When the Luxembourg fund industry reached a record €4 trillion in assets last September, it marked another celebratory moment in the short lifespan of the UCITS, a type of EU-based mutual fund that was initially only intended for European retail investors when it was created 30 years ago. That the fund industry continues to reach new heights is largely due to UCITS, says the Association of the Luxembourg Fund Industry (ALFI), with support also from alternative funds.
“UCITS is really one of Europe’s greatest success stories. It has become a global brand,” Denise Voss, Chairwoman of ALFI, observes. “Luxembourg UCITS has become a global brand as well, given our large share of the UCITS market.” As the world’s second largest investment fund center after the US, Luxembourg, as of June 2017, makes up the largest share of all inflows into UCITS funds in Europe, at approximately 36%, data from the European Fund and Asset Management Association shows.
Build up in alternative funds, particularly in private equity and real estate, are also expected to continue due to growing institutional investor demand. “The Alternative Investment Fund Managers Directive (an EU regulation) has opened up new opportunities, and the largest US fund promoters are now here,” says Pit Reckinger, a partner at Elvinger Hoss Prussen, a local law firm.
Luxembourg has drawn global appeal to its funding industry due to its relatively small size, which forces financial players to look across its borders. “A thread throughout the entire Luxembourg financial industry is its international dimension,” says Nicolas Mackel, CEO of Luxembourg for Finance, the nation’s development agency for the financial sector. “Whether we are talking about funds or about client and wealth management, what is common to all of this is the fact that all clients and operations have a multinational or cross border dimension,” observes Mackel.
“There are large differences between countries in terms of national practices and regulations,” he continues, “but in Luxembourg you find people who know at the same time the Spanish, Swedish and Dutch market. “This is what is very unique about Luxembourg,” he asserts.