Luxembourg looks to the future as alternative investments hub

Luxembourg has established itself as the most popular place for UCITS funds to domicile themselves and is shaping up to take a similar share of the AIFMD market as assets under management in the country ticked over to EUR2.6 trillion in 2013.

“Europe is back on the radar for US and Asian investors,” declared H.E. Pierre Gramegna, Luxembourg’s minister of finance at the London leg of the Association of the Luxembourg Fund Industry’s (ALFI) 2014 road-show. “This is good news for Luxembourg and European funds,” he declared.

“We are looking to the future and fitting Luxembourg into a global world,” he continued. “We have entered into agreements on automatic information sharing and exchanges and signed our Financial Account Tax Compliance Act (FATCA) Inter-Governmental Agreement (IGA) with the US on 31 March.

“AIFMD comes almost exactly 25 years after UCITS I – which was a Luxembourg success story as we were the first to implement it. We have been quick with AIFMD, too, entering into a new financial regime for attracting fund managers looking to relocate.”

Luxembourg has, so far, received more than 200 applications from AIFMs to its regulator the Commission de Surveillance du Secteur Financier (CSSF), to establish base in Luxembourg. The country also has 14% of Europe’s non-UCITS funds based within its borders - 418 out of 2922.  “New applications will strengthen Luxembourg as an investment fund’s location. 10% of the world’s private equity fund market has already been attracted here,” continued Pierre. “We are looking to diversify further and attract more AIFMs.”

The positive sentiments were echoed elsewhere during the conference. “There is a transferrable knowledge base between UCITS and AIFMD in Luxembourg and that’s something that can be tapped into,” said one panellist. “The cost of AIFMD has been an issue, but it is scalable. AIFMD has created great opportunities for Luxembourg and will prove to be a good piece of legislation.”

Whilst much of the immediate focus is on AIFMD, UCITS funds still make up a massive market with $69 trillion in assets under management. “The UCITS industry is still innovating and thriving – it’s just less fashionable than before at the moment!” commented another panellist.

“UCITS is a global brand with a stronghold in Europe, but there are important emerging markets in Latin America and Asia. These markets are contributing to a strong market growth. No one expected these regions to become distribution hotspots.”

Whilst there has been resurgence in interest in alternative UCITS vehicles, one panellist noted that there is a race to the bottom on cost underway; people are picking funds based upon cost, which is not a positive trend. “There is still, however, demand for quality,” they added. “People will always pay for that.”

Alongside positioning itself as a leading centre for alternative investment funds, Luxembourg has also been heavily investing in its financial technology infrastructure. “We have 44 data centres in Luxembourg,” said Pierre. “London has one; the rest of Europe has none. There is a clear need for capacity and security which makes this a key investment in our infrastructure.”