ALFI director general Camille Thommes explains why Luxembourg’s funds industry is further modernising its legal toolbox and operational framework.
Being the largest investment fund centre in Europe is a privilege. This enviable position comes, however, with responsibility as well.
Thanks to years of timely and forward-looking planning and swift actions to evolving industry trends, Luxembourg became the largest global distribution centre for investment funds, with its products offered in more than 70 countries worldwide.
While the seasoned expertise in fund management and the fundamental strengths that characterise the attractiveness and international success of the Luxembourg fund industry remain intact, there is no room for complacency if Luxembourg wants to retain its leading position. The fable of the tortoise and the hare teaches us what happens when overconfidence gains control and obscures agility and adaptability.
Are Luxembourg’s virtues enough?
Recent statistics show that the Luxembourg finance industry accounts for over 65,000 people. Some 3,400 investment funds, more than 120 banks, 143 central administrations, a growing and vibrant fintech community, a stock exchange committed to sustainable finance, a solid yet approachable regulator – CSSF – and many players involved in auditing and consulting complete the picture. The ongoing development of the legal toolbox has been pivotal for our industry to flourish.
However, the ecosystem in Luxembourg is not immune to the economic turbulence and geopolitical tensions affecting the region. Almost one year ago, the fund and asset management industry entered a period of uncertainty with financial market volatility, rising interest rates, high inflation and fears of recession triggered by the war in Ukraine. This has resulted in a decline in assets, largely due to the negative effects of the financial markets. In this volatile economic environment, pressure on costs and margins will likely prevail.
In addition, we observe challenges inherent to the industry. The search for new talents, the ambition to further increase diversity beyond gender and the growing demand of market players to balance business goals and purpose are just a few of the subject matters ranking high on the agenda.
Next to digitalisation, new demands for investment products and new approaches to distribution models, a particular focus is paid to sustainable investments and private assets – segments in which we enjoy a leading position in Europe. Regarding the latter, addressing the need for the democratisation of private assets has become inevitable and vital for the future growth of our industry. Over recent years, Luxembourg has witnessed a substantial rise in private assets. Real estate funds grew by 26%, private equity funds by 30%, debt funds by 45%.
Unavoidably, these trends come with regulatory adjustments to bring more transparency, investor protection, accountability and reporting rules, among others. In turn, it complicates the already challenging regulatory environment that industry players must comply with.
Although retaining a leading position and remaining relevant are demanding objectives, Luxembourg’s funds industry is embracing this challenge by further modernising its legal toolbox and operational framework.
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