In a year marked by significant regulatory and economic shifts, Luxembourg management companies (ManCos) face the dual challenges of maintaining global competitiveness and adapting to evolving financial regulations. Now more than ever, Luxembourg ManCos must consider what changes these conditions will bring to shape the ManCos of tomorrow. Some of these challenges and consequences were explored in detail at the third edition of our dedicated Manco event, which was held at the Philharmonie Luxembourg.
In this article, we endeavour to highlight the key insights and takeaways from the event to better understand the challenges and opportunities that will be crucial in the years to come for Luxembourg ManCos.
Luxembourg’s attractiveness
ManCos are pivotal in driving the asset management industry, showing a strong resilience and reinforcing Luxembourg’s position as the centre of excellence in Europe by managing 30% of the total European net assets. The agility and robustness of Luxembourg ecosystem are evident as Luxembourg remains an attractive hub to establish funds which are distributed in many jurisdictions.
Luxembourg was very successful on the liquid investments in the past, but the market has shifted the value chain towards illiquid investments. Luxembourg ManCos have reached a 5 trillion threshold mainly driven by both regulated and unregulated private asset investments. This trend is confirmed by the new entrants on the market being only Alternative Investment Fund Managers.
We all agree that we are very fortunate in Luxembourg to have the ability to engage in open and constructive dialogues with the regulator that listens to the industry and that strives to keep it up. However, key challenges for the ManCos remain the cost of doing business and the uncertainty particularly around the timeline for license approvals and new product launches. One of the main insights of this event is that the whole industry including asset managers, regulators, and other stakeholders must work toward improving transparency and certainty on the market. Streamlining processes and ensuring pre-approval documents are well-prepared, will generate a more efficient and predictable business environment in Luxembourg.
Operational models: Delegation vs in-house
The regulatory landscape remains on the top of the agenda, with regulations and cost pressure catalysing market consolidation. The shift towards specialised third-party ManCos is growing fast. Asset managers launching numerous private asset structures increasingly seek a one-stop- shop that can provide comprehensive support across the entire value chain. This demand arises from the challenges of building a robust business case for the controls and procedures of a ManCo, as asset managers prefer to focus on their core business operations. By leveraging local governance responsibilities and multi-jurisdictional expertise, these asset managers benefit from streamlined administration services that enhance operational efficiency.
At the same time, in-house ManCos are becoming increasingly influential and are seen as centres of excellence by their related group, challenging group decisions and providing expertise in critical areas such as AML, legal, risk, compliance and valuation which brings significant added value to the entire organisations.
From a governance perspective, we observe a shift with ManCo’s representatives being more and more part of the key Group committees. We also see ManCos having new conducting officers’ roles such as ESG and tax functions.
No matter the operational model is (in-house or third-party ManCos), formalising the documentation of decisions and controls remains critical to maintain high standards of services and oversight.
Embracing technology: AI and efficiency in ManCos
Digital transformation is accelerating across the industry, with data management, Artificial Intelligence (AI) and digitalisation reshaping operational models. Whereas ManCos are investing heavily in technology, using AI for research and information gathering to improve efficiency and streamline processes, the objective is not to reduce staff but to enhance operational effectiveness.
Substance dynamics in ManCos:
The driving force of ManCos remains its employees with a continuous uptick in employment for several years. The growth underscores the industry's commitment to scaling operations while maintaining high standards of services and expertise. However, it is worth highlighting that the recruitment of high profiles, such as conducting officers in compliance and risk management, remains a critical challenge, as well as upskilling.
As the regulatory, operational, and technological landscapes evolve, Luxembourg's ManCos will need to remain agile, adopting best practices and embracing innovation to navigate these changes and continue thriving in a competitive market. As we look at the future, let’s continue working together to keep the Luxembourg ManCos at the forefront of the industry, setting standards in governance, substance and innovation.
Contact us
Laurent Butticè
Management Company Leader, Audit Partner, PwC Luxembourg
Tel: +352 621 332 713
