Last week I attended the annual ALFI (Association of the Luxembourg Fund Industry) Global Distribution Conference in Luxembourg. It is one of the industry’s flagship events with plenty of networking opportunities and a high quality conference programme covering distribution, regulatory updates, new products and tax implications.
This year the Association celebrates 25 years of existence and over the past quarter of a century, Luxembourg has risen to be the leading fund centre for UCITS processing. Brussels actually delivered the initial Undertakings for Collective Investment in Transferable Securities (UCITS) directive in 1985, but it was three years later when Luxembourg became the first country to transpose the UCITS Directive into national law.
This opened the way for a harmonised funds regime in Europe and Luxembourg has become the country most identified with the administration and distribution of UCITS funds. Undoubtedly the successful development of these funds in Luxembourg would not have been achieved without a powerful national association devoted to furthering the interests of those involved in the industry.
By the end of 2012, the development of UCITS as a brand and subsequent success of Luxembourg had seen net assets under management rise from around €50 billion to €2,383 billion. This impressive figure positions Luxembourg as the largest investment fund centre in Europe, and the second largest investment fund centre in the world, after the U.S.
Whilst the history of ALFI and UCITS is entwined, Luxembourg is also the second biggest domicile for non-UCITS funds in Europe. Ambitions to develop the alternative sector now see approximately 20 per cent of assets managed by alternative fund managers.
Despite the obvious successes, it hasn’t been all plain sailing. Luxembourg has not established itself as a major front-office centre like London. Luxembourg’s expertise is in the middle and back office operations of fund services. Its rival Ireland has also created a niche among U.S. managers who, when they look to branch out internationally, often use Ireland as a key fund domicile in Europe.
Over the next decade the Alternative Investment Fund Managers Directive (AIFMD) regulation represents a further opportunity for Luxembourg. AIFMD enshrines alternative investments into a body of rules that, like UCITS, predominately focuses on how these funds are administered and distributed. This brings the regulation of Alternative funds much more into line with that of their long fund UCITS counterparts.
A well-diversified fund centre appears to be the aim with responsible investment funds also a sector in which efforts are being focused. Further afield, early discussions have begun in Asia around mutual recognition and reciprocal registration of UCITS. South America might well follow.
ALFI and UCITS will continue to play a pivotal role in Luxembourg’s success story and I look forward to attending further conferences and road shows for a few more years to come!