Luxembourg’s robust regulatory framework, talented workforce and innovative strategies make it a leading fund domicile. Banque de Luxembourg Asset Servicing’s Vincent Willem, deputy head, and Sofia Souici, associate business development manager, share their insights on the Luxembourg fund industry and how the bank – despite growing competition – consistently supports fund managers and initiators on their journey to success.
Luxembourg has successfully maintained its leadership as a premier fund domicile in Europe through its regulatory rigour and consistent growth. Vincent Willem, deputy head Banque de Luxembourg Asset Servicing, references the Efama 2024 Fact Book, which shows Luxembourg holds a 26% market share for EU-domiciled funds and 33% for Ucits funds, with assets growing by 5.2% in 2023. However, competitors like Ireland have gained ground, especially in net sales, making it imperative for Luxembourg to continue enhancing its offering.
The asset servicing industry has undergone significant changes over the past few years, with consolidation and offshoring strategies becoming commonplace. Among other factors, this phenomenon was driven by commercial pressure and firms looking to strengthen their market positioning, increase scale and, more broadly, recalibrate business models. While these trends contributed to the streamlining of businesses and a reduction in asset servicing costs, in some cases they also led to inefficiencies and a diminished level of client satisfaction.
Sofia Souici, associate business development manager at Banque de Luxembourg Asset Servicing, said this had happened in the liquid asset segment, and also within illiquids where the demand for tailored service remains high.
The liquid market – funds regulated by Ucits – is mature and highly automated. But it has also undergone significant changes over the past few years which increased the need for reliable and attentive partners – particularly for smaller and medium sized players.
At the other end of the spectrum, the market for illiquid/semi-liquid funds is less mature but more dynamic. It is also much less automated and this means responsiveness, flexibility and communication are more crucial to ensuring a successful client experience for asset managers. “Today, we hear more and more from the mid-size asset manager segment that service quality, responsiveness and innovation are more important than cost-cutting,” says Souici.
“Luxembourg holds 26% of the market share for EU-domiciled funds and 33% of Ucits funds, with assets growing by 5.2% by the end of 2023”
In this context, the Luxembourg asset servicing market is divided into three tiers based on size and market share. The first tier is occupied by the largest players, who hold around 80% of the market and are heavily automated and industrialised, focusing on standardised processes. According to Willem: “While this suits some larger clients, there is still a substantial need for more bespoke services, especially for smaller and medium asset managers.”
Second-tier actors include Banque de Luxembourg, with its private banking DNA – meaning a tailored service for professional clients – applied to asset servicing.
Single point of contact
Banque de Luxembourg Asset Servicing, a division of Banque de Luxembourg founded in 1920, has been supporting fund initiators since 1983 with currently more than 200 professionals dedicated to asset servicing based in Luxembourg. The bank currently oversees €32 billion in liquid assets, €42 billion in private assets, and holds €10 billion for external asset managers. This positioning – bolstered by a structure comprising a dedicated relationship manager and a single point of contact approach for each client – enables the bank to ensure that fund managers’ needs are met efficiently and consistently.
“While the race towards standardisation, automation, and other processes is necessary, clients still need to be heard, call their provider, and have them pick up the phone immediately — all leading to a tailor-made, holistic experience,” Willem says. Souici echoes this sentiment: “We prevent clients from needing to switch between several departments or chase teams in different locations by offering an ecosystem that simplifies their experience and enables a greater focus on their core business.”
As with Luxembourg in general, dynamism is in the air at Banque de Luxembourg Asset Servicing, too! Among latest developments, the bank ushered in organisational changes across departments to enhance client relationships. This was underpinned by bolstering teams in business development, product development and regulatory compliance. These strategies collectively support the bank’s relationship management machinery to deliver quality client service, which also extends to brokerage, which Willem said was a “vital addition” to Banque de Luxembourg Asset Servicing’s offering to investment managers.
As well as dynamism, the bank reflects Luxembourg’s broader strengths. Mainly, this refers to the country’s multicultural environment. It also relates to the strong regulatory culture that exists.
This latter point can be associated with an increasingly onerous administrative burden within Europe’s investment fund industry, yet Willem argues that the “gap in agility” between Luxembourg and other markets – particularly in the US and elsewhere in Europe – is shrinking.
“It appears that the Luxembourg authorities are aware of these challenges and are already taking steps to enhance the market’s appeal while still upholding the highest regulatory standards,” he says.
Despite the challenges posed by competition, both Willem and Souici are optimistic about Luxembourg’s future in the asset servicing industry. “Luxembourg has always been at the forefront of innovation and operational efficiency,” Willem says. “Few other financial hubs can offer the same level of agility, particularly in fund servicing.” Souici adds: “The key to Luxembourg’s continued success lies in the collaboration between service providers, market players, and regulators.”
By maintaining this spirit of cooperation and continuously adapting to industry needs, Luxembourg will not only retain but also strengthen its position as a leading funds domicile.
