European asset management is often seen as globally less competitive to its counterpart in the US. Fragmentation of the supposedly Common Market is one reason, and whereas regulation is recognised as crucial by everyone, it nonetheless acts as a pain point for many firms. Potentially, as Donald Trump sets about deregulating in the US, European firms could be further hindered by red tape.
Participants in the Funds Europe Luxembourg roundtable discussed competition in the industry, among other topics, recently, and it was noted how the European Union has recently intensified its focus on enhancing the competitiveness of its financial markets and market participants.
Industry leaders recognise both the strengths and weaknesses of the European framework, with Luxembourg playing a critical role in positioning asset managers for global success.
Jean-Marc Goy, chairperson of the Luxembourg Fund Industry Association (Alfi), welcomed the EU’s scrutiny of its rules and regulations.
“Alfi welcomes the current focus of the European Union on enhancing the competitiveness of our economy and our markets, as we feel this is a needed shift,” he said.
“In this context, we also very much welcome the announced objective to reduce the regulatory burden and simplify and streamline the regulatory requirements. We need to strike the right balance between ensuring investor protection while also allowing a proportionate and flexible regulatory environment that empowers markets and investors.
“We also need to consider what empowering investors means. This relates to the costs of their investment, but also and importantly, to the value they get.”
Luxembourg works for us
This emphasis on regulatory efficiency resonates across the industry, as firms seek to maintain investor confidence while fostering innovation and expansion. Luxembourg has long been a preferred destination for asset managers looking for a robust and reliable financial ecosystem.
Borno Janekovic, chief executive of Omphalos Fund, a pioneering AI-managed asset manager based in Luxembourg (and winner of Funds Europe’s Digital Transformation Award in 2024), sees Luxembourg from the point of view of a start-up with an innovative proposition. He said the Grand Duchy had delivered Omphalos with “a good structure” that leant credibility to the firm, whose customers are mostly outside of Europe.
“When we were looking for a base three years ago and considering where to launch the fund, Luxembourg was the main choice. So, yes, Luxembourg works for us,” he said.
Luxembourg’s regulatory clarity and investor-friendly policies have positioned the country as a bridge between capital markets, and European and global capital.
Bryan Astheimer, head of investment managers business at fund administrator SEI, underscored the scale of Luxembourg’s involvement in private assets, a burgeoning asset class that is as important to the country as it’s huge business in traditional, public assets.
He said SEI was “hyper-focused” on the private asset space because many of the firm’s clients specialise in private credit, infrastructure, debt, real estate, and real estate debt.
“From a practical standpoint, over the last 3 to 5 years, 60% of those private asset flows in Europe are going through some sort of Luxembourg structure. On top of that, those launches are not getting smaller; they are getting bigger every year. It’s a known infrastructure—investors understand the regulatory environment and know what to expect.”
Market fragmentation is a key obstacle to growth
Despite Luxembourg’s strengths, European asset management faces structural challenges. Market fragmentation, in particular, remains a significant hurdle.
Christophe Lavall, conducting officer at Riverside Europe, a private equity firm, highlighted the inconsistencies across EU markets.
“A major obstacle is market fragmentation within the EU, especially for retail,” he said. “In our case, for instance, you can still market to semi-professional investors in certain places like Germany, but in countries like France, it’s impossible on the retail side. This is an obstacle for Europe.”
Thomas Klein, group head of asset servicing and financial intermediaries at Quintet Private Bank, further elaborated on the regulatory and operational challenges that hinder seamless fund distribution across Europe.
“Europe and especially Luxembourg has done a lot to instil trust in its products with the directives that are in place,” he said. “Regulations are important as they build trust. But ease of access is also important, and Europe is not as strong in that area.
“European regulations – starting with KYC [know-your-customer] rules across every country – are very diverse. Taxation is likewise very diverse. When US clients come to me, for example, it’s difficult for them to understand. They want a product for distribution across Europe, but everything around the product is highly complex. We need to simplify and harmonise areas such as AML, KYC and taxation to ensure secure distribution across Europe with consistent rules.”
While challenges persist, Europe’s asset management industry is also benefiting from technological advancements and innovative financial instruments.
Diana Tisescu, client relationship director at fund administrator IQ-EQ, sees innovation as a strength but acknowledges it is also as challenge.
“We have three key things right: a strong regulatory framework, usage innovation, and sustainable finance,” she said. “Digital platforms are making it easier for asset managers to perform in Europe now.
“However, with this strong regulatory reputation also come challenges — it’s complex, and not everybody understands it. But that’s why Luxembourg shines. We have the expertise, the environment, and the ability to move fast enough to explain it.”
Tokenisation, digital asset management, and sustainable finance are expected to drive the next wave of competitiveness.
Chrystelle Veeckmans, Emea head of asset management at KPMG Luxembourg, outlined the extent of the Grand Duchy’s future ambitions.
“Luxembourg is really a hub for the asset management industry,” she told the roundtable. “Luxembourg administers 12% of global private assets, which is huge. For 2030, we want to become a hub for sustainable finance. Currently, 50% of sustainable bonds are listed in Luxembourg. We need to embrace the future of the asset management industry, including tokenisation and the retailisation of private assets, to maintain our competitive edge.”
The status quo is not possible
European asset management does not exist in a vacuum — it must compete with other global financial centres. The United States, in particular, is undergoing deregulation under President Donald Trump’s influence, which could impact Europe’s relative attractiveness.
Chrystelle Veeckmans said: “The status quo is not possible: the main obstacle we see is regulatory burden. The Luxembourg prime minister also recognised that we should not overregulate or centralise everything, because excessive regulation can kill innovation and comes with too much compliance cost, reducing our competitiveness.”
Mike Delano, asset and wealth management leader at PwC Luxembourg, argued that the European asset management industry was incomparable with the US. US funds were much more simple to run, he said, with just two or three share classes and all denominated in US dollars. Further, they are sold to a homogenous market of 350 million people with a unified tax structure.
“In contrast, Europe distributes to around 80 countries, with vastly different regulations and taxation systems. This complexity makes it difficult to scale funds in the same way.”
Europe’s asset management industry has many strengths, including regulatory credibility, innovative financial solutions, and a strong presence in private assets.
However, significant challenges remain, particularly market fragmentation and regulatory complexity. Luxembourg has positioned itself as a key hub, leveraging its stability and expertise to attract global investors. The industry must now focus on harmonisation, digital transformation, and sustainable finance to maintain its global competitiveness in the years ahead.
Reviving the CMU
The discussion then turned to considering the European Union’s long-awaited Capital Markets Union (CMU) which, it is commonly thought, could attract more listings, more investors and more capital. It could also streamline operations for market actors, including asset managers who face shrinking margins in the years ahead and need to increase cost-saving efficiencies in their businesses.
Having largely stalled in recent years, the CMU last year had new life breathed into it by Mario Draghi, the former European Central Bank governor. How has this been received in Luxembourg?
The CMU has been a long-term objective for the European Union, aiming to integrate and strengthen financial markets across member states. However, progress has been slow, with persistent regulatory fragmentation and operational hurdles.
Jean-Marc Goy, of Alfi, acknowledged the renewed recent momentum towards the project. “We really welcome the current focus of the European Union on enhancing competitiveness, reducing the regulatory burden, and simplifying and streamlining the rules,” he said.
Various recent reports, including those by Draghi and Enrico Letta, a former prime minister of Italy, emphasise the importance of reducing fragmentation and simplifying regulations. Indeed, the European Commission itself has also identified regulatory and administrative streamlining as a key enabler for a more competitive EU. This includes through the ‘Omnibus proposal – a legislative package aimed at simplifying and streamlining various EU laws, particularly those related to sustainability reporting.
“A proposed 25% reduction in reporting obligations and an additional 50% reduction for small and medium-sized enterprises would be a significant step forward,” said Goy. The Omnibus proposal, [which was] expected by the end of February, will introduce simplifications in areas such as sustainability reporting, due diligence, and taxonomy, with more to follow in the coming months.”
Tax incentives for Europe investment
As a leading financial hub, Luxembourg stands to benefit significantly if CMU achieves its goals, with Diana Tisescu of IQ-EQ seeing potential in streamlining cross-border fund distribution.
“CMU is a great idea, especially for Luxembourg focusing on cross-border funds,” she said. “If we can streamline and create a format applicable across locations, that would be a huge advantage. But in practice, it remains a challenge.”
Chrystelle Veeckmans of KPMG underscored the need for tax incentives to encourage investment within Europe.
“One thing that could be useful for Europe’s competitiveness is to have more tax incentives to invest in European fintech,” she said. “The big strength of Europe is the amount of savings, but they are not being invested enough. Instead, they often flow into the US economy.”
But Bryan Astheimer of SEI noted that the current system is having the opposite effect. “Our largest European clients in the private asset space are looking to enter more retail distribution, but it’s a challenge locally,” he said. “Many are returning to North America, setting up management companies there, launching BDCs, interval funds, and ETFs. This results in a loss of capital flows for Europe.”
A dream that will never happen
One of the persistent challenges facing the CMU – and largely the point of the CMU in the first place – is market fragmentation and the complexity of regulations across different jurisdictions. Thomas Klein of Quintet Private Bank expressed scepticism about full harmonisation.
“Harmonisation is a tremendous challenge,” he said. “Competition is healthy to some extent, and fintech may help simplify complexities surrounding taxation, tax reclaim, and tax relief. These issues have become so cumbersome, however, that many banks are considering stepping away from the process entirely.”
Tisescu echoed this concern. “While the idea of CMU is great, its practical implementation is daunting,” she told her fellow panellists.
“Regulatory discrepancies make it difficult to create a unified system that applies across all jurisdictions.”
Mike Delano at PwC Luxembourg, meanwhile, raised concerns about a potential shift towards a central regulator under Esma, the EU ‘super’ financial regulator.
“There is an aspiration for Esma to function like the SEC in the US, but that approach may not work well in Europe due to the diversity of financial markets,” he warned. “It could lead to additional layers of regulation, rather than simplification.”
Despite the obstacles, progress is being made with Thomas Klein pointing to initiatives like the Euro CTP.
“The Euro CTP initiative, involving 14 stock exchanges including Luxembourg, aims to establish a unified trading platform for financial products across Europe,” he said. “This is a promising step towards reducing fragmentation.”
Similarly, Bryan Astheimer at SEI noted the challenges of moving from localised rule-setting to a more federalised approach for firms working under multiple financial regulators.
“We deal with the Central Bank of Ireland, the CSSF in Luxembourg, and the FCA in the UK,” he said. “Moving towards a US-style federal regulatory system would require a significant shift in power dynamics, which many regulators and governments would resist.”
Regulators and industry leaders recognise that cooperation will be key to the success of CMU with Chrystelle Veeckmans emphasising the importance of regulatory review.
“We need to review the upcoming regulations carefully,” she said. “Many fear excessive administrative burdens that could stifle innovation. Sustainable finance regulations, for example, should focus on directing funds towards climate transition rather than imposing unnecessary compliance costs.”
Mike Delano suggested implementing cost-benefit analyses for new regulations, similar to the SEC’s process in the US.
“Every new regulation in the US undergoes a cost-benefit analysis before implementation,” he said. “Europe could benefit from adopting a similar approach to ensure new policies are practical and effective.”
Jean-Marc Goy, meanwhile, reinforced the need for ongoing dialogue between regulators and industry representatives.
“Luxembourg has forums where industry representatives provide feedback to regulators: a practice not commonly seen everywhere else,” he said. “The European Commission has signalled its intent to simplify regulations, and industry stakeholders must seize this opportunity to propose actionable reforms.”
The CMU presents both opportunities and challenges for European asset management. While regulatory harmonisation remains an elusive goal, Luxembourg stands to gain from the CMU’s focus on streamlining cross-border investments and reducing regulatory burdens.
However, industry leaders stress that its success will depend on effective implementation, stakeholder collaboration, and a pragmatic approach to regulation. As discussions continue, the asset management industry remains cautiously optimistic that CMU can deliver tangible benefits in the years to come.
PARTICIPANTS:
- Bryan Astheimer, head of investment managers business, SEI
- Mike Delano, asset and wealth management leader, PwC Luxembourg
- Jean-Marc Goy, chairperson of the Association of the Luxembourg Fund Industry (ALFI)
- Borno Janekovic, chief executive of Omphalos Fund
- Thomas Klein, group head of asset servicing & financial intermediaries, Quintet Private Bank
- Christophe Lavall, conducting officer, Riverside Europe
- Diana Tisescu, client relationship director, IQ-EQ
- Chrystelle Veeckmans, Emea head of asset management, KPMG Luxembourg
The secon report from the RoundTable may be viewed here.
