Luxembourg Times, 26 September 2018
Q - How would you explain the success of the Luxembourg fund industry between 1988 and 1998?
A - Following the European Union’s issuance of the original UCITS regulations in 1985, Luxembourg was a first mover in terms of transposing the directive into its local laws and regulations. This agility attracted international players to Luxembourg that were looking to leverage the cross-border opportunity and to grow their asset management business in Europe and beyond.
Furthermore, our ascendancy to becoming the largest investment fund centre in Europe was, and is still, fueled by a host of other factors: wealth of expertise in the financial centre, our location at the heart of Europe and the fact that we are politically neutral and speak so many languages, the country’s political and financial stability, a predictable and stable tax environment, a multinational, multilingual and innovative professional workforce. The list goes on.
Q - How is the same Lux fund industry perceived beyond 1998 and to today?
A - The economic crisis, which initiated in Asia in 1997 and then hit the world quite dramatically in 1998, naturally challenged the confidence of investors. This lack of confidence was further exacerbated in the latest financial crisis that began to unfold in 2007. What these crises did were give way to a rise in regulations and that is the world in which we exist now. Luxembourg has and continues to develop its well-regulated and innovative fund industry, bringing an ever-increasing number of investment solutions to global investors. Therefore I would say that, in Luxembourg certainly, the perception is that we offer a uniquely favourable environment for asset managers in which they can play a valuable and rewarding role as they contribute to the efforts to reinstate the trust in the global financial system.
More and more asset growth will be driven by the rising demand of the retirement market, the growing importance of sovereign wealth funds and the increasing wealth in emerging markets.
So what will asset managers be looking for, and this includes in the pre and post Brexit environment? They will be looking for what Luxembourg has always offered and has almost perfected over the years, fortified by the international financial community and its experience: a territory that has, and can continue to, demonstrate a framework of long-term stability, transparency and a commitment to serving an international fund industry.
With a proven focus on providing experience and infrastructure to service the industry, Luxembourg is set to benefit from this period of transformation. More particularly, Luxembourg is well-positioned to leverage on the continuously increasing cross-border activity, both in terms of investment and distribution, and to play a central role.
Furthermore, the Grand Duchy has the key attributes necessary to become the world’s leading AIF (Alternative Investment Fund) platform, as it did with UCITS. This will in turn help alternative fund managers and institutional investors turn AIF regulations into an advantage rather than a burden.
Q - What is the next step on the successful path of this industry? (Example: 5,000 billion euros assets in 2025?)
There can be no doubt that the Luxembourg (and the Global) Asset Management industry is currently going through a seismic transformation. The shape of things will be very different in the future. Even more importantly, change is here to stay (as ironic as that may sound).
The key for Luxembourg is to be smart, to remain innovative and to continue to find its relevancy vis-a-vis the unprecedented change and the complexity of compliance and regulations.
The good news is that we see continued growth on the horizon; worldwide assets under management (AUM) are continuing to rise. We predict they will exceed USD 145 trillion by
2025*. To put this into context, there were 4,282 billion euros in net assets under management in Luxembourg investment funds at the close of July 2018. This represents an increase of 1.07% in comparison with end June 2018. Luxembourg will certainly see its AUM pass the EUR 5 trillion mark much sooner than 2025.
There is no doubt that 2025, which is a long way off in terms of technologies, will be a different world for asset managers. Here in Luxembourg we are witnessing a general trend, those who intend to succeed are learning to reshape their responses to the changes in investor needs and demands, enabled by fast developing technologies, and regulatory hurdles that lie just ahead.
Again, there is something fundamental in the Luxembourg character that is about adaptation and evolution. This has become embedded in the Luxembourg fund industry. I feel confident that many asset managers and asset servicers here will be able to rise to the new challenges and benefit from them.
For more information visit the website: www.pwc.lu
*Source: PwC’s report “Asset & Wealth Management Revolution: Embracing Exponential Change”