Q: The private funds industry is growing rapidly in Luxembourg. What are the key drivers behind that growth?
From a capital-raising perspective, three factors consistently stand out.
First, access to European investors through a mature cross-border distribution framework. Second, structures that support the continued expansion of private wealth participation. And third, Luxembourg’s long-standing reputation for regulatory credibility, underpinned by strong AML standards, experienced regulators and a highly developed funds ecosystem.
Together, these factors make Luxembourg a natural gateway for managers looking to raise capital in Europe.
Q: What are the main operational challenges you see managers navigating in Luxembourg?
The immediate assumption is often regulation, but the real challenge is managing complexity at scale.
The same factors that make Luxembourg attractive, cross-border distribution, global investor bases and sophisticated fund structures, also increase the volume and complexity of onboarding, compliance and investor servicing.
US managers often feel this more acutely as they adapt existing operating models to Europe’s more stringent, multi-jurisdictional regulatory framework.
Q: Are increasingly complex fund structures adding to the challenge?
Absolutely. Evergreen funds, feeder vehicles, continuation funds and co-investment programmes are becoming standard tools. As a result, managers increasingly need operating models designed for continuous capital activity, not episodic fundraises. Retailisation into private wealth channels is also increasing pressure on both operational capacity and investor experience.
Q: What about regulation?
Regulation is clearly moving towards higher expectations and greater scrutiny across the board.
The arrival of AMLA is a good example. While greater consistency in AML supervision across Europe is broadly welcomed, it also raises the regulatory compliance bar for managers operating across multiple jurisdictions.
Alongside this, there is a shift towards a more risk-based approach to compliance. The focus is moving from evidencing that processes exist to demonstrating that they are effective, proportionate and grounded in a clear understanding of risk.
The cost of compliance is rising alongside the cost of getting it wrong. Recent PwC research found that around one-third of financial institutions expect AML compliance costs to increase by 10% to 30% as firms prepare for the EU AML Package and AMLA.
Q: Where do you see the biggest operational inefficiencies today?
Many firms still treat onboarding, ongoing compliance, tax reporting, capital calls and distributions as separate workflows. In practice, this creates friction throughout the fund lifecycle, impacting fundraising efficiency, operating cost and the investor experience.
Even where investor appetite is secured early, fragmented onboarding slows the transition from commitment to capital deployment. We regularly see investors providing largely the same information multiple times during onboarding alone, once for subscription, again for KYC and again for tax documentation, often to different providers supporting the same fund. The same duplication appears later in the lifecycle. Something as simple as obtaining up-to-date tax information can delay distributions investors are expecting to receive.
The common thread is that the same investor data underpins every process, yet legacy operating models still collect, review and verify it repeatedly across systems, vehicles and service providers instead of treating it as a reusable asset across the fund lifecycle.
Much of the operational burden is therefore not driven by regulation, but by repeating the same activities at scale.
Q: What’s starting to change in how firms are approaching this?
As one client put it, you cannot outspend regulation, and increasingly you cannot outspend complexity either. The winners won’t be those simply hiring bigger compliance teams or layering on more technology – they’ll be the ones that don’t need to.
Technology and AI can help drive efficiency, particularly in areas like document processing, screening and monitoring, however unlocking their full potential depends on connected, high-quality data. If information remains fragmented across systems, automation only speeds up the individual stages rather than addressing the underlying duplication of data and effort.
The real step change thus is not just automation, but consolidation: collecting and organising data in a way that allows the whole investor lifecycle to run on a single source of truth.
Q: How does Sonata One help?
Our “one and done” investor passport does just that – it creates a verified, reusable investor identity that acts as single sign off across the fund lifecycle. It is used not only for onboarding and KYC/AML, but across tax reporting, ongoing compliance, capital calls and distributions, ensuring the same trusted data flows consistently through every stage of the investor journey and across vehicles, jurisdictions and service providers.
With more than 53,000 investors across 6,500 funds and over 180 managers already connected to the network, it is rapidly becoming an industry standard for onboarding and compliance infrastructure, supporting faster capital raising and a better investor experience across the full fund lifecycle.
