurred up to €25,000, and extend the lower dividend withholding tax rate of 15 or 20 percent, agreed separately earlier this year, to indirect investments such as those held through a private privak.

Since the law was amended in late March of this year more than 50 private investment vehicles have been approved by the Belgium government, including cleantech funds, venture funds and buyout funds, according to a list on the Belgium finance ministry’s website.

Colle says that the reforms “are the result of years of negotiations by the sector,” and that the changes have met “the two biggest concerns of the stakeholders. One, the investors now have the possibility to exercise control (of a portfolio company); and two, if something goes wrong and the investment does not generate the expected result, part of the loss can be claimed back through the income tax return.”

Another industry request, that the minimum investment threshold be decreased to €25,000 from €100,000, has not yet been made, with Belgium’s minister of finance saying that this change would happen “soon.”

The changes are an attempt to make Belgium’s private fund regime competitive with those of neighboring Netherlands and Luxembourg, which have become key global destinations for private equity funds.

Financial services firms, for instance, have been turning from the UK because of the country’s planned withdrawal from the EU in May 2019, known as Brexit, and are looking for opportunities elsewhere in the EU for doing business.

In Duff & Phelps’s Global Regulatory Outlook 2018, the UK is seen slipping from its standing as a major global hub for doing business. While 53 percent of financial services executives surveyed in the report said that London was the pre-eminent global financial center, only 29 percent expected the city to be so five years from now. About 15 percent of the 124 respondents were from private equity.

A recent CFA Institute report showed that London is expected to be the biggest loser from Brexit and the cities likely to benefit include Frankfurt, Paris, Luxembourg and New York.

Luxembourg has been making an aggressive push. Its finance minister, Pierre Gramegna, spoke at a country roadshow in New York in April to encourage investors to put their money into funds in Luxembourg, which wants to be the investment gateway to the EU.

For a tiny nation, Luxembourg takes a lion’s share of global money. At the end of 2017, investment funds in the country totaled $4.99 trillion, or 9.4 percent of $53 trillion in investment funds worldwide, according to Investment Company Institute data.