Luxembourg leads European domiciles for private capital, while Ireland is ahead for ETFs, and the UK’s LTAF is opening new markets. That was the assessment of where to launch funds in Europe at a CIO debate at the FundForum conference in Monaco today.
Chairing the event, Financial Times journalist Yuri Bender suggested that post-Brexit, investment houses can choose to sell their funds wherever they choose, be it London, Dublin, Luxembourg or Singapore.
Challenged as to which is the most important of these domiciles, Clive Bellows, president Europe, Middle East, Africa, Northern Trust said: “In many ways the answer is all of the above. There’s no doubt that over the last few years, Luxembourg from a European perspective, has become the go-to domicile for private capital products, whereas Ireland continues to be the powerhouse behind ETFs.
“I’m not as negative on the UK as you suggest. We’ve actually seen net inflows into the funds that we administer in the UK, where we have close to £30 billion this year. And the LTAF product has started to come into play in the UK. We are live now with six LTAFs that have attracted significant inflows. Whether Guernsey, Ireland, London or whatever, you have got to choose what’s best for the type of product.”
The debate swung to how difficult predicting the future has proved in recent years, with investment experts caught on the hop on numerous occasions, leaving them chasing events rather than anticipating them.
Martin Horne, co-head global investments, Barings said: “Everyone in this room knows that the recommendations you made to your clients in 2024 might not look as relevant now. A year ago, we weren’t looking at a generic overweight to the US as such a generic risk to asset allocation. And now we are. And some of this is politics.”
Concern over US equity valuations was a key theme through the session. In a wide-ranging debate that extended to asset allocation, speakers debated whether the 60/40 modern portfolio theory model, developed by Harry Markowitz, had died with him in 2023.
Peter Branner, CIO, Aberdeen Investments said: “Unfortunately the 60/40 problem started before Markowitz died. Probably the most important issue is that US stocks in particular have not given or will not give in the future, the return that is required, with the current forward-looking PE levels.
“The second problem is diversification. We have seen diversification effects breaking down with inflation shocks. When you have inflation shocks, you will see bonds perform badly. Unfortunately, you will also see equities performing badly.
“So these two things together make it difficult for 60/40 to be a starting point. So what to do? One thing is to look beyond traditional US equity investors. Allocations away from the US, in particular the magnificent seven, towards private assets. And increasingly deals in Europe. So we are preparing our clients for this trend.”
Challenged as to why few people at the conference were talking about ESG, Sonja Laud, CIO L&G Asset Management said: “Climate change is a system-wide problem globally that requires a system wide solution globally. It requires a level of collaboration that we have not seen in the past. And clearly where we are today, we are further away than we’ve ever been. So yes, we do have a responsibility towards our clients to focus on the inclusion of these factors. And of course, there will be positive externalities coming out of this.”
