Fund industry specialist law firm Arendt & Medernach recently set up a representative office in Hong Kong -- its first in Asia -- to service existing clients and further expand in the region. The office practices Luxembourg law and advises asset managers and fund sponsors on Luxembourg public and private funds.
On trip to Asia in December, Arendt & Medernach founding partner Guy Harles told AsianInvestor he had considered setting up in Beijing, Shanghai or Singapore, but decided Hong Kong would be the most suitable location, largely due to the similarities between the Luxembourg and Hong Kong markets.
"Hong Kong is very much a base for institutional banking and investing, which really is the area we want to focus on," says Harles, who is head of international development and strategy and runs the firm's private equity practice from its Luxembourg head office. "Shanghai is currently more trade finance-focused which is less of a business for us [than asset management]."
Harles supervises the office and visits Hong Kong and the region one week every month. "We take a long-term view and feel it will take five years to decide if our operation is successful or not," says Harles, adding that the firm is likely to expand quickly in Hong Kong.
Stéphane Karolczuk moved to Asia in September to set up and run the Hong Kong office. He will be joined within the next year by five other members of staff, says Harles, including fund business specialists and corporate and tax lawyers.
Before moving to Hong Kong, Karolczuk had worked in Arendt & Medernach's representative office in New York, where he developed an investment management help desk advising US clients on Luxembourg investment fund issues.
As for demand for the firm's services, Karolczuk says that following the restarting of the Chinese qualified domestic institutional investor (QDII) programme in October, QDIIs are likely to increasingly use their quotas to invest into Luxembourg Ucits funds. Such vehicles are eligible under QDII and are already very popular in Asia, representing a significant portion of the retail fund market.
"We see ourselves as facilitators for asset managers in Europe looking to invest into China and for asset managers in China looking to invest into Luxembourg-based funds," says Harles. "Our aim is to help structure investments from a legal and tax perspective."
He cites as examples Beijing-based banks that have already made the step to establish themselves in Luxembourg, along with large operational companies, which are setting up headquarters there with the help of Arendt & Medernach. "We're also helping industrial enterprises invest in Luxembourg funds," he adds.
Asked about the main issues clients are seeking help with, Harles says they are struggling most with getting leverage for investments. "Bank loans are huge problems in that respect," he says.
"The money is there, ready to invest, and there's increased appetite to take risk," he adds. "But you need to get bank financing to do that, and we help with sorting out which kind of legal vehicle is best suited for each jurisdiction. We also see private equity clients' interests sliding from first-tier cities like Beijing and Shanghai to other smaller Chinese cities."
One specific trend is that under investor pressure, fund sponsors that would usually structure their funds in the Cayman Islands are increasingly seeking advice on relocating those structures to Luxembourg and using lightly regulated types of vehicles available there, says Karolczuk. "We can give a view on that," he adds.