Representing the world’s second largest fund domicile, the Luxembourgish financial centre has grown past the point of needing an introduction. Within its small borders, the Grand Duchy houses the entire spectrum of the global investment ecosystem - with all major players having long been active in the country.
This paper represents a collaborative effort among the main asset managers active in Luxembourg, with the active participation of PwC, to assess the ‘user experience’ of those who rely on (or contribute towards) Luxembourg’s solution set. In doing so, we hope to draw attention towards areas of strength and improvement, as well as identify potential for future development. In our view, this paper is only the starting point of a larger journey. After the present assessment of the wider satisfaction level of the global asset management community, we propose to develop actual work streams. Indeed, the key strength of “Luxembourg Inc.” has always been the common aspiration of the actors to continuously contribute to the financial centre’s sustainable development.
Why Luxembourg? Key drivers for bringing products to the financial centre
- Luxembourg's strong and stable political environment
- Stable regulatory environment
- A one stop shop with a clearly defined solution set
- International Distribution Hub
- A pool of international talent
Luxembourg's strong and stable political environment
Luxembourg’s triple A rating, combined with its historical political and economic stability, create a sturdy regulatory landscape that provides a high degree of investor confidence and certainty. This unique characteristic of Luxembourg compared with respect to other EU countries remains key for all interviewees, whose investors see Luxembourg as a safe place to invest as a result.
Stable regulatory environment
The country’s geographical and diplomatic proximity to the EU institutions has proved essential in ensuring ongoing alignment with EU regulations - not only in terms of attaining regulatory compliance, but also in actively leveraging regulatory opportunities.
A one stop shop with a clearly defined solution set
Luxembourg is also perceived as an extremely holistic, resourceful financial centre - containing the full spectrum of the financial ecosystem within its small borders. The country is home to an extensive network of global players who lead in their respective fields that enable AWM players to uncover and leverage opportunities and solutions in a timely and streamlined manner. This ultimately creates a network spillover effect, in which every single financial player benefits from the presence of its peers.
International Distribution Hub
Luxembourg is a truly cross-border fund centre, with the international distribution process being far smoother when coming from Luxembourg. Our interviewees attest to this, with the vast majority confirming that the cross-border distribution process of their Luxembourg-domiciled product shelves is significantly less burdensome than that of their internationally domiciled products.
A pool of international talent
Despite its minute size, Luxembourg is home to a wide, multilingual pool of talent with strong competencies in areas relevant to the AWM industry. Our respondents have strongly emphasised the fact that Luxembourg’s strong, diverse and highly skilled workforce is highly conducive to further enhancing the positioning of its AWM industry.
Future-proofing Luxembourg’s value proposition
Despite these above-mentioned advantages and positive characteristics, complacency is not in Luxembourg’s DNA - as the Grand Duchy constantly seeks to reinvent itself alongside the winds of change. Indeed, there remains potential for further improvement - potential that must be unlocked in order to ensure the long-term prosperity of its financial centre and, subsequently, the long-term success of its economy.
Do good things and speak about it
It goes without saying that Luxembourg bears all the hallmarks of a truly innovative AWM centre. However, our interviewees believe that more could be done to market these characteristics internationally, broadcasting the Grand Duchy’s various unique characteristics.
Attract talents
Although Luxembourg’s ability to attract and retain talent has improved substantially over the years, there remains significant potential for improvement – the unlocking of which will prove absolutely essential in guaranteeing the sustainability of the country’s economic growth.
Strengthen the communication with financial players and adopt agile regulation
Luxembourg’s regulator has long been widely recognised and commended for its expertise and pragmatism. That being said, 3 areas could benefit from further enhancement: responsiveness, clarity and proximity.
Dealing with the cost of living
The solution to this issue likely lies in a strategic rethink of the fiscal treatment of Luxembourg’s companies and workforce.
Review the cost of doing business
Interviewees don’t expect Luxembourg will become a low tax country. This does not fit into today’s world. What their responses revealed is an expectation that Luxembourg aligns to comparable onshore centres and ensures long term stability in its tax policy.
Leveraging on forthcoming trends
Luxembourg is in the perfect position to leverage and grasp the related.
Opportunities : the rise of alternatives, long term investments, ETFs, ESG and tokenisation.
Conclusion
Some quick fixes
In the very short-term, we highly recommend some quick win actions that would serve to help financial players in their daily operations, while simultaneously heightening the global perception of Luxembourg as a safe, attractive, compliant and innovative financial centre.
- Simplifying certain procedures for Management companies in order to align with the practices of neighbouring national authorities (streamlining the sub-fund renaming process, for example);
- Introducing a fast track for standardised products as far as is possible under currently regulatory conditions;
- Reforming the reduced taxe d’abonnement to fully consider SFDR Article 8 and 9;
- Taking an active stance towards EU harmonisation regarding the use of qualified signatures;
- Revisiting existing working groups bringing together governmental representatives with business and the regulator to increase focus on the further development of the Asset Management centre or if more appropriate establish a small group entirely dedicated to business development.
Long-term objectives
Given that the financial center has evolved and is continuing to do so, it has a series of highly appreciated solutions on offer. We should speak about those. Also, Luxembourg is not only attracting major asset managers but also key talents. This attractivity should be increased jointly to ensure that we can continue to grow along with the significant opportunities. Finally, strategic discussions should further cover well-known challenges, such as cost of living and the global evolution of the tax framework.
Communicate strengths
- Intensify marketing activities towards emerging markets;
- Sharpen the message around today’s key strengths – namely oversight, risk management and distribution functions;
- Market the financial centre and its solutions directly to investors;
- Lobby at home – illustrate the significant contribution of the sector to Luxembourg.
Tactical upgrade
- Assess opportunities to enhance education solutions in Luxembourg and “put real skin in the game” (funding, resources);
- Develop a perspective and messaging around the workplace of the future;
- Promote Luxembourg as a great place to work and launch a sustainable career;
- Engage with the regulator and propose up-to-date, ongoing and realistic ways to bolster collaboration and cohesion;
- Launch coordinated promotional activities with universities and similar establishments in order to attract young talents.
Sustainable strategic development
- Contribute actively to a wider political discussion, including subjects such as cost of living, commute and the workforce of the future;
- Contribute to a discussion surrounding the development of a future proof, fair, sustainable and attractive tax framework;
- Implement a strategic agenda to position Luxembourg as a competence centre for Sustainability in Asset Management.
Contact us
Partner, Global AWM Market Research Centre Leader, PwC Luxembourg
Tel: +352 49 48 48 2191
Olivier Carré
Deputy Managing Partner, Technology & Transformation Leader, PwC Luxembourg
Tel: +352 49 48 48 4174
