Luxemburg: A success story as a fund centre
The Luxembourg financial centre is the largest European fund domicile; investment funds domiciled in Luxembourg are distributed in 80 countries. Luxembourg's capital market infrastructure makes the country an ideal location for companies of all sizes to conduct their European and global activities. As a pioneer in the implementation of European fund regulation, Luxembourg has played a crucial role in opening up markets for international fund distribution and providing European retail and institutional clients with access to international investments.
The Grand Duchy offers extensive international expertise and a broad range of investment instruments. The world's leading asset managers have chosen Luxembourg as the centre for their international activities and fund ranges.
Innovative fund sector
A fund domicile must fundamentally fulfil the following aspects: Excellent reputation, guarantee of political stability, transparency, infrastructure, expertise and necessary capacities for the structure development and operation of collective investment schemes. Based on this, the domicile selection for an investment strategy in the form of a collective investment scheme, taking into account the targeted investors and target markets, focuses on the following issues: the flexibility in the design of the investment idea as a financial product, the know-how and quality of the service providers necessary for the operation of a collective investment scheme, the acceptance by investors, and last but not least, the duration of the approval process by the supervisory authority. Tax aspects are equally important.
Fund assets under management in Luxembourg have only known one direction in recent years: upwards. An important milestone was the entry into force of the European Investment Directive in 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities - UCITS for short. Luxembourg was the first member state to transpose this directive into national law as early as 1988.
Driven by a steady demand, the fund industry has developed into a professional and powerful industry over the past decades. Since the authorisation of the first Fund Management Company (FMC) and the launch of the first collective investment schemes, Luxembourg has consistently demonstrated its agility and innovation in the fund sector. Legal and regulatory frameworks are taken as a challenge to innovate and regulation is seen as a strategic discipline.
More than 30 years after the launch of UCITS, Luxembourg funds managed more than EUR 4 trillion in financial assets at the end of Q4 2022. EUR. In the case of alternative investment funds (AIFs), the figure is EUR 950 billion. For several years, the Grand Duchy has thus been the second most important fund location worldwide after the USA. On the other hand, in addition to the establishment of new companies, a consolidation of providers has continued to be observed in the market for FMCs over the last few years. This shows that Luxembourg remains an attractive domicile for the establishment and ongoing operation of an FMC - but also that FMCs need a critical size and a solid business model to remain viable.
Luxembourg offers extensive international expertise and a broad range of investment instruments.Wolfdieter Schnee Head of Fund Client & Investment Services
Development of supplier structure and approved products
Alternative asset classes have managed to grow, succeed and thus deliver on their promise of being adaptable and resilient in recent years. This automatically leads to an increased demand for such investments. The consequence of this demand is a noticeable increase in providers - but also in service providers such as advisors, auditors and management companies that specialise in these specific asset classes.
The international fund competence centre VP Fund Solutions offers all the services that make up the fund business and is a specialist in this field. The company is part of the international VP Bank Group and has set itself the goal of creating value for its clients and their investors through advice, the ongoing provision of services and the provision of know-how. For this reason, VP Fund Solutions has focused from the outset on asset classes or strategies in which clear added value can be created.
In line with general market developments, VP Fund Solutions has therefore successfully expanded and extended its offering in the area of alternative investments in recent years. In view of the strong and persistently high growth in illiquid forms of investment, private market investments as well as the demand for so-called "liquid alternatives", the focus on alternative investment strategies is being continued and thus implemented by means of AIFs and UCITS funds.
Challenging outlook for the years ahead
Further changes and consolidation in the market can be expected in the future. Regulatory requirements continue to increase sharply - this means that financial service providers must continuously develop their processes and, above all, support standard processes digitally. This is where there is great potential for the future of innovative providers - by solving their administrative processes digitally so that they have enough time for the core competence of personal advice. A consistent IT strategy as well as targeted digitalisation initiatives are therefore essential. The fact that the market is changing significantly with its increasing level of digitalisation offers great opportunities for fund service providers. The corresponding service providers operate with a platform mindset: this means they aim to implement correspondingly cost- and time-intensive solutions in order to offer them in a more small-scale manner.
Funds can therefore be seen as a valid and highly attractive option for outsourcing services. The establishment and administration of a fund in Luxembourg enables the transformation of previously fixed costs into variable costs and thus a reduction of overhead costs. By concentrating on the respective core competencies and using a flexible infrastructure, the future challenges can not only be managed efficiently, but rather used to one's own advantage. Funds thus offer a multitude of advantages - and customised solutions meet individual client needs.