P2 generally applies to groups with annual revenues exceeding €750M. A group under P2 consists of entities that the ultimate parent entity includes in its consolidated financial statements (CFS) on a line-by-line basis or would consolidate but for the ‘held for sale’ (HFS) exemption or on size and materiality grounds.

In Lux fund structures, there can be two separate P2 groups: (1) the fund manager group and (2) the fund structure group. The first group could include the GP, the management company and possibly the carry and co-investment vehicles. The second group could include the Lux fund vehicle (Fund), Lux holding companies (HoldCos) and/or portfolio companies (PC). In this Snippet, we do not address the first group.

An investor should consolidate its interest in the Fund and its subs if it has control, i.e., if it is exposed to variable returns from the Fund and has power to affect those returns. Consolidation by an investor is rare but could occur in ‘fund-of-one’ structures or if an investor also controls the GP.

Funds are typically exempt from consolidation under the applicable accounting rules. Therefore, they are not in scope of P2.

At HoldCo level, the first question is whether it must consolidate its investments under Lux law. Lux company law contains various consolidation exemptions (the Exemptions) such as the (i) exemption for HoldCos held by regulated fund entities (SIFs, RAIFs etc.), (ii) small group exemption and (iii) ‘PE and VC’ (held for sale) exemption.

The next step is to determine whether the deemed consolidation rule that forms part of the P2 rules (the DC Rule) is applicable. The DC Rule could be relevant if the HoldCo uses a financial accounting standard (AS) other than Lux GAAP (e.g., IFRS). The DC rule applies when a HoldCo does not consolidate its PC under an Exemption under Lux law but would have had to consolidate under the AS it applies. E.g., if a HoldCo uses IFRS and benefits from an Exemption, while it would have to consolidate its PC under IFRS, a deemed consolidation will take place for P2 purposes even though there is no actual consolidation due to the Exemption.

Finally, if there is no (deemed) consolidation under one of the previous steps and HoldCo exclusively relies on an HFS Exemption, the question arises whether P2 essentially takes back this HFS Exemption and considers the investment in the PC to be part of a group under P2 (see above). This should not be the case as there are no CFS from which the investments in the PC held for sale are excluded from in the first place, provided that the HoldCo applies an acceptable AS (e.g., Lux GAAP or IFRS).

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