Luxembourg a prime location for Asset Management

Luxembourg a prime location for Asset Management

End of 2010, Luxembourg had over EUR 2,199 trillion in net assets in over 12,900 sub-funds (3,667 legal entities), easily placing Luxembourg as the second largest fund centre after the United States.

Luxembourg’s position as a key domicile for internationally distributed funds began in 1988 when the first UCITS Directive was implemented into local law. Since this date, Luxembourg has enjoyed significant and consistent growth in both assets and fund numbers with a notable surge since the turn of the century reflecting the increasing attractiveness of Luxembourg as a hub for global fund products in both mainstream and alternative asset classes.

Historically, Luxembourg’s success has been fuelled by its ability to offer an attractive platform for firstly European and more recently globally distributed retail funds. In addition to the importance of the mainstream, Luxembourg is a major centre for each of the primary alternative asset classes. Real Estate funds have been a particular success story with Luxembourg now recognised within this market segment as the leading domicile for structured real estate products targeting international investment and distribution. Private Equity funds are emerging as the third significant alternative asset class with Luxembourg building on its dominance as a location for structuring transactions to become a leading centre for establishing the fund-level vehicles themselves. Finally, Luxembourg’s longstanding focus on Hedge funds and fund of Hedge funds products has enjoyed rapid growth in recent years as a result of regulatory and market developments. The consequences of the financial crisis have obviously been felt in Luxembourg: domestic Hedge funds and fund of Hedge funds have greatly suffered from the liquidity crisis, with a drop of assets between end of 2007 and early 2009. However, promoters have continued to create products (over 1886 (sub) funds up and running mid-2010, representing over 141 bio remains a very positive one.

The reasons for this success story are intimately linked to Luxembourg’s recent history, to its geographic location and to the support the government has consistently provided over the years to the fund industry.

A founding member of the EU, located in the heart of Europe and with geographical borders to Germany, France and Belgium, the Grand Duchy of Luxembourg can count on a multicultural and multilingual workforce, with the commuters from neighbouring countries and the high number of other European nationals living in the country (Italian, Spanish, Portuguese, British). Grand Duchy employers, including the significant financial sector, can tap into a readily available population of 5 Mio qualified workers and service employees.

This international nature of Luxembourg, a country with three official languages (Luxembourgish, French and German), as well as English in the financial sector, is one reason why international promoters choose Luxembourg as their centre for international fund business.

Being a small country in size and having had to rethink its traditional steel-based economy to make it a centre for international banks and funds, the Luxembourg government has always had an open and friendly ear for the financial community. The authorities, and particularly the financial regulator (Commission de Surveillance du Secteur Financier “CSSF”), are accessible and flexible; officials are welcoming, easy to contact and open to dialogue.

This close working relationship between government and the business community will allow Luxembourg to continue to strengthen its position as the most attractive international fund centre.

The fund industry also has its representative body, the ALFI (Association Luxembourgeoise des Fonds d’Investissement), created in 1988 to promote the industry’s development. ALFI plays a proactive role in leading industry efforts to maintain Luxembourg as the most attractive centre for establishing investment funds and as the predominant gateway to the European and global fund markets.

As an active member of EFAMA (European Fund and Asset Management Association), the European trade association for investment funds, the ALFI participates to all discussions at EU level on the future of the industry in Europe and beyond. As an organiser of “road shows” throughout the world, ALFI raises the awareness of foreign promoters, distributers and regulators alike to the opportunities offered by Luxembourg.

Last but not least, the development of the Grand Duchy as a centre of financial and fund services has led to an exceptional concentration of highly specialised service providers, in custody, fund administration and transfer agency, business and tax consultants, audit firms, international and local law firms, providers of fund data to the global media, etc.

Luxembourg’s success has been and continues to be predicated on a combination of the depth and breath of the supporting infrastructure – service providers and professionals, systems and technology geared toward supporting the diverse and complex vehicles we see in the funds world today – in addition to a stable and business friendly regulatory and tax environment which effectively supports international fund providers.

However, Luxembourg does not live in isolation – and the great regulatory overhaul mentioned before hits it hard. Other fund domiciles see the coming changes as a unique occasion to get their share of the “asset pie”. And yes, there is a strong domestic servicing industry in Luxembourg that stands much to lose from the flexibilities of UCITS IV!

At PwC Luxembourg, we are confident that the expertise of the fund community in Luxembourg, together with the business minded environment and the long standing tradition of being a safe fund centre will allow the Grand Duchy to weather the regulatory storm as it did, mostly, with the financial crisis. We are pleased to provide this summary of the Luxembourg business and regulatory environment for your information and stand ready to provide support whatever your needs may be.