IFLR 1000
The Guide to the World's Leading Financial Law Firms

Although Luxembourg has a population of fewer than half a million people, it is an important financial hub with a very attractive tax climate. Possessing a legendary investment fund reputation all over the world, it has long been a place for the wealthy and fortunate to store their millions and billions....

Although Luxembourg has a population of fewer than half a million people, it is an important financial hub with a very attractive tax climate. Possessing a legendary investment fund reputation all over the world, it has long been a place for the wealthy and fortunate to store their millions and billions.

While that certainly has not changed, the economic storm has by no means left Luxembourg unscathed. "The Luxembourg market is going through a difficult time," says one lawyer. "Some firms are in problems [and have] reduced the number of staff."

The capital markets have slowed down, the number of mergers and acquisitions decreased dramatically, and the banking sector is quiet, awaiting developments. After all, if you are a country as open and dependent as Luxembourg, the near future fully depends on how neighbouring countries, especially France and Germany, will be doing.

"We are a country of export of legal services and the demand has clearly decreased," comments one lawyer. "Since last year the market dried up, after Lehman. Globalisation does not only take place in good times but also during bad ones, as we notice."

But as a result of the misery there is the work that comes with it. The restructuring and insolvency market is booming, which is relatively new in Luxembourg. Firms in this country have a tradition of being good at managing billions, investing and acquiring, not restructuring, cutting costs and saving.

Yet some investors see the positive side. "The economic situation has affected the M&A market – deals are not as large as they used to be and there is less private equity," says one lawyer. "But certain private equity investors are picking up the market; they see bargains everywhere."

Arendt & Medernach, Elvinger Hoss & Prussen, Allen & Overy and Linklaters remain the four dominating firms. However, adapting to new market conditions is not always easy. "Young lawyers who have been engaged are forced to do other work and are being retrained," says one lawyer. "Flexibility is necessary, also internally. But [it is] not as fast as we like it to be. Not everyone is interchangeable."

Luxembourg's funds industry has been boosted by the new specialised investment fund (SIF) vehicle – a less regulated, more tax-efficient structure open to informed investors that confirms the country's position as a leader in this area.That was, before the credit crunch kicked in....

Luxembourg's funds industry has been boosted by the new specialised investment fund (SIF) vehicle – a less regulated, more tax-efficient structure open to informed investors that confirms the country's position as a leader in this area.

That was, before the credit crunch kicked in. The Madoff scandal hit Luxembourg hard. "A very tough period," is how one senior lawyer describes recent times. "All firms are involved in the Madoff case, directly or indirectly. It is a period Luxembourg has never seen before."

The new Obama administration's stance of cracking down on tax havens does not help either and the work that is available remains mainly in the hands of the tier-one players. "There is a huge gap between tier one and the rest," observes a lawyer.

But when you speak to Luxembourg practitioners they are not worried, believing it is just a matter of time before they will be back at their old level. "There is still plenty of work and hopefully this will last for a year or two," says one senior lawyer. "As soon as the world economy improves, we are back on the map. The billions were coming to Luxembourg, are coming and will keep on coming."